<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 1997
REGISTRATION NO. 333-22811
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ON'VILLAGE COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 7375/7379 95-4556314
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
26135 MUREAU ROAD
SUITE 100
CALABASAS, CALIFORNIA 91302
TEL. (818) 871-2800
FAX (818) 871-2828
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JACK B. TRACHT
CHIEF EXECUTIVE OFFICER
ON'VILLAGE COMMUNICATIONS, INC.
26135 MUREAU ROAD
SUITE 100
CALABASAS, CALIFORNIA 91302
TEL. (818) 871-2800
FAX (818) 871-2828
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SANFORD J. HILLSBERG, ESQ. SHELDON MISHER, ESQ.
LAWRENCE P. SCHNAPP, ESQ. ALISON S. NEWMAN, ESQ.
TROY & GOULD PROFESSIONAL CORPORATION BACHNER, TALLY, POLEVOY & MISHER LLP
1801 CENTURY PARK EAST, SUITE 1600 380 MADISON AVENUE
LOS ANGELES, CALIFORNIA 90067 NEW YORK, NEW YORK 10017
TEL. (310) 553-4441 TEL. (212) 687-7000
FAX. (310) 201-4746 FAX. (212) 682-5729
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one share of
Class A Common Stock and one
Warrant............................. 2,185,000 Units(2) $5.00 $10,925,000 $3,312
- ------------------------------------------------------------------------------------------------------------------
Class A Common Stock(3)............... 2,185,000 shares(4) $6.50 $14,202,500 $4,305
- ------------------------------------------------------------------------------------------------------------------
Unit Purchase Option(5)............... 190,000 units $.001 $190 --
- ------------------------------------------------------------------------------------------------------------------
units, each consisting of one share of
Class A Common Stock and one
Warrant(6).......................... 190,000 units $7.50 $1,425,000 $432
- ------------------------------------------------------------------------------------------------------------------
Class A Common Stock(7)............... 190,000 units $6.50 $1,235,000 $375
- ------------------------------------------------------------------------------------------------------------------
Total............................... $8,424(8)
==================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 285,000 Units subject to the Underwriter's over-allotment option.
(3) Issuable upon exercise of the Warrants.
(4) Assumes the Underwriter's over-allotment option is exercised in full.
(5) To be issued to the Underwriter.
(6) Issuable upon exercise of the Unit Purchase Option.
(7) Issuable upon exercise of the Warrants underlying the Unit Purchase Option.
(8) Previously paid.
------------------------
PURSUANT TO RULE 416, THERE ARE ALSO BEING REGISTERED SUCH ADDITIONAL
SHARES AND WARRANTS AS MAY BECOME
ISSUABLE PURSUANT TO ANTI-DILUTION PROVISIONS UPON THE EXERCISE OF THE WARRANTS
AND THE UNIT PURCHASE OPTION.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[LOGO]
SUBJECT TO COMPLETION, DATED AUGUST 11, 1997
PROSPECTUS
1,900,000 UNITS
ON'VILLAGE COMMUNICATIONS, INC.
CONSISTING OF 1,900,000 SHARES OF CLASS A COMMON STOCK AND
1,900,000 REDEEMABLE WARRANTS
Each unit ("Unit") offered by On'Village Communications, Inc. (the
"Company"), a development stage company, consists of one share of Class A Common
Stock (the "Class A Common Stock") and one redeemable Warrant (the "Warrants").
The components of the Units will be transferable separately immediately upon
issuance. Each Warrant entitles the holder to purchase one share of Class A
Common Stock at an exercise price of $6.50, subject to adjustment, through the
fifth anniversary of the date of this Prospectus. The Warrants are subject to
redemption commencing one year from the date of this Prospectus, by the Company
at $.05 per Warrant on 30 days' written notice if the closing bid price of the
Class A Common Stock for 30 consecutive trading days ending within 15 days of
the notice of redemption of the Warrants averages in excess of $9.10 per share
(subject to adjustment). See "Description of Securities."
Prior to this offering (the "Offering") there has been no public market for
the Units, the Class A Common Stock or the Warrants, and there can be no
assurance that such a market will develop after the completion of the Offering.
See "Underwriting" for a discussion of factors considered in determining the
initial public offering price. The Company has filed an application to have the
Units, the Class A Common Stock and the Warrants listed on the Nasdaq SmallCap
Market. It is anticipated that the initial public offering price will be $5.00
per Unit. FOR INFORMATION CONCERNING A SECURITIES AND EXCHANGE COMMISSION
INVESTIGATION RELATING TO THE UNDERWRITER, SEE "RISK FACTORS" AND
"UNDERWRITING."
The Company's Class A Common Stock and Class B Common Stock (collectively,
the "Common Stock") are essentially identical in all respects except that the
Class B Common Stock has five votes per share and the Class A Common Stock has
one vote per share. The Class B Common Stock is convertible into Class A Common
Stock on a share for share basis. Immediately following the consummation of the
Offering, the executive officers and directors of the Company will possess
approximately 67% of the combined voting power in respect of matters submitted
for the vote of all holders and, therefore, will be able to elect a majority of
the Company's directors and control the Company. See "Principal Shareholders"
and "Description of Securities."
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
IMMEDIATE DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
================================================================================================================
UNDERWRITING DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------------------
Per Unit................................ $ $ $
- ----------------------------------------------------------------------------------------------------------------
Total(3)................................ $ $ $
================================================================================================================
</TABLE>
(1) Does not reflect additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $285,000 or $0.15
per Unit ($327,750 if the over-allotment option is exercised in full); and
(ii) an option to purchase up to 190,000 Units at an exercise price of $7.50
per Unit, exercisable over a period of two years commencing three years from
the date of this Prospectus (the "Unit Purchase Option"). In addition, the
Company has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of the Offering of $785,000 ($827,750 if
the over-allotment is exercised) payable by the Company, including the
Underwriter's non-accountable expense allowance.
(3) The Company has granted to the Underwriter a 30-day option to purchase up to
285,000 additional Units on the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If the over-allotment option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be increased to $ ,
$ and $ , respectively. See "Underwriting."
The Units are offered by the Underwriter on a "firm commitment" basis when,
as and if delivered to and accepted by the Underwriter, and subject to
withdrawal or cancellation of the offer without notice and to their right to
reject orders in whole or in part and to certain other conditions. It is
expected that delivery of the certificates representing the Class A Common Stock
and Warrants comprising the Units will be made at the offices of D.H. Blair
Investment Banking Corp., New York, New York, on or about , 1997.
------------------------
D.H. BLAIR INVESTMENT BANKING CORP.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 4
[PHOTOGRAPHS]
ON'VILLAGE
YELLOW PAGES+
OUR WORLD VIEW
<TABLE>
<S> <C>
National Local
- - Business Listings Nationwide - Resale arrangements with Independent Yellow Page
publishers nationwide
[Photo of page from [Photo of page from On'Village Website]
On'Village Website]
</TABLE>
ON'VILLAGE COMMUNICATIONS INC
www.onvillage.com. - www.onzine.com. - www.ontour.net - www.onpages.com
info @ onvillage.com
<TABLE>
<S> <C>
[photo of an On'Village street sign and an American flag] [Photo of the NY skyline with "On'Village" written
into sky]
[Photo of several houses with "On'Village" written across] [Photo of a sailboat with "On'Village" written on the
sail.]
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE UNITS, COMMON
STOCK AND/OR WARRANTS. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF UNITS,
SHARES OF COMMON STOCK AND/OR WARRANTS FOLLOWING THE PRICING OF THE OFFERING TO
COVER A SYNDICATE SHORT POSITION IN THE UNITS, COMMON STOCK AND/OR WARRANTS OR
FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE UNITS, COMMON STOCK AND/OR
WARRANTS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
The Company is not currently a reporting company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Upon completion of the
Offering, the Company intends to register as such and to furnish its
securityholders with annual reports containing audited financial statements and
such interim unaudited reports as it deems appropriate.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information and financial data (including the
financial statements and the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise noted, all information in this Prospectus (a)
assumes no exercise of (i) the Underwriter's over-allotment option, (ii) the
Warrants, (iii) the Underwriter's Unit Purchase Option, (iv) the Public Bridge
Warrants (defined below), or (v) options granted or available for grant under
the Company's 1997 Stock Option Plan (the "Option Plan") and (b) gives effect to
the conversion, which will occur upon the closing of the Offering, of the
1,200,000 bridge warrants (the "Bridge Warrants") issued in connection with the
Company's private placement completed in January 1997 (the "Bridge Financing")
into 1,200,000 warrants with terms substantially identical to the Warrants
offered hereby (the "Public Bridge Warrants"). All share, per share and other
information contained in this Prospectus has been adjusted to reflect the
recapitalization effected in October 1996 and January 1997. See "-- The
Recapitalization," "Capitalization," "Management -- Stock Option Plan" and
"Description of Securities."
THE COMPANY
On'Village Communications, Inc. (the "Company") is a development stage
company engaged in the development, publishing and marketing of World Wide
Web-based services designed to help users access information on the Internet,
while at the same time providing advertisers with an efficient and innovative
means of reaching targeted audiences. The Company's primary service offering is
"On'Village Yellow Pages," an on-line national yellow page directory service
which users can currently access through the Company's Web address,
"http://www.onvillage.com." This service, offered free of charge to the user,
enables the user to access the Company's licensed database of over 15 million
business listings nationwide and to perform a search of desired listings
presently by category, business name and business location. At the same time,
On'Village Yellow Pages offers businesses the ability to advertise on the
Internet in what management believes is a targeted, cost-effective and
interactive manner. To better reach their targeted audiences, businesses are
given the opportunity by the Company to purchase enhanced advertising services
that supplement the basic yellow page listing. These enhanced services include
priority listings, listings of the Company's other sites, graphics and logo
advertisements, enhanced textual advertisements, including detailed display
banners, listings of businesses by additional categories and cities, and
additional URL and e-mail links.
The Company believes that the Internet represents an important new and
growing medium for advertisers to reach consumers. The Company's objective is to
position itself to take advantage of this growth by serving the needs of its
advertising customers. The Company's strategy is to develop a critical mass of
advertising customers who purchase enhanced advertisements on the On'Village
Yellow Pages. The Company believes that the most effective way to achieve this
base of advertisers is through joint marketing and sales arrangements with
independent local yellow page publishers ("Independent Publishers"), who
contract with the Company to directly market and resell the Company's services
to the Individual Publisher's existing base of customers. The Company believes
there are an estimated 350 Independent Publishers in the United States. As of
August 1, 1997, the Company had entered into arrangements with 70 Independent
Publishers. The Company plans to offer enhanced advertising services, both
indirectly through the Independent Publishers and directly to customers, and to
offer customers the opportunity to advertise on the Company's ancillary
services.
To distinguish itself from other on-line yellow page services, the Company
provides and is in the process of refining several additional services developed
by the Company. These offerings include "My Place," a membership service that
offers users various personalized services, products and promotions, and
"On'Zine," an interactive service providing users the ability to communicate and
immediately access relevant and related content and information on designated
third-party Websites. These sites are organized by category and have been
selected, reviewed and rated by the Company. The Company also recently
introduced "OnTour," a compilation of information regarding select U.S.
destinations, currently comprised of information regarding five national parks
and several other tourist destinations. The Company believes that these
additional services, in addition to attracting users, will enable advertisers to
reach a more targeted audience. In the future, the
3
<PAGE> 6
Company may also attempt to generate revenue through the sale of customized
Websites and, eventually, the hosting of business-to-consumer and
business-to-business electronic commerce on the Internet.
The Company believes that distributing and marketing its services widely is
a key to successfully growing its base of users as well as enhancing its
marketability to its advertising customers. The Company was able to gain access
to a large audience through its agreement with Netscape Communications
Corporation ("Netscape"), which provides that the Company's yellow page
directory is listed as a yellow page service on Netscape's Web page, accessible
via the "Net Search" button, pursuant to the Netscape Distinguished Provider
Program. Although the agreement with Netscape provides for the Company's
inclusion in the program through April 1998, Netscape has the option, upon 90
days' notice, to terminate the agreement at any time. If Netscape were to choose
to terminate the agreement, the Company would likely suffer a significant
decrease in the traffic to its sites, thereby decreasing the marketability of
the Company's services. Therefore, in order to maintain and/or diversify its
channels of distribution, the Company is also currently exploring the creation
of alternate arrangements with Website providers, browser providers and other
distribution channels, to replace and/or supplement its arrangement with
Netscape.
As of the date of this Prospectus, the Company has generated extremely
limited revenue. The Company has incurred operating losses to date and expects
that losses will continue for the foreseeable future. No assurance can be given
that the Company's strategy will be successful or will ever lead to the
generation of significant revenue or operating income. See "Risk Factors."
The principal executive offices of the Company are located at 26135 Mureau
Road, Suite 100, Calabasas, California 91302. The Company's telephone number is
(818) 871-2800.
THE RECAPITALIZATION
The Company was organized as a California corporation in November 1995
under the name "e.ventures, Inc." In October 1996, the Company amended its
Articles of Incorporation to provide for a 6.94975-for-1 split of the then
outstanding shares of its common stock. The Company amended its Articles of
Incorporation again in January 1997 to change the Company's name from
"e.ventures, Inc." to "On'Village Communications, Inc.", to reclassify its
common stock into two classes, consisting of 18,800,000 authorized shares of
Class A Common Stock and 1,400,000 authorized shares of Class B Common Stock and
to convert each then outstanding share of the Company's common stock into one
share of Class B Common Stock. The Class A Common Stock and Class B Common Stock
are essentially identical in all respects except that the Class B Common Stock
has five votes per share and the Class A Common Stock has one vote per share.
See "Description of Securities." The foregoing changes are herein collectively
referred to as the "Recapitalization." All share, per share and other
information contained in this Prospectus has been adjusted to reflect the
Recapitalization.
THE OFFERING
Securities Offered......1,900,000 Units, each Unit consisting of one share of
Class A Common Stock and one Warrant. Each Warrant
entitles the holder to purchase one share of Class A
Common Stock at an exercise price of $6.50, subject to
adjustment, at any time until the fifth anniversary of
the date of this Prospectus. The Warrants are subject to
redemption in certain circumstances on 30 days' written
notice. See "Description of Securities."
Common Stock Outstanding
Before the
Offering(1)...........Class A Common Stock.........................0 shares(2)
Class B Common Stock.................1,199,996 shares(3)
4
<PAGE> 7
Common Stock Outstanding
After the
Offering(1)...........Class A Common Stock.................1,900,000 shares(4)
Class B Common Stock.................1,199,996 shares(3)
Use of Proceeds.........The net proceeds of the Offering will be used for the
repayment of $2,000,000 principal amount of 10%
promissory notes (the "Bridge Notes") issued in the
Bridge Financing, the repayment of $622,000 principal
amount of 10% promissory notes (the "Blair Notes")
issued to the Underwriter and a corporation owned by the
wife of the sole shareholder of the Underwriter, selling
expenses, advertising, promotion and marketing
activities, research and development, license fees and
working capital purposes. See "Use of Proceeds."
Risk Factors............The Offering involves a high degree of risk and
immediate substantial dilution. See "Risk Factors" and
"Dilution."
Proposed Nasdaq
Symbols(5):
Units.................ONVCU
Class A
Common Stock..........ONVCA
Warrants...............ONVCW
- ------------------
(1) For a description of the voting and other rights of the Class A Common Stock
and Class B Common Stock, see "Description of Securities -- Common Stock."
(2) Does not include (i) 300,000 shares of Class A Common Stock reserved for
issuance under the Option Plan, under which options to purchase 30,000
shares have been granted to date and (ii) 1,200,000 shares of Class A Common
Stock issuable upon exercise of the Bridge Warrants. See "Capitalization"
and "Management -- Stock Option Plan."
(3) Includes 800,000 shares of Class B Common Stock (the "Escrow Shares") which
have been deposited into escrow by the holders thereof. The Escrow Shares
are subject to cancellation and will be contributed to the capital of the
Company if the Company does not attain certain earnings levels or the market
price of the Company's Class A Common Stock does not achieve certain levels.
If such earnings or market price levels are met, the Company will record a
substantial non-cash charge to earnings, for financial reporting purposes,
as compensation expense relating to the value of the Escrow Shares released
to Company officers, directors, employees and consultants. See
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Charge to Income in the Event of
Release of Escrow Shares" and "Principal Shareholders -- Escrow Shares."
(4) Does not include (i) 1,900,000 shares of Class A Common Stock issuable upon
exercise of the Warrants included in the Units offered hereby; (ii) 570,000
shares of Class A Common Stock issuable upon exercise of the Underwriter's
overallotment option, including the shares issuable upon exercise of the
Warrants included in the Units subject to such option; (iii) 380,000 shares
of Class A Common Stock issuable upon exercise of the Unit Purchase Option
and the Warrants included in the Units issuable upon exercise of the
Underwriter's Unit Purchase Option; and (iv) 1,200,000 shares of Class A
Common Stock issuable upon exercise of the Public Bridge Warrants. Also does
not include 300,000 shares of Class A Common Stock reserved for issuance
under the Option Plan, under which options to purchase 30,000 shares have
been granted to date.
(5) Notwithstanding quotation on Nasdaq, there can be no assurance that an
active trading market for the Company's securities will develop or, if
developed, that it will be sustained.
5
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NOVEMBER 13, 1995
NOVEMBER 13, 1995 SIX MONTHS ENDED (INCEPTION) TO
(INCEPTION) TO YEAR ENDED ----------------------------- JUNE 30, 1997
DECEMBER 31, 1995 DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1997 (CUMULATIVE)
----------------- ----------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenue................. $ -- $ 65,548 $ 40,925 $ 23,914 $ 89,462
--------- ----------- ----------- ----------- -----------
Costs and expenses
Cost of revenue....... 6,250 114,052 51,998 63,031 183,333
Research and
development......... -- -- -- 59,249 59,249
General and
administrative...... 12,325 357,552 173,716 961,632 1,331,509
Selling and
marketing........... -- 152,365 24,187 487,651 640,016
--------- ----------- ----------- ----------- -----------
Total costs and
expenses.............. 18,575 623,969 249,901 1,571,563 2,214,107
--------- ----------- ----------- ----------- -----------
Operating loss.......... $ (18,575) $ (558,421) $ (208,976) $ (1,547,649) $(2,124,645)
--------- ----------- ----------- ----------- -----------
Net interest expense.... -- 19,702 -- 383,348 403,050
Net loss................ $ (18,575) $ (578,123) $ (208,976) $ (1,930,997) $(2,527,695)
========= =========== =========== =========== ===========
Net loss per common
share(1).............. $ (0.02) $ (0.67) $ (0.25) $ (2.13)
========= =========== =========== ===========
Weighted average common
shares
outstanding(1)........ 818,344 858,499 850,777 906,378
========= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
----------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)..................... $(2,419,152) $ (2,419,152) $ 5,389,187
Total assets..................................... 836,449 1,026,449 5,840,191
Total liabilities................................ 2,735,404 2,925,404 362,437
Deficit accumulated during the development
stage.......................................... (2,527,695) (2,527,695) (2,915,986)
Total shareholders' equity (deficit)............. (1,898,955) (1,898,955) 5,477,754
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for explanation of determination
of the weighted average number of shares of Common Stock used in computing
the net loss per common share. Excludes the Escrow Shares. See "Principal
Shareholders -- Escrow Shares" and Note 9 of Notes to Financial Statements.
(2) Gives pro forma effect to the issuance of $190,000 principal amount of Blair
Notes subsequent to June 30, 1997. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) Adjusted to give effect to the sale of the 1,900,000 Units offered hereby at
an offering price of $5.00 per Unit, and the receipt of the net proceeds
therefrom and the use of a portion of the net proceeds to repay the Bridge
Notes and the Blair Notes, together with accrued interest of $137,000
through September 30, 1997, and an estimated charge to operations of
$388,000 representing unamortized debt discount and debt issuance costs
through the date of repayment associated with the Bridge Financing. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
6
<PAGE> 9
RISK FACTORS
The securities offered hereby are highly speculative in nature and involve
a high degree of risk. Prospective investors should carefully consider, along
with the other information contained in this Prospectus, the following
considerations and risks in evaluating an investment in the Company. Certain
statements contained in this Prospectus, including statements concerning the
Company's future cash and financing requirements; the Company's substantial
dependence on Independent Publishers and other strategic arrangements; the
Company's dependence on continued growth in use of the Internet; the Company's
reliance on advertising revenue and the uncertain adoption of the Internet as an
advertising medium; and the competitive market for the Company's services and
other statements contained herein regarding matters that are not historical
facts, are forward looking statements; actual results may differ materially from
those set forth in the forward looking statements, which statements involve
risks and uncertainties.
DEVELOPMENT STAGE COMPANY; LIMITED OPERATING HISTORY. The Company commenced
operations in November 1995, is a development stage company, and has a limited
operating history. Since it commenced operations, the Company has been engaged
principally in the development, design and refinement of its Websites,
market-testing activities, and marketing activities directed towards
establishing relationships with Independent Publishers, in addition to capital
raising activities. Accordingly, the Company has an extremely limited operating
history upon which an evaluation of the Company's prospects can be made. The
Company and its prospects must be considered in light of the risks, expenses and
difficulties frequently encountered in the establishment of a new business in an
emerging industry and the development and commercialization of a new service.
These risks include, but are not limited to, unanticipated problems relating to
product development, product introduction and acceptance, marketing and
competition. There can be no assurance that the Company's efforts will result in
successful commercialization or further development of the Company's services,
that the Company's marketing efforts will be successful or that the Company will
ever achieve significant revenue. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
ACCUMULATED DEFICIT; WORKING CAPITAL DEFICIT; HISTORY OF LOSSES;
EXPECTATION OF SUBSTANTIAL FUTURE LOSSES. At June 30, 1997, the Company had a
deficit accumulated during the development stage of approximately $2,528,000 and
a working capital deficit of approximately $2,419,000. During the period
November 13, 1995 (inception) to June 30, 1997, the Company recognized limited
revenue of approximately $89,000 and incurred a cumulative net loss of
approximately $2,528,000, including net losses of approximately $578,000 for the
year ended December 31, 1996 and $1,931,000 for the six months ended June 30,
1997. Since June 30, 1997, the Company has continued to incur losses. Such
losses have resulted principally from limited revenues from operations and costs
associated with the design, development and implementation of the Company's
services, including general and administrative expenses and marketing
activities. The Company plans on significantly increasing its level of operating
expenses and will be required to make significant additional expenditures
following consummation of the Offering to continue to enhance its services and
to attract advertisers to the Company's services. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, pursuant to the Company's agreement with Netscape, the
Company is required to make significant payments to Netscape. Further, the
Company is currently exploring the creation of alternative arrangements with
Website providers, browser providers or other distribution channels to replace
and/or supplement its arrangement with Netscape. Any such arrangement may
require payments or other consideration for listing the Company's services.
Moreover, the Company is obligated to make minimum annual royalty payments to
Pro-CD, Inc. ("Pro-CD") in order to continue to license its database. See
"-- Dependence on Relationship with Pro CD." The Company anticipates that it
will incur significant losses until such time, if ever, that the Company
attracts and retains a sufficient number of advertisers who purchase the
Company's enhanced services (through relationships with Independent Publishers
or otherwise) to fund the Company's continuing operations. There can be no
assurance that the Company will be able to attract and retain a sufficient
number of such advertising customers to generate significant revenue, that the
Company will generate positive cash flow from its operations, or that the
Company will attain or thereafter sustain profitability in any future period.
7
<PAGE> 10
UNCERTAINTY AS TO ABILITY TO CONTINUE AS A GOING CONCERN. The Company's
independent certified public accountants have included an explanatory paragraph
in their report stating that the Company's financial statements have been
prepared assuming that the Company will continue as a going concern and that the
Company's working capital deficiency and shareholders' deficiency raise
substantial doubt as to the Company's ability to continue as a going concern.
See "Financial Statements -- Report of Independent Certified Public
Accountants."
FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE CAPITAL WILL BE
AVAILABLE. The Company anticipates, based on currently proposed plans and
assumptions relating to its operations (including assumptions relating to the
generation of revenue through relationships with Independent Publishers), that
the net proceeds of the Offering, together with anticipated revenue from sales
of enhanced advertisements, should be sufficient to fund the Company's
contemplated cash requirements for approximately 12 months following
consummation of the Offering. In the event the Company's plans change, its
assumptions change or prove to be inaccurate or if the Company's funds for
operations otherwise prove to be insufficient (including due to anticipated
technical or other problems), the Company could be required to seek additional
financing prior to the expiration of such 12-month period. In addition,
following such 12-month period, if the Company does not generate sufficient
revenue from operations, the Company will need to obtain additional financing.
The Company's ability to generate such revenue will depend primarily upon the
ability of the Company to sell enhanced advertising services to businesses,
primarily through the efforts of Independent Publishers. The Company has no
commitments from any third parties for any future funding and there can be no
assurance that the Company will be able to obtain financing in the future on
terms acceptable to the Company, if at all. Any additional equity financing may
be dilutive to the Company's shareholders and debt financing, if available, may
involve restrictive covenants with respect to dividends, raising future capital
and other financial and operational matters. If the Company is not able to
obtain additional financing as needed, the Company may be required to curtail
its growth plans, significantly reduce operating costs or cease operations
completely. See "Use of Proceeds."
SUBSTANTIAL DEPENDENCE ON INDEPENDENT PUBLISHERS. The Company does not
currently possess, nor does it believe that it will have the capability in the
near future to develop, a sales force capable of effectively marketing the
Company's services directly to individual advertisers in order to develop a
critical mass of customers who will purchase enhanced advertisements on the
On'Village Yellow Pages. Accordingly, the Company believes that the most
effective method of building this customer base is to enter into arrangements
with Independent Publishers who will market and resell the Company's services to
their existing customer base. As of August 1, 1997, the Company had entered into
70 such arrangements with Independent Publishers. The Company's ability to enter
into a sufficient number of arrangements with Independent Publishers, and the
Company's ability to renew any arrangements entered into (which are typically
for a term of only one year), will be dependent upon a number of factors,
including the Company's ability to effectively market the benefits of its
services to Independent Publishers. The Company currently has limited marketing
capabilities and needs to hire a significant number of additional sales and
marketing personnel. The Company intends to use a portion of the proceeds of the
Offering to hire certain of such personnel and outside agents and consultants to
market its services, primarily to Independent Publishers. Further, the Company
believes it will face significant competition from existing and future providers
of Internet-related services who attempt to market their services in a similar
manner.
Even if the Company is successful in entering into arrangements with a
sufficient number of Independent Publishers, no assurance can be given that such
Independent Publishers will market the Company's services effectively or that
such arrangements will lead to the generation of a significant amount of
revenue. The inability of the Company to enter into arrangements with a
sufficient number of Independent Publishers, or such Independent Publishers'
inability to successfully market and resell the Company's services, would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "-- Reliance on Advertising Revenue; Uncertain Adoption
of the Internet as an Advertising Medium."
RELIANCE ON ADVERTISING REVENUE; UNCERTAIN ADOPTION OF THE INTERNET AS AN
ADVERTISING MEDIUM. The Company has derived a significant amount of its limited
revenue to date from the sale of advertisements in a limited geographical area,
and expects to continue to derive most of its revenue, if any, from the sale of
8
<PAGE> 11
advertisements for the foreseeable future. There can be no assurance that the
Company will be able to successfully attract advertisers to its services, either
directly or through Independent Publishers. The Company's ability to generate
significant advertising revenue will depend, among other things, on advertisers'
acceptance of the Internet as an attractive and sustainable commercial medium,
the development of a large base of users of the Company's services with
demographic characteristics attractive to advertisers, the successful expansion
of the Company's advertising capabilities and the Company's ability to enter
into a sufficient number of arrangements with Independent Publishers.
Furthermore, there is intense competition among sellers of advertising space on
the Internet, and a variety of pricing models offered by different vendors for a
range of advertising services. The Company intends to rely on independent third
party sales representatives affiliated with Independent Publishers for the sale
of advertising on the Company's Websites. Failure of these third party agents to
achieve successful advertising sales could have a material adverse effect on the
Company's ability to generate revenue. See "-- Substantial Dependance on
Independent Publishers."
Because the Company expects to derive a significant portion of its revenue
in the foreseeable future from sales of Web-based advertising, the future
success of the Company is highly dependent on the development of the Internet as
an advertising medium. Most of the Company's advertising customers and potential
advertising customers may have limited or no experience using the Internet as an
advertising medium, have not devoted a significant portion of their advertising
expenditures to Internet-based advertising and may not find such advertising to
be effective for promoting their products and services relative to traditional
print and broadcast media. No standards have yet been widely accepted for the
measurement of the effectiveness of Internet-based advertising, and there can be
no assurance that such standards will develop sufficiently to support
Internet-based advertising as a significant advertising medium. The Internet
industry is young and has few proven products and services. Moreover, critical
issues concerning the commercial use of the Internet (including security,
reliability, cost, ease of use and access, quality of service and acceptance of
advertising) remain unresolved and may negatively affect the growth of Internet
use or the attractiveness of Internet advertising. There can be no assurance
that widespread commercial use of the Internet will develop, or that the
Internet will develop as an effective and measurable medium for advertising. See
"-- Dependence on Continued Growth in Use of the Internet."
DEPENDENCE ON RELATIONSHIP WITH NETSCAPE; ABILITY OF NETSCAPE TO TERMINATE
CONTRACT. The Company is a party to an agreement with Netscape which provides
that the Company's services will be listed on Netscape's Web page, accessible
via the "Net Search" button, through April 1998 pursuant to the Netscape
Distinguished Provider Program. Currently, two competing yellow page services as
well as a number of leading navigational services with yellow page directories,
are also listed. The agreement with Netscape is not exclusive and gives Netscape
the ability to change its services and Web page without the Company's approval.
In addition, the agreement provides that either party can terminate the
agreement at any time, upon 90 days' prior notice. There can be no assurance
that Netscape will not terminate the agreement prior to its expiration, that
Netscape will not enter into similar arrangements with other competing companies
(thereby resulting in an increase in the number of competitive companies listed
on Netscape's Web page), or that Netscape will not develop its own service
offerings competitive with those of the Company. If Netscape were to choose to
terminate the agreement, or if it were to develop and market its own competitive
services or promote competing services from other third parties, the Company
would likely suffer a significant decrease in the traffic to its sites, thereby
decreasing the marketability of the Company's services. The Company is currently
exploring the creation of alternate arrangements with Website providers, browser
providers and other distribution channels, to replace and/or supplement its
arrangement with Netscape. No assurance can be given that the Company will enter
into any such arrangements on terms acceptable to the Company or at all, or that
any such arrangements will generate significant traffic to the Company's on-line
sites.
DEPENDENCE ON THIRD PARTY TECHNOLOGY SUPPLIER. The Company is currently
dependent on Network Publishing, Inc. ("Network Publishing") for certain
integral components of its current and future technologies. All of the Company's
hardware systems and maintenance activities, including server hosting, are
managed and maintained by Network Publishing. The Company's agreement with
Network Publishing provides that Network Publishing will host and maintain the
Company's computer hardware. Given that Network Publishing may terminate the
agreement upon 120 days' notice, there is no assurance that the
9
<PAGE> 12
services of Network Publishing will be available in the future, or that if the
agreement is terminated another entity satisfactory to the Company can or will
provide the requisite services. Failure of Network Publishing or another entity
to support and maintain the Company's hardware would have a material adverse
effect on the Company's business, results of operations and financial condition.
Given the technological changes occurring in the industry, there can be no
assurance that the technologies utilized by the Company will remain competitive
in the future.
The Company also relies on Network Publishing to provide the Company with
access to its Internet connection. Although the Company believes that Internet
access through other providers is currently available, any disruption in the
Internet access by Network Publishing or any failure of Network Publishing to
handle a higher volume of queries could have a material adverse effect on the
Company's business, results of operations and financial condition.
The executive officers of the Company have experience in the apparel and
wholesale industries, but prior to forming the Company, had limited technical
experience in the field of computers or the Internet. The Company currently has
only four employees with significant technical experience. Although the Company
plans on hiring additional technical personnel, until the Company does so it
will remain dependent on Network Publishing or other third parties to provide
technical support. See "-- Dependence on Key Personnel."
TECHNOLOGICAL CHANGE AND NEW SERVICES. The market for Internet products and
services is characterized by technological change, changing customer needs,
frequent new product introductions and evolving industry standards. These market
characteristics are exacerbated by the fact that many companies are expected to
introduce new Internet products and services in the near future. The Company's
future success will depend in significant part on its ability to continually and
on a timely basis introduce new services and technologies and to continue to
improve the performance, features and reliability of the Company's services in
response to both evolving demands of the marketplace and competitive product
offerings.
There can be no assurance that the Company will be successful in developing
new services or improving existing services that respond to technological
changes or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development, licensing,
introduction and marketing of new or improved services, or that its new services
will adequately meet the requirements of the marketplace and achieve market
acceptance. In addition, new or enhanced services introduced by the Company may
contain undetected errors that require significant design modifications. This
could result in a loss of customer confidence and user support, thus adversely
affecting the use of the Company's services. See "-- Intense Competition; No
Substantial Barriers to Entry."
DEPENDENCE ON RELATIONSHIP WITH PRO-CD. The Company's On'Village Yellow
Pages directory consists of a database of business listings licensed from
Pro-CD, pursuant to a five-year licensing agreement entered into in December
1995. Pro-CD has the right to terminate the agreement on or after January 1,
1998, upon six months notice, if it is unable, or if it becomes impractical for
Pro-CD, to continue to supply the data. In addition, the terms of the license
are subject to a number of restrictions, the violation of which may result in
the cancellation by Pro-CD of the agreement. Pro-CD's unwillingness to continue
to license its database to the Company, whether before or after the expiration
of the existing agreement, would force the Company to secure an alternative
source of data and would require the Company to delete all directory listings
derived from the Pro-CD database. Although the Company believes that there exist
at least two alternative sources of data, no assurance can be given that the
Company would be able to enter into an agreement to license such data on a
timely basis, or at all, or on terms which the Company views as satisfactory.
Failure of the Company to enter into an agreement on a timely basis could cause
an interruption in the Company's business which would have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, the agreement does not prohibit Pro-CD from licensing its database
to others, including existing and potential competitors of the Company.
INTENSE COMPETITION; NO SUBSTANTIAL BARRIERS TO ENTRY. The market for
Internet products and services is highly competitive, with no substantial
barriers to entry, and the Company expects that competition will continue to
intensify. In addition, the market for the Company's services has only recently
begun to develop, is rapidly evolving and is characterized by an increasing
number of market entrants with competing services.
10
<PAGE> 13
Although the Company believes that the diverse segments of the Internet market
may provide opportunities for more than one supplier of services similar to
those of the Company, it is possible that a single or few suppliers may dominate
one or more market segments. There can be no assurance that the Company's
competitors will not develop Internet services that are superior to those of the
Company or that achieve greater market acceptance than the Company's offerings.
Any failure of the Company to provide service offerings that achieve success in
the short-term could result in an insurmountable loss in market share and brand
acceptance, and could, therefore, have a material adverse effect upon the
Company's business in the long term.
A number of companies offer competitive services addressing certain of the
Company's target markets. Most of the Company's competitors have significantly
greater financial, technical and marketing resources than the Company. These
companies include America Online, Inc., Excite, Inc., Lycos, Inc., The McKinley
Group, CompuServe Corporation, Prodigy Services Company, Infoseek Corporation
and Yahoo! Corporation. Specifically, the Company's On'Village Yellow Page
directory service competes with other Internet Yellow Page directory services
including BigYellow, BigBook, YellowNet, GTE SuperPages, Yellow Pages Online,
Switchboard, InfoSpace, ZIP2, American Business Information's Lookup USA and a
Netscape Guide by Yahoo! featuring five Regional Bell Operating Companies'
Internet Yellow Page services. In addition, the Company competes with metasearch
services that allow a user to search the databases of several catalogs and
directories simultaneously. The Company also competes indirectly with database
vendors that offer information search and retrieval capabilities with their core
database products. In the future, the Company may encounter competition from
providers of Web browser software, including Netscape and Microsoft Corporation,
on-line services and other providers of other Internet services who elect to
incorporate their own search and retrieval features into their product and
service offerings.
Netscape and Pro-CD, as well as a number of the Company's current
advertising customers, have established relationships with certain of the
Company's competitors, and future advertising customers, licensees and licensors
may establish similar relationships. In addition, the Company competes with
on-line services and other Website operators as well as traditional offline
media such as print (including print yellow page directories) and television for
a share of advertisers' total advertising budgets. Competition among current and
future suppliers of Internet navigational and directory services, as well as
competition with other media for advertising placements, could result in
significant price competition and reductions in advertising revenue. There can
be no assurance that the Company will be able to compete successfully against
its current or future competitors.
MANAGEMENT OF POTENTIAL GROWTH; NEED TO ESTABLISH INFRASTRUCTURE. The
Company plans to significantly expand its operations following the Offering,
which could place a significant strain on the Company's limited managerial,
operational and financial resources. The Company's ability to manage this
expansion will require significant expansion of its service development,
marketing and sales, and technical and financial capability, and its personnel.
In particular, the Company intends to increase its dependence and reliance on
computer generated information. This will necessitate continuous reassessment of
the appropriateness of the Company's computerized data and systems. In addition,
the Company plans to add an additional approximately 30 employees in the
approximately 12 months following the consummation of the Offering. See
"Business -- Employees."
There can be no assurance that the Company will be able to effectively
manage the expansion of its operations, that the Company's employees will work
together effectively, that the Company will be able to attract and retain
qualified personnel, that the Company's systems, procedures or controls will be
adequate to support the Company's operations or that Company's management will
be able to achieve the rapid execution necessary to fully exploit any potential
market opportunity for the Company's services. Any inability to effectively
manage growth could have a material adverse effect on the Company's business,
results of operations and financial condition.
DEVELOPING MARKET; UNPROVEN ACCEPTANCE OF THE COMPANY'S SERVICES. The
markets for the Company's services have only recently begun to develop, are
rapidly evolving and are characterized by an increasing number of market
entrants who have introduced or developed services similar to the services
offered by the
11
<PAGE> 14
Company for use on the Internet. As is typical in the case of a new and rapidly
evolving industry, demand and market acceptance for recently introduced services
are subject to a high level of uncertainty and risk. Because the market for the
Company's services is new and evolving, it is difficult to predict the future
growth rate, if any, and size of this market. There can be no assurance that
either the market for the Company's services will develop or that demand for the
Company's services will emerge or become sustainable.
In the future, the Company may attempt to develop a Web-based service that
is focused on information and resources relating to the purchase of consumer
products and services over the Internet. On-line purchasing of goods and
services by consumers is in an early stage of development, and has been hindered
to date by, among other factors, a lack of widely accepted secure payment
mechanisms. In addition, a significant number of well-capitalized and
established companies have developed or are currently developing online commerce
applications and technologies, many of which may compete with or eliminate or
reduce the need for, services that the Company may attempt to introduce. No
assurance can be given that the Company will successfully develop such a
service, or that if developed, such service will be profitable. See
"Business -- The Company's Services -- Proposed Services."
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET. The Company's future
success is substantially dependent upon continued growth in the use of the
Internet and the Web for information publication, distribution and commerce.
Rapid growth in the use of and interest in the Internet and the Web is a recent
phenomenon. There can be no assurance that information publication, advertising,
communication or commerce over the Internet will become widespread or that
extensive content (such as Web pages) will continue to be provided over the
Internet. The Internet may not prove to be a viable medium for information
publication, advertising, communication or commerce for a number of reasons,
including potentially inadequate development of the necessary infrastructure to
support the widespread use of the Internet, including a reliable network
backbone, or the timely development of performance improvements such as high
speed modems. In addition, to the extent that the Internet continues to
experience significant growth in the number of users and level of use, as
recently experienced by other on-line services, there can be no assurance that
the Internet infrastructure will continue to be able to support the demands
placed upon it by such potential growth. Further, the Internet could lose its
viability due to delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity, or due to
increased governmental regulation. Changes in or insufficient availability of
telecommunications services to support the Internet also could result in slower
response times and adversely affect usage of the Internet and therefore, the
Company's services.
CAPACITY CONSTRAINTS AND SYSTEM FAILURE. The performance of the Company's
services is critical to the Company's reputation and its ability to attract
advertisers to the Company's services and market acceptance of these services.
Any system failure that causes interruptions or that increases response time of
the Company's services would result in less traffic to the Company's sites and,
if sustained or repeated, would reduce the attractiveness of the Company's
services to advertisers and users. In addition, an increase in the volume of
searches conducted through the Company's services could strain the capacity of
the software, hardware or telecommunications lines deployed by the Company,
which could lead to slower response time or system failures. As the number of
services offered and users increase, there can be no assurance that the
Company's services and systems will be able to scale appropriately. The Company
is also dependent upon Web browser companies and Internet and online service
providers for access to its services, and users have experienced and may in the
future experience difficulties due to system or software failures or
incompatibilities not within the Company's control. The Company is also
dependent on Network Publishing for prompt delivery, installation and service of
servers and other equipment and services used to provide the Company's services.
Any disruption in the Internet access and service provided by the Company or
Network Publishing could have a material adverse effect upon the Company's
business, results of operations and financial condition. See "-- Technological
Change and New Services" and "-- Dependence on Third Party Technology Supplier."
In addition, the Company's operations depend upon the Company's ability to
maintain and protect its computer systems located in Provo, Utah. These systems
are vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events. The Company does not
currently have a disaster recovery plan in effect with respect to its computer
hardware system. Despite the
12
<PAGE> 15
implementation of network security measures by the Company, its servers are also
vulnerable to computer viruses, break-ins and similar disruptive problems.
Computer viruses, break-ins or other problems caused by third parties could lead
to interruptions, delays in or cessation of service to users of the Company's
services.
LIABILITY FOR INFORMATION RETRIEVED FROM THE INTERNET. The Company's
services link users to information which is downloaded, indexed and distributed
from Web pages published by third-party Internet Websites and content providers.
In addition, although the Company has certain monitoring safeguards in place,
certain of the Company's customers have the ability to enter and revise
advertising content directly on the Company's sites, and participants in the
Company's On'Zine "chat-areas" have the ability to directly enter content.
Accordingly, there is potential that claims will be made against the Company on
theories such as defamation, negligence, copyright or trademark infringement,
distribution of obscene, lascivious or indecent communications or other theories
of liability based on the nature and content of such materials. Such claims have
been brought, sometimes successfully, against on-line services in the past.
Although the Company carries general liability insurance, the Company's
insurance may not cover potential claims of this type, or may not be adequate to
indemnify the Company for all liability that may be imposed. Any imposition of
liability that is not covered by insurance or is in excess of insurance coverage
could have a material adverse effect on the Company's business, results of
operations and financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company's future performance depends in
significant part upon the continued contributions of its senior management and
key technical personnel, including Mr. Jack B. Tracht, the Company's Chief
Executive Officer, Mr. Robert D. Tracht, the Company's President and Chief
Operating Officer, Mr. Jeff W. Walden, the Company's Senior Vice President of
Marketing, Mr. James E. Austin, the Company's Senior Vice President of Sales and
Secretary and Mr. Kent Hinkson, the Company's Director of Technology. Although
the Company has entered into employment agreements with each of the foregoing,
and has obtained key-man life insurance coverage on the lives of each of the
foregoing (other than Mr. Hinkson) in the amount of $2,000,000, the loss of
services of any of them could have a material adverse effect on the Company's
business, operating results and financial condition. Further, although Messrs.
R. Tracht and Walden's employment contracts provide that they will devote
substantially all of their time to the Company, they both will remain as
principals of Robert Tracht Enterprises, Inc. See "Management."
The Company's future success also depends on its continuing ability to
attract and retain highly qualified technical, sales and management personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its key technical, sales and management employees or that
it can attract, assimilate or retain other highly qualified technical, sales and
management personnel in the future. The Company plans to add an additional
approximately 30 employees in the approximately 12 months following the
consummation of the Offering in the areas of marketing, product development and
administration (including a total of approximately 10 to 15 national and
regional sales managers and sales support staff). See "Business -- Employees."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. The Company may be subject
to Sections 5 and 12 of the Federal Trade Commission Act (the "FTC Act"), which
regulate advertising in all media, including the Internet, and require
advertisers to have substantiation for advertising claims before disseminating
advertisements. The FTC Act prohibits the dissemination of false, deceptive,
misleading and unfair advertising, and grants the Federal Trade Commission
("FTC") enforcement powers to impose and seek civil and criminal penalties,
consumer redress, injunctive relief and other remedies upon persons who
disseminate prohibited advertisements. The Company could be subject to liability
under the FTC Act if it were found to have participated in creating and/or
disseminating a prohibited advertisement with knowledge, or reason to know that
the advertising was false or deceptive. The FTC has recently brought several
actions charging deceptive advertising via the Internet, and is actively seeking
new cases involving advertising via the Internet.
The Company may also be subject to the provisions of the recently enacted
Communications Decency Act (the "CDA"), which, among other things, imposes
substantial monetary fines and/or criminal penalties on anyone that distributes
or displays certain prohibited material over the Internet or knowingly permits a
telecommunications device under its control to be used for such purposes.
Although the manner in which the CDA will be interpreted and enforced and its
effect on the Company's operations cannot yet be fully
13
<PAGE> 16
determined, the CDA could subject the Company to substantial liability. The CDA
could also dampen the growth of the Internet generally and decrease the
acceptance of the Internet as an advertising medium. It is also possible that
new laws and regulations may be adopted covering issues such as privacy,
copyright infringement, subject matter and the pricing, characteristics and
quality of Internet products and services. Application to the Internet of
existing laws and regulations governing issues such as property ownership, libel
and personal privacy is also subject to substantial uncertainty.
There can be no assurance that the CDA or other current or new government
laws and regulations, or the application of existing laws and regulations, will
not subject the Company to significant liabilities, significantly dampen growth
in Internet usage, prevent the Company from offering certain Internet content or
services, or otherwise cause a material adverse effect on the Company's
business, results of operations and financial condition.
RELIANCE ON INTELLECTUAL PROPERTY RIGHTS; NO ASSURANCE OF OBTAINING SERVICE
MARK REGISTRATION. The Company relies on a combination of copyright and
trademark laws and contractual provisions to protect its intellectual property
rights. Despite the Company's efforts to protect its intellectual property
rights, unauthorized parties may attempt to copy aspects of the Company's
services, such as all or portions of the Company's directory listings. In
addition, there are few barriers to entry into the market for the Company's
services. There can be no assurance, therefore, that any of the Company's
competitors, most of whom have far greater resources than the Company, will not
independently develop technologies that are substantially equivalent or superior
to the Company's technologies. See "-- Intense Competition; No Substantial
Barriers to Entry."
The Company has applied for a service mark registration for "On'Village."
Although this application was initially denied, the Company intends to respond
to the denial, arguing that the registration should be granted. There can be no
assurance, however, that the Company's application will be approved. The Company
intends to focus its efforts on achieving brand recognition for its products;
therefore, failure of the Company to obtain the "On'Village" service mark and
the use of the name by third parties, could have a material adverse effect on
the Company's business, results of operations and financial condition. The
Company will continue to evaluate the registration of additional service marks
and trademarks, as appropriate.
There has been substantial litigation in the computer industry regarding
intellectual property rights. There can be no assurance that the Company will
not commence litigation to protect its position or third parties will not in the
future claim infringement by the Company with respect to current or future
services, trademarks or other rights (including the use of the "On'Village"
name), or that the Company will not counterclaim against any such parties in
such actions. Any such claims or counterclaims could be time-consuming, result
in costly litigation, or require the Company to redesign its services, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. Although the Company will take steps that it
considers appropriate to protect its intellectual property rights, the Company
believes its future success will depend primarily on its ability to rapidly
introduce new services and enhancements to its existing services, rather than
upon legal protections afforded existing intellectual property.
CONTROL BY INSIDERS; OWNERSHIP OF SHARES HAVING DISPROPORTIONATE VOTING
RIGHTS. Upon consummation of the Offering, Messrs. J. Tracht, R. Tracht, Walden
and Austin, the co-founders and executive officers and directors of the Company,
will own, in the aggregate, shares of the Company's capital stock representing
approximately 67% of the total voting power of the Company. Accordingly, the
foregoing individuals will be able to continue to elect at least a majority of
the Company's directors and thereby direct the policies of the Company after
consummation of the Offering. Furthermore, the disproportionate vote afforded
the shares of Class B Common Stock could also serve to impede or prevent a
change of control of the Company. As a result, potential acquirors may be
discouraged from seeking to acquire control of the Company through the purchase
of Class A Common Stock, which could have a depressive effect on the market
price of the Company's securities. See "Principal Shareholders."
CHARGE TO INCOME IN THE EVENT OF RELEASE OF ESCROW SHARES. In the event any
Escrow Shares owned by securityholders of the Company who are officers,
directors, employees or consultants of the Company are released from escrow,
compensation expense will be recorded for financial reporting purposes.
Therefore, in the event the Company attains any of the earnings thresholds or
the Company's Class A Common Stock meets
14
<PAGE> 17
certain minimum bid prices required for the release of the restrictions, the
Company will recognize during the period in which the earnings thresholds are
probable of being met or such stock levels achieved, what could be a substantial
charge to earnings, as compensation expense to the Company. The amount of this
charge would be equal to the fair market value of such shares on the date of
their release, and would have the effect of increasing the Company's loss or
reducing or eliminating earnings, if any, at such time. Although the amount of
compensation expense recognized by the Company will not affect the Company's
total shareholders' equity (due to a corresponding increase in additional
paid-in capital), it may have a depressive effect on the market price of the
Company's securities. Such charge will not be deductible for income tax
purposes. Notwithstanding the foregoing discussion, there can be no assurance
that the Company will attain the targets which would enable the Escrow Shares to
be released from escrow. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Charge to Income in the Event of Release
of Escrow Shares."
SUBSTANTIAL PORTION OF NET PROCEEDS TO BE USED TO REPAY BRIDGE NOTES AND
BLAIR NOTES; CHARGES ARISING FROM DEBT ISSUANCE COSTS. Approximately $2,777,000
of the net proceeds of the Offering will be used to repay in full interest and
principal on the Bridge Notes and the Blair Notes. As a result, the proceeds
from the Offering available for the Company to meet its ongoing operating needs
and expansion plans will be correspondingly reduced. See "Use of Proceeds." Upon
completion of the Offering and repayment of the Bridge Notes, a non-recurring
charge representing the unamortized debt discount and debt issuance costs
incurred in connection with the Bridge Financing will be charged to operations
in the quarter in which the Offering is completed. The aggregate debt discount,
debt issuance costs and interest expense associated with the Bridge Financing
are approximately $820,000. In addition, the Company incurred a non-recurring
charge representing unamortized debt discount and interest relating to the
Interim Notes through the date of repayment of approximately $24,200, $14,200 of
which was recorded in the fiscal quarter ended December 31, 1996 and $10,000 of
which was recorded in the fiscal quarter ended March 31, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
BROAD DISCRETION AS TO USE OF PROCEEDS; CERTAIN PROCEEDS TO BENEFIT
INSIDERS. Of the net proceeds of the Offering, approximately $2,587,000 or 33.3%
has been allocated to working capital, including for the payment of executive
salaries, past due payables, insurance, professional fees and lease payments.
Approximately $1,050,000 of this amount (representing approximately 13.5% of the
net proceeds), has not otherwise been allocated for a specific purpose and will
be used for such purposes as management may determine in its sole discretion,
without the need for shareholder approval with respect to any such allocation.
In particular, the Company may use a portion of the proceeds to acquire other
businesses or technologies or products which are compatible with the Company's
business for the purpose of expanding its business or the Company may enter into
strategic alliances with other such companies. The Company does not currently
have any agreements, commitments or arrangements with respect to any proposed
acquisition, joint venture or strategic alliance, and no assurance can be given
that any acquisitions, joint ventures or strategic alliances will be made in the
future. See "Use of Proceeds."
Certain proceeds of the Offering will directly or indirectly benefit the
executive officers of the Company. Approximately $511,000 of the proceeds of the
Offering will be used to pay compensation to the Company's executive officers
during the 12 months following consummation of the Offering (including
approximately $101,000 which will be paid to such officers upon consummation of
the Offering with respect to accrued salaries). In addition, approximately
$102,000 of the proceeds of the Bridge Notes (which Bridge Notes will be repaid
from the proceeds of the Offering) were used to make payments with respect to
accrued salaries to the Company's executive officers.
SHARES AVAILABLE FOR FUTURE SALE; REGISTRATION RIGHTS. Future sales of
Common Stock by existing shareholders pursuant to Rule 144 under the Securities
Act or otherwise, could have an adverse effect on the price of the Company's
securities. Upon the sale of the 1,900,000 Units offered hereby, the Company
will have outstanding 1,900,000 shares of Class A Common Stock, 1,199,996 shares
of Class B Common Stock, 1,900,000 Warrants and 1,200,000 Public Bridge Warrants
(2,185,000 shares of Class A Common Stock, 1,199,996 shares of Class B Common
Stock, 2,185,000 Warrants and 1,200,000 Public Bridge Warrants if the
Underwriter's over-allotment option is exercised in full). The shares of Class A
Common Stock and the Warrants sold in the Offering will be freely tradeable
without restriction under the Securities Act, unless
15
<PAGE> 18
acquired by "affiliates" of the Company as that term is defined in the
Securities Act. The 1,199,996 outstanding shares of Class B Common Stock are
"restricted securities" within the meaning of Rule 144 under the Securities Act.
Pursuant to Rule 144, substantially all of these restricted shares will be
eligible for resale commencing 90 days after consummation of the Offering (upon
which resale they will automatically convert into shares of Class A Common
Stock). However, all the holders of the shares of Class B Common Stock
outstanding prior to the Offering have agreed not to sell or otherwise dispose
of any securities of the Company for a period of 13 months from the date of this
Prospectus without the prior written consent of the Underwriter. Holders of
1,200,000 Public Bridge Warrants have agreed not to sell any of the Public
Bridge Warrants for at least one year from the closing of the Offering. The
Company has agreed to register the Public Bridge Warrants for resale upon
termination of the lock-up period. In addition, the holders of shares of Class B
Common Stock have placed an aggregate of 800,000 of such shares in escrow. See
"Principal Shareholders -- Escrow Shares." The holder of the Unit Purchase
Option has certain demand and "piggy-back" registration rights covering its
securities. The exercise of such rights could involve substantial expense to the
Company. Sales of Class A Common Stock, or the possibility of such sales, in the
public market may adversely affect the market price of the securities offered
hereby. See "Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. Upon sale of the 1,900,000
Units offered hereby, the Company will have outstanding 1,900,000 Warrants to
purchase 1,900,000 shares of Class A Common Stock (or 2,185,000 Warrants to
purchase 2,185,000 shares of Class A Common Stock if the Underwriter's over-
allotment option is exercised in full). In addition, the Company will have
outstanding 1,200,000 Public Bridge Warrants to purchase 1,200,000 shares of
Class A Common Stock, the Unit Purchase Option to purchase an aggregate of
380,000 shares of Class A Common Stock assuming exercise of the underlying
Warrants and 300,000 shares of Class A Common Stock reserved for issuance under
the Option Plan under which options to purchase 28,250 shares are outstanding at
an exercise price of $4.00 per share. Holders of such options and warrants may
exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company. Moreover,
while these warrants and options are outstanding, the Company's ability to
obtain financing on favorable terms may be adversely affected. See "Management,"
"Principal Shareholders -- Escrow Shares" and "Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Units offered hereby
will incur immediate and substantial dilution in the pro forma net tangible book
value of the Class A Common Stock included in the Units, estimated to be
approximately $3.23 per share or approximately 65% of the public offering price
per share (allocating no value to the Warrants). Additional dilution to public
investors, if any, may result to the extent that the Warrants, the Unit Purchase
Option or outstanding options and warrants are exercised at a time when the net
tangible book value per share of Class A Common Stock exceeds the exercise price
of any such securities. See "Dilution."
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK; POTENTIAL
ANTI-TAKEOVER PROVISIONS. The Company's Amended and Restated Articles of
Incorporation authorizes the issuance of a maximum of 5,000,000 shares of
Preferred Stock on terms which may be fixed by the Company's Board of Directors
without further shareholder action. The terms of any series of preferred stock,
which may include priority claims to assets and dividends and special voting
rights, could adversely affect the rights of holders of the Class A Common Stock
and thereby reduce the value of the Class A Common Stock. The issuance of
preferred stock could make the possible takeover of the Company or the removal
of management of the Company more difficult, discourage hostile bids for control
of the Company in which shareholders may receive premiums for their shares of
Class A Common Stock or otherwise dilute the rights of holders of Class A Common
Stock.
ARBITRARY DETERMINATION OF OFFERING PRICE; ABSENCE OF PUBLIC MARKET AND
POSSIBLE VOLATILITY OF STOCK PRICE. The initial public offering price of the
Units and the exercise prices and other terms of the Warrants have been
arbitrarily determined by negotiation between the Company and the Underwriter
and do not necessarily bear any relationship to the Company's assets, net worth
or other established criteria of value. The exercise and redemption prices of
the Warrants should not be construed to imply or predict any increase in the
market price of the Class A Common Stock. See "Underwriting." No public market
for the securities has
16
<PAGE> 19
existed prior to the Offering. No assurance can be given that an active trading
market in the Company's securities will develop after completion of the Offering
or, if developed, that it will be sustained. No assurance can be given that the
market price of the Company's securities will not fall below the initial public
offering price. The Company believes factors such as quarterly fluctuations in
financial results, announcements of technological innovations or new products
and services, product and service enhancements by the Company or its
competitors, changes in financial estimates by securities analysts and other
events may cause the market price of the Company's securities to fluctuate,
perhaps substantially. These fluctuations, as well as general economic
conditions, such as recessions or high interest rates, may adversely affect the
market price of the securities.
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ SMALLCAP MARKET. Although
the Company's Units, Class A Common Stock and Warrants meet the current Nasdaq
listing requirements and are expected to be initially included on The Nasdaq
SmallCap Market, the Company will have to maintain certain minimum financial
requirements for continued inclusion on Nasdaq. Continued inclusion on Nasdaq
generally requires that (i) the Company maintain at least $2,000,000 in total
assets and $1,000,000 in capital and surplus; (ii) the minimum bid price of the
Class A Common Stock be $1.00 per share; (iii) there be at least 100,000 shares
in the public float valued at $200,000 or more; (iv) the Class A Common Stock
have at least two active market makers; and (v) the Class A Common Stock be held
by at least 300 holders.
Nasdaq has recently proposed more stringent financial and corporate
governance requirements for listing on Nasdaq. The new requirements for initial
listing (which requirements would be retroactively applied to the Company) are
(i) either at least $4,000,000 in net tangible assets ("net tangible assets"
equals total assets less total liabilities and goodwill), a $50,000,000 market
capitalization, or net income of at least $750,000 in two of the three prior
years; (ii) at least 1,000,000 shares in the public float valued at $5,000,000
or more; (iii) a minimum Class A Common Stock bid price of $4.00, (iv) at least
three active market makers in the Class A Common Stock; (v) at least 300 holders
of the Class A Common Stock; and (vi) at least two independent directors. With
respect to continued listing, such new requirements are (i) either at least
$2,000,000 in net tangible assets, a $35,000,000 market capitalization or net
income of at least $500,000 in two of the three prior years; (ii) at least
500,000 shares in the public float valued at $1,000,000 or more; (iii) a minimum
Class A Common Stock bid price of $1.00; (iv) at least two active market makers
in the Class A Common Stock; and (v) at least 300 holders of the Class A Common
Stock; and (v) at least two independent directors. If adopted, the Company will
have to meet and maintain such new requirements for continued inclusion on
Nasdaq.
If the Company is unable to satisfy Nasdaq's listing or maintenance
requirements, the Company's securities may be delisted from Nasdaq. In such
event, trading if any, in the Units, Class A Common Stock and Warrants would
thereafter be conducted in the over-the-counter markets in the so-called "pink
sheets" or the NASD's "Electronic Bulletin Board." Consequently, the liquidity
of the Company's securities could be impaired, not only in the number of
securities which could be bought and sold, but also through delays in the timing
of the transactions and lower prices for the Company's securities than might
otherwise be attained.
RISK OF LOW-PRICE STOCKS; PENNY STOCK RESTRICTIONS. If the Company's
securities were to be delisted from Nasdaq, they could become subject to Rule
15g-9 under the Exchange Act, which imposes additional sales practice
requirements on broker-dealers which sell such securities to persons other than
established customers and "accredited investors" (generally, individuals with
net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or
$300,000 together with their spouses). For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule may adversely affect the ability of broker-dealers
to sell the Company's securities and may adversely affect the ability of
purchasers in the Offering to sell any of the securities acquired hereby in the
secondary market.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission
17
<PAGE> 20
relating to the penny stock market. Disclosure is also required to be made about
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, the Company would remain subject to Section 15(b)(6) of the
Exchange Act, which gives the Commission the authority to prohibit any person
that is engaged in unlawful conduct while participating in a distribution of a
penny stock from associating with a broker-dealer or participating in a
distribution of a penny stock, if the Commission finds that such a restriction
would be in the public interest. If the Company's securities were subject to the
rules on penny stocks, the market liquidity for the Company's securities could
be severely adversely affected.
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE
WARRANTS. The Warrants included in the Units offered hereby will be immediately
detachable and separately tradeable. Although the Units will not knowingly be
sold to purchasers in jurisdictions in which the Units are not registered or
otherwise qualified for sale, purchasers who reside in or move to jurisdictions
in which the securities underlying the Warrants are not so registered or
qualified during the period that the Warrants are exercisable may buy Units (or
the Warrants included therein) in the aftermarket. In this event, the Company
would be unable to issue shares to those persons desiring to exercise their
Warrants unless and until the underlying shares could be qualified for sale in
the jurisdictions in which such purchasers reside, or unless an exemption from
such qualification exists in such jurisdictions. No assurance can be given that
the Company will be able to effect any such required registration or
qualification.
Additionally, purchasers of the Units will be able to exercise the Warrants
included therein only if a current prospectus relating to the shares underlying
the Warrants is then in effect under the Securities Act and such shares are
qualified for sale or exempt from qualification under the applicable securities
or "blue sky" laws of the states in which the various holders of the Warrants
then reside. Although the Company has undertaken to use reasonable efforts to
maintain the effectiveness of a current prospectus covering the shares
underlying the Warrants, no assurance can be given that the Company will be able
to do so. The value of the Warrants may be greatly reduced if a current
prospectus covering the shares issuable upon the exercise of the Warrants is not
kept effective or if such shares are not qualified or exempt from qualification
in the states in which the holders of the Warrants then reside.
ADVERSE EFFECT OF POSSIBLE REDEMPTION OF WARRANTS. The Warrants are subject
to redemption one year from the date of this Prospectus, on at least 30 days'
prior written notice, if the average of the closing bid prices (or last sales
prices) of the Class A Common Stock for 30 consecutive business days ending
within 15 days of the date on which the notice of redemption is given exceeds
$9.10 per share. If the Warrants are redeemed, holders of Warrants will lose
their right to exercise the Warrants, except during such 30-day notice of
redemption period. Upon the receipt of a notice of redemption of the Warrants,
the holders thereof would be required to: (i) exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for them to do so; (ii)
sell the Warrants at the then current market price (if any) when they might
otherwise wish to hold the Warrants; or (iii) accept the redemption price, which
is likely to be substantially less than the market value of the Warrants at the
time of redemption. See "Description of Securities -- Redeemable Warrants."
NO DIVIDENDS. The Company has paid no dividends to its shareholders since
its inception and does not plan to pay dividends in the foreseeable future. The
Company intends to reinvest earnings, if any, in the development and expansion
of its business. See "Dividend Policy."
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER CALIFORNIA
LAW. Pursuant to the Company's Restated Articles of Incorporation, and as
authorized under applicable California law, directors of the Company are not
liable for monetary damages for breach of fiduciary duty, except (i) in
connection with a
18
<PAGE> 21
breach of the duty of loyalty, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
dividend payments or stock repurchases illegal under California law or (iv) for
any transaction in which a director has derived an improper personal benefit.
See "Management -- Limitation of Liability and Indemnification Matters."
POSSIBLE ADVERSE EFFECT ON LIQUIDITY OF THE COMPANY'S SECURITIES DUE TO
INVESTIGATION BY THE SECURITIES AND EXCHANGE COMMISSION OF THE UNDERWRITER AND
D.H. BLAIR & CO. The Commission is conducting an investigation concerning
various business activities of the Underwriter and D.H. Blair & Co., Inc.
("Blair & Co."), a selling group member that will distribute a substantial
portion of the Units offered hereby. The investigation appears to be broad in
scope, involving numerous aspects of the Underwriter's and Blair & Co.'s
compliance with the Federal securities laws and compliance with the Federal
securities laws by issuers whose securities were underwritten by the Underwriter
or Blair & Co., or in which the Underwriter or Blair & Co. made over-the-counter
markets, persons associated with the Underwriter or Blair & Co., such issuers
and other persons. The Company has been advised by the Underwriter that the
investigation has been ongoing since at least 1989 and that it is cooperating
with the investigation. The Underwriter cannot predict whether this
investigation will ever result in any type of formal enforcement action against
the Underwriter or Blair & Co. or, if so, whether any such action might have an
adverse effect on the Underwriter or the securities offered hereby. The Company
has been advised that Blair & Co. intends to make a market in the securities
following the Offering. An unfavorable resolution of the Commission's
investigation could have the effect of limiting such firm's ability to make a
market in the Company's securities, which could adversely affect the liquidity
or price of such securities. See "Underwriting."
POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN THE COMPANY'S
SECURITIES. The Underwriter has advised the Company that Blair & Co. intends to
make a market in the Company's securities. Regulation M under the Exchange Act
may prohibit Blair & Co. from engaging in any market-making activities with
regard to the Company's securities for the period from five business days (or
such other applicable period as Regulation M may provide) prior to any
solicitation by the Underwriter of the exercise of Warrants until the later of
the termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriter may have to receive a fee for the
exercise of Warrants following such solicitation. As a result, Blair & Co. may
be unable to provide a market for the Company's securities during certain
periods while the Warrants are exercisable. In addition, the Company has agreed
to register for resale the Public Bridge Warrants and the underlying Class A
Common Stock one year from the closing of the Offering. Under applicable rules
and regulations under the Exchange Act, any person engaged in the distribution
in the future of the Public Bridge Warrants may not simultaneously engage in
market-making activities with respect to any securities of the Company for the
applicable "cooling off" period (which is likely to be five business days) prior
to the commencement of such distribution. Accordingly, in the event the
Underwriter or Blair & Co. is engaged in a distribution of the Public Bridge
Warrants, neither of such firms will be able to make a market in the Company's
securities during the applicable restrictive period. Any temporary cessation of
such market-making activities could have an adverse effect on the market prices
of the Company's securities. See "Underwriting."
19
<PAGE> 22
USE OF PROCEEDS
The net proceeds from the sale of 1,900,000 Units offered hereby, after
deducting the underwriting discount and commissions and other estimated expenses
of the Offering, are estimated to be approximately $7,765,000 ($9,004,750 if the
Underwriter's over-allotment option is exercised in full). The Company expects
the net proceeds to be utilized approximately as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- ----------
<S> <C> <C>
Repayment of Bridge Notes(1)......................... $2,137,000 27.5%
Repayment of Blair Notes(2).......................... 640,000 8.2
Selling expenses(3).................................. 1,155,000 14.9
Advertising, promotion and marketing(4).............. 938,000 12.1
Research and development(5).......................... 186,000 2.4
License fees(6)...................................... 122,000 1.6
Working capital(7)................................... 2,587,000 33.3
---------- ------
Total...................................... $7,765,000 100.0%
========== ======
</TABLE>
- ---------------
(1) Represents principal amount of the Bridge Notes issued in the Bridge
Financing completed by the Company in January 1997, together with estimated
accrued interest through September 30, 1997. The Bridge Notes bear interest
at the rate of 10% per annum and mature on the closing of the Offering. In
October and November 1996, the Company sold in a private placement the
Interim Notes in the aggregate principal amount of $200,000. The proceeds of
the Interim Notes were used for working capital purposes. Approximately
$204,000 of the proceeds from the issuance of the Bridge Notes were used to
repay principal and interest on the Interim Notes. The remaining proceeds of
the Bridge Notes were used for selling expenses, advertising, promotion and
marketing, and for working capital purposes, including general and
administrative expenses and payment of compensation to the Company's
executive officers (approximately $102,000 of which relates to payments made
with respect to accrued salaries).
(2) Represents principal amount of the Blair Notes issued in May, June and July
1997, together with estimated accrued interest through September 30, 1997.
The Blair Notes bear interest at the rate of 10% per annum and mature on the
closing of the Offering. The proceeds of the Blair Notes were used for
working capital purposes, including general and administrative expenses. The
Blair Notes were issued to the Underwriter and a corporation owned by the
wife of the sole shareholder of the Underwriter
(3) Includes expenses associated with developing the Company's sales force,
including salaries, commissions and travel expenses for an estimated total
of 10 to 15 national and regional sales managers and sales support staff
anticipated to be hired following the consummation of the Offering to market
the Company's services. See "Business -- Sales, Marketing and Distribution."
(4) Includes amounts which are expected to be paid to Netscape and may be paid
to other Website providers, browser providers and distribution channels to
market the Company's services, expenses associated with print advertising
and the development of printed promotional materials, trade show expenses,
and the salary of one marketing manager.
(5) Includes payment of compensation to the Company's technical personnel.
(6) Represents royalties payable to Pro-CD for the Company's licensed database.
(7) Working capital will be used for general corporate purposes, including
approximately $840,000 in aggregate annual base compensation (including
payment of compensation to the Company's executive officers and
administrative personnel), approximately $375,000 in past due payables and
approximately $322,000 for insurance, professional fees, and lease payments
relating to establishing the Company's new corporate headquarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management" and "Certain Transactions."
The Company anticipates, based on the Company's currently proposed plans
and assumptions relating to its operations (including assumptions relating to
the generation of revenue through relationships with
20
<PAGE> 23
Independent Publishers), that the proceeds of the Offering, together with
anticipated revenue from sales of enhanced advertisements, should be sufficient
to fund the Company's contemplated cash requirements for approximately 12 months
following the consummation of the Offering. In the event the Company's plans
change, its assumptions change or prove to be inaccurate or if the Company's
funds for operations otherwise prove to be insufficient (including due to
unanticipated technical or other problems), the Company could be required to
seek additional financing prior to the expiration of such 12-month period. In
addition, following such 12-month period, if the Company does not generate
significant revenue from operations, the Company will need to obtain additional
financing. The Company's ability to generate such revenue will depend primarily
upon the ability of the Company to sell enhanced advertising services to
businesses, primarily through the efforts of Independent Publishers. There can
be no assurance that the Company will be successful in selling such advertising
services or will ever generate sufficient revenue to fund its operations. The
Company has no current arrangements with respect to, or sources of, additional
financing. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all. The inability to obtain
additional financing could have a material adverse effect on the Company,
including possibly requiring the Company to curtail its growth plans,
significantly reduce operating costs or cease operations completely. See "Risk
Factors -- Future Additional Capital Requirements; No Assurance Capital Will be
Available."
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Offering. This estimate is based upon the current status
of the Company's business operations and upon certain assumptions regarding
future operations, including assumptions relating to the ability of the Company
to generate revenue through relationships with Independent Publishers or
otherwise. The amounts actually expended for each purpose set forth in "Use of
Proceeds," other than the repayment of the Bridge Notes and the Blair Notes, may
vary significantly in the event any of these assumptions prove inaccurate.
Future events, including changes in economic or competitive conditions or the
Company's business and the results of the Company's sales and marketing
activities, may make shifts in the allocation of funds necessary or desirable.
Specifically, in the event the Company does not generate sufficient revenue
within the first six months following the consummation of the Offering, the
Company will be required to curtail its growth plan through reductions in the
Company's sales force and administrative personnel. The Company reserves the
right to change its use of proceeds as unanticipated events or opportunities may
cause the Company to redirect its priorities and reallocate the proceeds
accordingly. The Company may use a portion of the proceeds to acquire other
businesses or technologies or products which are compatible with the Company's
business for the purpose of expanding its businesses or the Company may enter
into strategic alliances with other such companies. The Company does not
currently have any agreements, commitments or arrangements with respect to any
proposed acquisition, joint venture or strategic alliance, and no assurance can
be given that any acquisitions, joint ventures or strategic alliances will be
made in the future.
Prior to their use, the net proceeds of the Offering will be invested in
short-term, high-grade, interest-bearing investments or accounts. The Company
anticipates that any proceeds received upon exercise of the Underwriter's
over-allotment option, the Warrants or the Public Bridge Warrants, will be added
to working capital.
DIVIDEND POLICY
The Company has not, to date, paid any cash dividends on its Common Stock.
The Company has no current plans to pay dividends on its Common Stock and
intends to retain earnings, if any, for working capital purposes. Any future
determination as to the payment of dividends on the Common Stock will depend
upon the results of operations, capital requirements, the financial condition of
the Company and other factors deemed relevant by the Company's Board of
Directors.
21
<PAGE> 24
DILUTION
The following discussion and tables allocate no value to the Warrants
contained in the Units.
Dilution represents the difference between the initial public offering
price per share paid by the purchasers in the Offering and the net tangible book
value per share immediately after completion of the Offering. Pro forma net
tangible book value per share represents the net tangible assets of the Company
(total assets less total liabilities and intangible assets), divided by the
number of shares of Common Stock outstanding upon the closing of the Offering.
At June 30, 1997, the Company had a pro forma net tangible book value of
approximately $(2,331,000), approximately $(1.94) per share ($(5.83) per share
if the Escrow Shares are excluded). After giving effect to the issuance of the
1,900,000 Units offered hereby at an initial public offering price of $5.00 per
Unit, and the Company's receipt of the estimated net proceeds therefrom and the
use of a portion of the net proceeds to repay the Bridge Notes and the Blair
Notes (including interest), the net tangible book value per share of the
Company, as adjusted at June 30, 1997 would have been approximately $5,478,000,
or approximately $1.77 per share ($2.38 per share if the Escrow Shares were
excluded). This would result in an immediate dilution to investors in the
Offering of $3.23, or 65%, per share ($2.62, or 52%, per share if the Escrow
Shares were excluded), and the aggregate increase in the pro forma net tangible
book value to present shareholders would be $3.71 per share ($8.21 per share if
the Escrow Shares were excluded), as illustrated by the following table:
<TABLE>
<S> <C> <C>
Initial public offering price per Unit....................... $5.00
Pro forma net tangible book value per share before the
Offering................................................ (1.94)
Increase per share attributable to new investors........... 3.71
------ -----
Pro forma net tangible book value per share after the
Offering................................................... 1.77
-----
Dilution per share to new investors(1)....................... $3.23
=====
</TABLE>
- ---------------
(1) If the Underwriter's over-allotment option is exercised in full, the pro
forma net tangible book value per share after the Offering would be
approximately $1.98, resulting in dilution to new investors in the Offering
of $3.02, or 60%, per share.
The following table sets forth, on a pro forma basis, the differences
between existing shareholders and new investors in the Offering with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing shareholders and by new investors at an initial public offering price
of $5.00 per Unit:
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF OF TOTAL AVERAGE
OUTSTANDING CONSIDERATION CONSIDERATION PRICE PER
NUMBER SHARES PAID(1) PAID SHARE
--------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders.............. 1,199,996(2) 38.7% $ 152,940 1.6% $0.13
New Investors...................... 1,900,000 61.3 9,500,000 98.4 5.00
--------- ----- ---------- -----
Total.............................. 3,099,996 100.0% $ 9,652,940 100.0%
========= ===== ========== =====
</TABLE>
- ---------------
(1) Prior to the deduction of costs of issuance.
(2) Includes the 800,000 shares of Class B Common Stock that are Escrow Shares.
See "Principal Shareholders -- Escrow Shares."
22
<PAGE> 25
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1997, (ii) pro forma as of June 30, 1997 to reflect the $190,000
portion of the Blair Notes issued subsequent to such date and (iii) pro forma as
adjusted to give effect to the issuance by the Company of 1,900,000 Units
pursuant to the Offering at an initial offering price of $5.00 per Unit and the
receipt of the net proceeds thereof and the application of the net proceeds to
repay the Bridge Notes and the Blair Notes and related interest. See "Use of
Proceeds." This table should be read in conjunction with the financial
statements of the Company and the notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1997
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Bridge Notes and Blair Notes payable, net of
discount......................................... $2,222,300 $ 2,412,300 $ 0
=========== =========== ===========
Shareholders' equity (deficit):
Preferred Stock, 5,000,000 shares authorized; no
shares issued and outstanding, actual, pro
forma and as adjusted......................... 0 0 0
Class A Common Stock, 18,800,000 shares
authorized; no shares issued and outstanding,
actual and pro forma, 1,900,000 shares issued
and outstanding, as adjusted(1)............... 0 0 7,765,000
Class B Common Stock, 1,400,000 shares
authorized; 1,199,996 shares issued and
outstanding(2)................................ 152,940 152,940 152,940
Additional paid in capital....................... 475,800 475,800 475,800
Deficit accumulated during the development
stage......................................... (2,527,695) (2,527,695) (2,915,986)(3)
----------- ----------- -----------
Total shareholders' equity (deficit)..... (1,898,955) (1,898,955) 5,477,754
----------- ----------- -----------
Total capitalization............................... $ 323,345 $ 513,345 $ 5,477,754
=========== =========== ===========
</TABLE>
- ---------------
(1) Does not include (i) 1,900,000 shares of Class A Common Stock issuable upon
exercise of the Warrants included in the Units offered hereby; (ii) 570,000
shares of Class A Common Stock issuable upon exercise of the Underwriter's
over-allotment option, including the shares issuable upon exercise of the
Warrants included in the Units subject to such option; (iii) 380,000 shares
of Class A Common Stock issuable upon exercise of the Unit Purchase Option
and the Warrants included in the Units issuable upon exercise of the
Underwriter's Unit Purchase Option; and (iv) 1,200,000 shares of Class A
Common Stock issuable upon exercise of the Public Bridge Warrants. Also does
not give effect to 300,000 shares of Class A Common Stock reserved for
issuance under the Option Plan, under which options to purchase 30,000
shares have been granted to date. See "Management -- Stock Option Plan."
(2) Includes 800,000 Escrow Shares. See "Principal Shareholders -- Escrow
Shares."
(3) As adjusted to give effect to the recognition of approximately $388,000 of
expense upon the repayment of the Bridge Notes. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BRIDGE FINANCINGS
In October and November 1996, the Company issued an aggregate of $200,000
principal amount of Interim Notes and warrants to purchase an aggregate of
200,000 shares of Class B Common Stock ("Interim Warrants") to a total of three
individual investors, pursuant to which the Company received net proceeds of
$200,000. In January 1997, the Company completed the Bridge Financing of an
aggregate of $2,000,000 principal amount of Bridge Notes and 1,000,000 Bridge
Warrants to a total of 42 individual and institutional investors, in which the
Company received net proceeds of approximately $1,680,000 (after expenses of
such offering). A portion of the proceeds of the Bridge Financing were used to
repay principal and interest on the Interim Notes. On the closing of the Bridge
Financing, the Interim Warrants automatically converted into 200,000 Bridge
Warrants.
23
<PAGE> 26
The Underwriter, which acted as placement agent in connection with the
Bridge Financing, has advised the Company that there are no relationships
between any of the foregoing investors and the Underwriter except that virtually
all of such investors are existing high net worth clients of Blair & Co. (a
corporation that is substantially owned by family members of the sole
shareholder of the Underwriter). See "Underwriting." As used herein, the term
"Bridge Warrants" refers to, collectively, the 1,000,000 Bridge Warrants issued
in the Bridge Financing and the 200,000 Interim Warrants which were converted
into Bridge Warrants.
The Bridge Notes are payable, together with interest at the rate of 10% per
annum, on the earlier of one year from the issuance of the Bridge Notes and the
closing of the Offering. See "Use of Proceeds." The Bridge Warrants entitle the
holders thereof to purchase one share of Class A Common Stock commencing one
year from the date of their issuance but will be exchanged automatically on the
closing of the Offering for the Public Bridge Warrants, each of which will be
identical to the Warrants included in the Units offered hereby. The Bridge
Financing investors have agreed not to exercise, sell, transfer, or otherwise
dispose of the Public Bridge Warrants for a period of one year from the closing
of the Offering. The Company has agreed to use its best efforts to register the
Public Bridge Warrants for resale upon expiration of such lockup period.
In May, June and July 1997, the Company issued an aggregate of $622,000
principal amount of promissory notes (the "Blair Notes") to the Underwriter and
a corporation whose sole shareholder is the wife of the sole shareholder of the
Underwriter. See "Underwriting." The Blair Notes are payable, together with
interest, at the rate of 10% per annum, on the earlier of six months from their
issuance, the closing of the Offering and the closing of any private financing
providing gross proceeds to the Company of at least $1,000,000.
24
<PAGE> 27
SELECTED FINANCIAL DATA
The following statement of operations data for the period from November 13,
1995 (inception) to December 31, 1995 and for the year ended December 31, 1996,
are derived from the audited financial statements of the Company included
elsewhere in this Prospectus. The report of BDO Seidman LLP which also appears
herein contains an explanatory paragraph relating to uncertainty as to the
ability of the Company to continue as a going concern. The statement of
operations data for the six months ended June 30, 1996 and 1997 and the period
from November 13, 1995 (inception) to June 30, 1997 and the balance sheet data
at June 30, 1997 are derived from the unaudited financial statements of the
Company included elsewhere in this Prospectus and include, in the opinion of the
Company, all adjustments consisting of all normal recurring adjustments
necessary for a fair presentation of the Company's results of operations for
those periods and financial position at that date. The results of operations for
the six months ended June 30, 1997 are not necessarily indicative of the results
to be expected for the entire year. The following selected financial data should
be read in conjunction with the financial statements and related notes thereto
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 13, 1995
NOVEMBER 13, 1995 SIX MONTHS ENDED (INCEPTION) TO
(INCEPTION) TO YEAR ENDED ----------------------------- JUNE 30, 1997
DECEMBER 31, 1995 DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1997 (CUMULATIVE)
----------------- ----------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue............................... $ -- $ 65,548 $ 40,925 $ 23,914 $ 89,462
-------- --------- -------- --------- -----------
Costs and expenses
Cost of revenue..................... 6,250 114,052 51,998 63,031 183,333
Research and development............ -- -- -- 59,249 59,249
General and administrative.......... 12,325 357,552 173,716 961,632 1,331,509
Selling and marketing............... -- 152,365 24,187 487,651 640,016
-------- --------- -------- --------- -----------
Total costs and expenses.............. 18,575 623,969 249,901 1,571,563 2,214,107
-------- --------- -------- --------- -----------
Operating loss........................ $ (18,575) $(558,421) $(208,976) $(1,547,649) $(2,124,645)
-------- --------- -------- --------- -----------
Net interest expense.................. -- 19,702 -- 383,348 403,050
Net loss.............................. $ (18,575) $(578,123) $(208,976) $(1,930,997) $(2,527,695)
======== ========= ======== ========= ===========
Net loss per common share(1).......... $ (0.02) $ (0.67) $ (0.25) $ (2.13)
======== ========= ======== =========
Weighted average common shares
outstanding(1)...................... 818,344 858,499 850,777 906,378
======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
ACTUAL PRO FORMA(2)
----------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency).......................................................... $(2,419,152) $(2,419,152)
Total assets.......................................................................... 836,449 1,026,449
Total liabilities..................................................................... 2,735,404 2,925,404
Deficit accumulated during the development stage...................................... (2,527,695) (2,527,695)
Total shareholders' equity (deficit).................................................. (1,898,955) (1,898,955)
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for explanation of determination
of the weighted average number of shares of Common Stock used in computing
the net loss per common share. Excludes the Escrow Shares. See "Principal
Shareholders -- Escrow Shares" and Note 9 of Notes to Financial Statements.
(2) Gives pro forma effect to the issuance of $190,000 principal amount of Blair
Notes subsequent to June 30, 1997. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Prospectus.
OVERVIEW
The Company is a development stage company which did not commence
operations until November 1995. Since it commenced operations, the Company has
been engaged principally in the development, design and refinement of its sites,
market-testing activities, and marketing activities directed towards
establishing relationships with Independent Publishers, in addition to capital
raising activities.
The Company believes that the Internet represents an important new means
for advertisers to reach consumers through a targeted, interactive and highly
measurable medium. The Company has derived substantially all of its limited
revenue to date from the sale of enhanced advertisements on its On'Village
Yellow Pages and intends to continue to derive most of its revenue, if any, from
sales of such advertisements for the foreseeable future. As of August 1, 1997,
the Company had entered into 70 arrangements with Independent Publishers. The
Company's initial arrangements with Independent Publishers provided that the
Company receive limited cash payments up-front from the Independent Publishers
and a commitment by the Independent Publisher to market and resell a specified
number of the Company's "QuickStart Ads." The Company's more recent agreements
with Independent Publishers, which represent the Company's current business
strategy and cover 60 of the Company's agreements, provide that, for a period of
one year, the Independent Publisher will offer its advertising customers the
opportunity to advertise on the Company's yellow page directory for one year
through the Company's "QuickStart Ads," at no charge to the Independent
Publisher. In exchange for affording the Independent Publishers' advertising
customers the opportunity to advertise on the Company's yellow page site, the
Independent Publisher is required to print the Company's name and Internet
address in its print yellow page directories (including at least one full page
display advertisement in each published directory) and to use its best efforts
to resell the Company's enhanced advertising services. Revenue, if any, under
these agreements will initially be derived only to the extent the Company's
enhanced advertising services are sold and revenue, if any, derived under the
agreements will be recognized by the Company ratably over the term of the
advertisement. Any cash received prior to the completion of the earning process
is recorded as deferred revenue. Advertising revenue is also anticipated to be
derived to a lesser extent from direct sales by the Company to advertising
customers. See "Business -- Strategy."
The Company's operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside the Company's
control. These factors include the level of usage of the Internet, demand for
Internet advertising, seasonal trends in Internet usage, the advertising
budgeting cycles of individual advertisers, the amount and timing of capital
expenditures and other costs relating to the expansion of the Company's
operations, the introduction of new services by the Company or its competitors,
pricing changes in the industry, general economic conditions and economic
conditions specific to the Internet and on-line media. As a strategic response
to changes in the competitive environment, the Company may from time to time
make certain pricing, service or marketing decisions that could have a material
adverse effect on the Company's business, results of operations and financial
condition.
RESULTS OF OPERATIONS
To date, the Company has generated extremely limited revenue. During the
period November 13, 1995 (inception) to June 30, 1997 (cumulative) (the "Initial
Period"), the Company incurred a cumulative net loss of approximately
$2,528,000, including net losses of approximately $578,000 and $1,931,000 for
the year ended December 31, 1996 and for the six months ended June 30, 1997,
respectively. Since June 30, 1997, the Company has continued to incur losses.
These losses have resulted primarily from limited revenue from operations and
costs associated with the design and development of the Company's services,
including royalty and licensing payments, general and administrative expenses
and marketing activities.
26
<PAGE> 29
REVENUE
During the Initial Period, the Company generated revenue of approximately
$89,000, a substantial portion of which was derived from the direct sale of
advertisements to businesses located in Southern Utah in connection with the
Company's test marketing activities. The Company also recorded approximately
$66,000 of deferred revenue as of June 30, 1997 under agreements with
Independent Publishers. The Company's business strategy is to generate
advertising revenue through arrangements with Independent Publishers who will
market and attempt to resell the Company's enhanced advertising services to
their existing customers. As of August 1, 1997, the Company had entered into 70
of such arrangements and has generated extremely limited revenue from such
arrangements.
COST AND EXPENSES
Costs and expenses are comprised of cost of revenue, research and
development, general and administrative expenses and selling and marketing
expenses. For the Initial Period, the Company's cost of revenue was
approximately $183,000, and was comprised primarily of royalty payments made to
Pro-CD for use of Pro-CD's nationwide database. Subsequent to the Initial
Period, cost of revenue may also include royalty payments to Network Publishing
and payments to Mr. Kent Hinkson, the Company's Director of Technology, equal to
a total of 2% of the Company's annual net revenue, if any. See "-- Liquidity and
Capital Resources."
General and administrative and research and development expenses during the
Initial Period totalled approximately $1,391,000, and were comprised primarily
of salaries for administrative personnel and executive officers (including
approximately $15,000 of accrued salaries for executive officers), legal and
professional fees, and other business support costs. Upon consummation of the
Bridge Financing, the Company began to incur increased general and
administrative and research and development expenses, and expects to incur
significant further increases throughout 1997. These increases are expected to
include significant increases in spending on salaries and benefits (including
salaries for a chief financial officer, a director of technology, a systems
engineer, an operations manager, a programmer, a customer service staff, an
editorial creative staff and other administrative personnel), rent relating to a
new corporate headquarters and other business support costs.
Selling and marketing expenses during the Initial Period were approximately
$640,000, and were comprised of costs incurred to support the Company's test
marketing activities, the commencement of the establishment of a sales force and
relationships with Independent Publishers and expenses relating to the
amortization of the agreement with Netscape of approximately $257,000. Upon
consummation of the Bridge Financing, the Company began to incur increased
selling and marketing expenses and expects to incur significant further
increases throughout 1997. The Company believes that a significant component of
these expenses will include increased salaries and benefits for sales and
marketing personnel, including an estimated six regional sales managers, one
national sales manager, and one marketing manager. The Company believes that the
addition of the foregoing personnel is a necessary component of the Company's
business strategy. No assurance can be given, however, that the Company will be
able to attract, retain or assimilate such personnel in a timely manner, or at
all. Further increases in selling and marketing expenses are expected to include
additional payments to Netscape, as well as payments to other Website providers,
browser providers or distribution channels that the Company may in the future
enter into arrangements with to replace and/or supplement its arrangement with
Netscape.
Net interest expense during the Initial Period was approximately $403,000,
consisting primarily of the amortization of debt discount and debt issuance
costs and interest associated with the Bridge Financing.
NET LOSS
The Company incurred a net loss during the Initial Period of approximately
$2,528,000. Inasmuch as the Company plans on significantly increasing its level
of operating expenses and will be required to make significant additional
expenditures upon consummation of the Offering to continue to enhance its
services and to attract advertisers to the Company's services, the Company
anticipates that it will incur significant losses until such time, if ever, that
the Company attracts and retains a sufficient number of advertisers (through
27
<PAGE> 30
relationships with Independent Publishers or otherwise) to generate enough
revenue to support the Company's operating costs. There can be no assurance that
the Company will be able to attract and retain a sufficient number of
advertising customers to generate significant revenue, that the Company will
generate positive cash flow from its operations, or that the Company will attain
or thereafter sustain profitability in any future period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had a deficit accumulated during the
development stage of approximately $2,528,000 and a working capital deficit of
approximately $2,419,000. Since inception, the Company has had continuing
negative cash flow from operations and has funded its operations primarily
through the private sales of equity securities and borrowings from investors.
To date, the activities of the Company have been financed primarily by (i)
equity contributions from Messrs. J. Tracht, R. Tracht, Walden and Austin
(collectively, the "Founders"), officers, directors and the principal
shareholders of the Company, in the aggregate amount of $32,000, (ii) loans in
the aggregate amount of $80,000 from the Founders (which loans, together with
accrued interest of $5,800, were contributed to the capital of the Company in
December 1996), (iii) an equity contribution from an unaffiliated third party in
the amount of $100,000, (iv) the issuance in October and November 1996 of the
Interim Notes and the Interim Warrants, (v) the issuance in January 1997 of the
Bridge Notes and Bridge Warrants and (vi) the issuance in May, June and July
1997 of the Blair Notes. See "Certain Transactions."
In October and November 1996, the Company received a total of $200,000 from
the issuance of the Interim Notes and the Interim Warrants. These proceeds were
used for working capital purposes. In January 1997, the Company received
approximately $1,686,000 from the issuance of the Bridge Notes and Bridge
Warrants, net of issuance costs. A portion of these proceeds were used to repay
principal and interest on the Interim Notes, and have been and will be used for
selling expenses, advertising, promotion and marketing expenses and working
capital purposes, including general and administrative expenses and payment of
compensation to the Company's executive officers (approximately $102,000 of
which relates to payments made with respect to accrued salaries). The Company
recognized a non-recurring charge to operations relating to the Interim Notes
through the date of repayment of approximately $24,000, $14,000 of which was
recorded in the fiscal quarter ended December 31, 1996 and $10,000 of which was
recorded in the fiscal quarter ended March 31, 1997. On the closing of the
Bridge Financing, the Interim Warrants automatically converted into 200,000
Bridge Warrants. In May, June and July 1997, the Company received a total of
$622,000 from the issuance of the Blair Notes. These proceeds were used for
working capital purposes. The Company has allocated a portion of the proceeds of
the Offering to repay principal and accrued interest on the Bridge Notes and the
Blair Notes. The Company will recognize a charge to operations of approximately
$388,000 in connection with the repayment of the Bridge Notes. See "Use of
Proceeds" and "Capitalization -- Bridge Financing."
Pursuant to the Company's original agreement with Netscape, the Company was
required to make an initial payment of $21,666, followed by monthly payments of
$25,000, for total payments to Netscape of $196,666 through March 1997. Pursuant
to the Company's current agreement with Netscape, the Company is obligated to
make monthly payments of $30,000. The Company is also currently exploring the
creation of alternate arrangements with other Website providers, browser
providers or distribution channels to replace and/or supplement its arrangement
with Netscape, which may require payments or other consideration for listing the
Company's services. In addition, the Company is a party to an agreement with
Pro-CD pursuant to which the Company licenses its database of business listings.
Pursuant to this agreement, the Company is obligated to pay an annual royalty
based on net advertising revenue, subject to minimum annual royalty payments to
Pro-CD in order to continue to license its database. Further, the Company is
obligated to pay Network Publishing 1% of the Company's net advertising revenue
derived from the On'Village Yellow Pages and is obligated to pay Kent Hinkson,
the Company's Director of Technology (and a former consultant to Network
Publishing), 1% of the Company's net revenue generated during the term of Mr.
Hinkson's employment agreement (and, in certain instances, for a period of up to
three years following the termination of such agreement). See "Business,"
"Management-Employment Agreements" and Notes 1, 6 and 7 of Notes to Financial
Statements.
28
<PAGE> 31
The Company plans to finance the acquisition of approximately $300,000 of
equipment, consisting primarily of computer hardware, in 1997. As of the date of
the Prospectus, the Company had no other material commitments for capital
expenditures. Following the Offering, the Company intends to hire a number of
additional employees, which will require substantial capital resources. The
Company plans to add an additional approximately 30 employees (including a total
of approximately 10 to 15 national and regional sales managers and sales support
staff located nationwide) in the approximately 12 months following the
consummation of the Offering in the areas of marketing, product development and
administration. In addition, the Company has entered into employment agreements
with each of the Founders, effective on the closing of the Offering, providing
for aggregate salaries of $370,000 in the first year of each agreement. The
Company began accruing salaries to the Founders based on the salaries in the
employment agreements in October 1996. See "Management -- Employment
Agreements." During the second quarter of 1997, the Company relocated its
headquarters, which will result in monthly rent expense of approximately $8,800
during the first 12 months of the lease (which lease term commenced in April
1997), increasing to $11,000 per month during the remaining 48 months of the
lease term. See "Business -- Facilities."
The Company's independent certified public accountants have included an
explanatory paragraph in their report stating that the Company's financial
statements have been prepared assuming that the Company will continue as a going
concern and that the Company's working capital deficiency and shareholders'
deficit raises substantial doubt as to the Company's ability to continue as a
going concern. The Company is dependent upon the proceeds of the Offering or
other financing in order to continue in business.
The Company expects its cash requirements to increase in the future due to
higher expenses associated with the hiring of additional personnel, advertising,
promotion and marketing activities and other anticipated operating activities.
The Company also anticipates that it will incur significant losses until such
time, if ever, that the Company attracts and retains a sufficient number of
advertisers (through relationships with Independent Publishers or otherwise) to
generate enough revenue to support the Company's operating costs. There can be
no assurance that the Company will be able to attract and retain a sufficient
number of advertising customers to generate significant revenue, that the
Company will generate positive cash flow from its operations, or that the
Company will attain or thereafter sustain profitability in any future period.
The Company anticipates, based on the Company's currently proposed plans
and assumptions relating to its operations (including assumptions relating to
the generation of revenue through relationships with Independent Publishers),
that the proceeds of the Offering, together with anticipated revenue from sales
of enhanced advertisements, should be sufficient to fund the Company's
contemplated cash requirements for approximately 12 months following the
consummation of the Offering. In the event the Company's plans change, its
assumptions change or prove to be inaccurate or if the Company's funds for
operations otherwise prove to be insufficient (including due to unanticipated
technical or other problems), the Company could be required to seek additional
financing prior to the expiration of such 12-month period. In addition,
following such 12-month period, if the Company does not generate significant
revenue from operations, the Company will need to obtain additional financing.
The Company's ability to generate such revenue will depend primarily upon the
ability of the Company to sell enhanced advertising services to businesses,
primarily through the efforts of Independent Publishers. There can be no
assurance that the Company will be successful in selling such advertising
services or will ever generate sufficient revenue to fund its operations. The
Company has no current arrangements with respect to, or sources of, additional
financing. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all. The inability to obtain
additional financing could have a material adverse effect on the Company,
including possibly requiring the Company to curtail its growth plans,
significantly reduce operating costs or cease operations completely. See "Risk
Factors -- Future Additional Capital Requirements; No Assurance Capital Will Be
Available."
CHARGE TO INCOME IN THE EVENT OF RELEASE OF ESCROW SHARES
In the event the Company attains any of the earnings or stock price
thresholds required for the release of all or a portion of the Escrow Shares,
the release of the Escrow Shares to Company officers, directors, employees or
consultants will be treated, for financial reporting purposes, as compensation
expense of the Company. Accordingly, the Company will, in the event of the
release of any or all of the Escrow Shares,
29
<PAGE> 32
recognize during the period that the earnings or stock price thresholds are met
a substantial non-cash charge to earnings that would increase the Company's loss
or reduce or eliminate the Company's net income, if any, for financial reporting
purposes for the period or periods during which such securities are, or become
probable of being, released from escrow. The amount of this charge will be equal
to the fair market value of such securities on the date of release from escrow.
Although the amount of compensation expense recognized by the Company will not
affect the Company's total shareholders' equity (due to a corresponding increase
in additional paid-in capital), it may have a depressive effect on the market
price of the Company's securities.
NEW ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
(SFAS No. 125) issued by the Financial Accounting Standards Board ("FASB") is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The new
standard provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishment of liabilities. Because the Company is
not currently engaging in any transactions within the scope of this
pronouncement, the Company does not expect adoption of SFAS No. 125 to have a
material effect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS No. 128) issued by the FASB is effective for financial statements for both
interim and annual periods ending after December 15, 1997. Earlier application
is not permitted. SFAS 128 requires dual presentation of basic and diluted
earnings per share ("EPS") on the face of the income statement. It also requires
a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. This statement
also requires restatement of all prior period EPS data presented. The Company
does not expect adoption of SFAS No. 128 to have a material effect on its
results of operations.
Statements of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" (SFAS No. 129) issued by the FASB is
effective for financial statements ending after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 128. The Company does not expect adoption of SFAS No. 129
to have a material effect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company has not determined the effect
on its financial position or results of operations from the adoption of this
statement.
Statements of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997
(although the FASB is encouraging earlier application). The new standard
requires that public business enterprises report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to shareholders.
It also requires that public business enterprises report certain information
about their products and services, the geographic areas in which they operate
and their major customers. The Company has not determined the effect on its
financial position or results of operations from the adoption of this statement.
30
<PAGE> 33
BUSINESS
OVERVIEW
The Company is a development stage company engaged in the development,
publishing and marketing of World Wide Web-based services designed to help users
access information on the Internet, while at the same time providing advertisers
with an efficient and innovative means of reaching targeted audiences. The
Company's primary service offering is "On'Village Yellow Pages," an on-line
national yellow page directory service which users can currently access through
the Company's Web address, "http://www.onvillage.com." This service, offered
free of charge to the user, enables the user to access the Company's licensed
database of over 15 million business listings nationwide and to perform a search
of desired listings presently by category, business name and business location.
At the same time, On'Village Yellow Pages offers businesses the ability to
advertise on the Internet in what management believes is a targeted,
cost-effective and interactive manner. To better reach their targeted audiences,
businesses are given the opportunity by the Company to purchase enhanced
advertising services that supplement the basic yellow page listing. These
enhanced services include priority listings, listings of the Company's other
sites, graphics and logo advertisements, enhanced textual advertisements,
including detailed display banners, listings of businesses by additional
categories and cities, and additional URL and e-mail links.
The Company believes that the Internet represents an important new and
growing medium for advertisers to reach consumers. The Company's objective is to
position itself to take advantage of this growth by serving the needs of its
advertising customers. The Company's strategy is to develop a critical mass of
advertising customers who purchase enhanced advertisements on the On'Village
Yellow Pages. The Company believes that the most effective way to achieve this
base of advertisers is through joint marketing and sales arrangements with
independent local yellow page publishers ("Independent Publishers"), who
contract with the Company to directly market and resell the Company's services
to the Individual Publisher's existing base of customers. The Company believes
there are an estimated 350 Independent Publishers in the United States. As of
August 1, 1997, the Company had entered into arrangements with 70 Independent
Publishers. The Company plans to offer enhanced advertising services, both
indirectly through the Independent Publishers and directly to customers, and to
offer customers the opportunity to advertise on the Company's ancillary
services.
To distinguish itself from other on-line yellow page services, the Company
provides and is in the process of refining several additional services developed
by the Company. These offerings include "My Place," a membership service that
offers users various personalized services, products and promotions, and
"On'Zine," an interactive service providing users the ability to communicate and
immediately access relevant and related content and information on designated
third-party Websites. These sites are organized by category and have been
selected, reviewed and rated by the Company. The Company also recently
introduced "OnTour," a compilation of information regarding select U.S.
destinations, currently comprised of information regarding five national parks
and several other tourist destinations. The Company believes that these
additional services, in addition to attracting users, will enable advertisers to
reach a more targeted audience. In the future, the Company may also attempt to
generate revenue through the sale of customized Websites and, eventually, the
hosting of business-to-consumer and business-to-business electronic commerce on
the Internet.
INDUSTRY BACKGROUND
GENERAL
The Internet was originally created by the United States government to
facilitate the exchange of information and electronic mail ("e-mail") between a
limited number of academic institutions, defense contractors and government
agencies. The Internet was commercialized in the late 1980s and 1990s and
technological enhancements have since extended the Internet's reach to consumers
and businesses. The most important technological enhancement to the Internet was
the creation of the World Wide Web in the early 1990s. The Web is a
client/server system of hyperlinked, multimedia databases. The Web enables non-
technical users to easily access information on the Internet and enables
individuals or organizations to offer textual, graphical and other information
directly to end-users. The Web is an interactive environment which facilitates
the exchange of multimedia-rich information and entertainment resources among
users worldwide.
31
<PAGE> 34
In addition, recent technological developments have enabled consumers and
businesses to use the Web for buying and selling products and services. As a
result, the Web has changed, and will continue to change the way in which people
exchange information, communicate with each other and distribute products
worldwide.
A number of factors have contributed to the recent growth in popularity of
the Web. The open nature of the Web enables any individual or organization to
publish a Website. New software-based authoring tools have lowered the cost of
publishing content on the Web relative to conventional publishing methods and
enabled new, exciting forms of multimedia content. The Company believes that the
cost of delivering content to a large audience can often be lower than that of
conventional media, consisting primarily of the cost of maintaining and
operating computer equipment and inputting data. In addition, the interactive
nature of the Internet provides an environment in which content providers can
track the appeal of their content by measuring the number of visits to a
Web-site and can respond quickly to consumers' changing tastes and needs.
The dramatic increase in Web-based information and entertainment has
increased the appeal of the Web to consumers and has driven the high growth in
traffic on the Web. Continued enhancement to the Internet, such as support for
secured transactions, multimedia offering technology and new compression
technologies, should continue to attract new content providers and users to this
medium.
ADVERTISING ON THE WEB
With the growth in the number of Internet users and content providers, the
Internet has begun to develop the attributes of a conventional mass medium,
where advertising subsidizes content delivered to users. The 1995
CommerceNet/Nielsen Internet Demographics Survey indicates that on average, Web
users are upscale, professional and educated, providing an attractive
demographic profile for advertisers.
The Company believes that advertisers have begun to recognize that the
interactive nature of the Internet can provide an environment where advertising
may become more effective than it is in traditional broadcast and print media.
The interactive and global nature of the Internet has the potential to enable
advertisers to target specific audiences, measure the popularity of advertising
content and make timely changes in response, reach worldwide audiences
cost-effectively, and create innovative and interactive advertisements. The
Company believes that increases in transmission bandwidth through higher speed
Internet connections, and wider multimedia enabling technologies for the Web
will also increase the appeal and effectiveness of advertisements and make the
Web an even more attractive platform for advertising.
Advertisers currently face difficulties, however, in placing their
advertisements strategically on the Web. There are few companies that provide
inexpensive convenient turnkey packages that allow advertisers to make their
introduction onto the Web. In addition, it is difficult for advertisers to
understand the volume and demographics of traffic patterns on Websites. As a
result, advertisers can find it difficult to make the existence and location of
their advertisements widely known and target their audiences effectively. The
Company believes that, in the near term, advertisers will migrate to sites which
can offer a high number of impressions per day. The Company also believes that,
over time, advertisers will be attracted to those services that experience a
high volume of traffic, track consumers carefully and deliver advertisers
audiences that fit specific buying profiles. In order to provide such audiences
to advertisers, services and sites must develop technologies to enable them to
conduct complex demographic and psychographic profiling of their consumers. By
understanding their audiences, services and sites will be able to match
advertisements with buyers, resulting in targeted, high-impact advertising,
referred to as "narrowcasting." In addition, the ability to interact with such
targeted groups of consumers by providing enhanced benefits such as savings,
coupons, incentives and contests should enable advertisers to customize the
consumers' needs and eventually, to build a long-term relationship with
customers. The Company believes that those sites and services which both garner
a high volume of traffic and offer advertisers the ability to target specific
audiences effectively will be in the best position to take advantage of the
advertising and commercial opportunities on the Web.
32
<PAGE> 35
THE YELLOW PAGE ADVERTISING MARKET
Yellow page directories have been published in the United States since at
least the 1890s and, traditionally, have been published almost exclusively by
telephone utilities. In the early 1980s, due in part to telephone deregulation,
independent companies began publishing an increasing number of directories.
There are currently an estimated 350 Independent Publishers. The Company
believes that yellow page directories have proved to be a successful advertising
medium.
THE COMPANY'S SERVICES
The Company's primary service offering is On'Village Yellow Pages, a
national yellow page directory service targeted towards individuals and
businesses. To complement its yellow page directory, the Company also offers (i)
My Place, a membership service designed to enable registered users to take
advantage of various personalized services, products and promotions, including
savings, coupons and other incentives offered by the Company's advertisers and
other listed businesses, (ii) On'Zine, an interactive service designed to enable
users to communicate and access relevant and related content and information on
outside Websites, and (iii) OnTour, a compilation of information regarding
select U.S. destinations, currently comprised of information regarding five
national parks and several other tourist destinations. All of these services are
offered to users free of charge.
Users can access the Company's sites through the Company's Web address,
"http://www.onvillage.com." In addition, the Company's sites can currently be
accessed directly through Netscape's Web page via the "Net Search" button, as
well as through numerous other links throughout the Web. The Company's agreement
with Netscape, pursuant to which the Company participates in the Netscape
Distinguished Provider Program, expires on April 30, 1998. The agreement
provides, however, that either party can terminate the agreement at any time
upon 90 days' prior notice. If Netscape were to terminate the agreement, the
Company would likely suffer a significant decrease in the traffic to its sites,
thereby decreasing the marketability of the Company's services. Therefore, the
Company is currently exploring the creation of alternate arrangements with
Website providers, browser providers and other distribution channels, to replace
and/or supplement its arrangement with Netscape. See "-- Sales, Marketing and
Distribution."
ON'VILLAGE YELLOW PAGES
The Company's primary service offering is On'Village Yellow Pages, an
on-line yellow page directory service containing a licensed database of over 15
million business listings nationwide. The Company believes that its yellow page
directory offers users many advantages over print yellow page directories,
including (i) enabling users to obtain more timely content; (ii) enabling
regional users to search neighboring cities or counties not otherwise available
in their local print yellow page directory; (iii) enabling travelers to obtain
information from other parts of the country; and (iv) enabling businesses to
locate other businesses locally, regionally or nationally.
The directory is formatted and categorized in a manner similar to that of
most print yellow page directories. Users have the option of performing searches
by either business listings or by categories. To perform a search, the user
enters the name of the desired business listing or category, together with the
state and, if desired, the city in which the search is to be conducted. If the
user is performing a category search, the user will be presented with a series
of sub-categories from which to choose. For example, if the category entered is
"Restaurants," the user will be presented with a list of types of restaurants
from which to choose, in order to narrow the scope of the search. Shortly after
entering the search, the user is presented with a list of each business in the
database which fits within the specified search criteria. The listings include
businesses which have chosen to use the Company's services (including businesses
which have paid for the use of the Company's services), as well as those that
have not. Businesses that have purchased the Company's priority listing service
are listed first, followed by an alphabetical listing of the remaining entries.
By clicking on the desired business listing, the user will access the "page
behind" the listing, which provides the phone number, and, in most cases, the
address, of the business. In addition, each business with a yellow page listing
may add to the page-behind, free of charge, a brief (ten words or less) textual
advertisement, as well as a reference to an outside Website and e-mail address.
Users can link to these Websites by clicking on them. The page behind
33
<PAGE> 36
most business listings are linked to a zoomable map prepared by a third party
and currently available free of charge to the Company, which provides users with
a convenient method of viewing the location of desired business listings.
Expanded listings, including enhanced textual enhancements and graphics
customized by the Company, as well as other related services, are available to
businesses for a fee. See "-- Advertising Services and Pricing."
The Company's On'Village Yellow Pages directory consists of a database of
business listings licensed from Pro-CD, Inc. ("Pro-CD"), a leading CD-ROM
electronic directory publisher, pursuant to a five-year licensing agreement
entered into in December 1995. The database is comprised of telephone directory
information derived from print yellow page listings and includes the business
name, address (when available), and phone number of at least 15 million
businesses nationwide. Pro-CD is required to provide the Company with quarterly
updates of the database during the term of the agreement. Pursuant to the
agreement, the Company is obligated to pay annual royalty amounts based on net
advertising revenue, make certain minimum annual royalty payments to Pro-CD,
provide Pro-CD with 50 electronic advertising bill boards free of charge, and
include a reference to Pro-CD on each of the Company's search screens. In
addition, the agreement specifies certain limits regarding the number of
business listings which can be displayed by the Company per screen. So long as
Pro-CD is in compliance with its obligations regarding updating the database,
the Company is prohibited from utilizing any other yellow page database. The
agreement does not prohibit Pro-CD from licensing its database to others,
including existing and potential competitors of the Company. Pro-CD has the
right to terminate the agreement on or after January 1, 1998, upon six months'
notice, if it is unable, or if it becomes impractical for Pro-CD to continue to
supply the data. If the agreement is terminated for any reason, the Company
would be required to delete all directory listings derived from the Pro-CD
database. The Company believes that its national database gives it a competitive
advantage over publishers of most print yellow pages, which contain only local
listings and generally are published annually.
In the future, the Company plans to introduce enhanced search tools which
will enable a user to narrow his search of the Company's yellow page database,
based on such categories as area code, zip code, key words, brand names,
available discounts and other sub-categories. These refinements are expected to
be designed to enable businesses to narrowcast advertisements to specific
audiences by placing advertisements only where the user's query contains a
specific word that has been designated as a key word for that particular
advertiser. The Company believes that this type of advertising provides
advertisers the opportunity to engage in high-response, product-specific
advertising. Although the Company plans to introduce searches by area code by
the end of 1997, no assurance can be given as to when, if ever, additional
enhancements will be introduced, or if such enhancements will lead to increased
traffic on the Company's sites.
The Company's On'Village Yellow Pages currently generates only a very
limited amount of traffic per day. Additionally, a substantial portion of the
Company's revenue generated to date (which has been extremely limited) has been
derived from sales of enhanced advertisements to businesses in Southern Utah,
the location of the Company's test-market site, and from contracts entered into
with a limited number of Independent Publishers. No assurance can be given that
the Company's yellow page directory will ever generate a significant amount of
traffic or that the Company will be able to generate a significant amount of
advertising revenue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
MY PLACE
The Company's My Place service is an interactive, on-line service designed
to provide personalized services to registered users, referred to as
"residents." By providing certain personal or demographic information, such as
name, area code and, at the user's option, interests, an end user is assigned a
personal password through which he can access My Place. My Place offers end
users services such as: (i) access to discounts and promotions offered by
advertisers in their geographic area or areas of interest; (ii) an e-mail
forwarding service; (iii) a reminder service consisting of an automatic e-mail
message sent on a specified date; (iv) a personal notebook, consisting of
telephonic numbers selected by the end-user; and (v) links to other Internet
services such as a weather forecasting service. In addition, each resident is
given his own personalized e-mail address: "@onvillage.net."
34
<PAGE> 37
Membership in My Place is currently available, free of charge, to any user
who accesses the Company's site. First time users can register as a resident by
inputting their name, address and telephone number, a secret password, and
optional information regarding their personal interests. Each time a resident
enters My Place, he is greeted with the following personalized message:
ON'VILLAGE SAYS, "WELCOME BACK [NAME OF RESIDENT] OF [CITY OF RESIDENCE]."
Residents are then presented with notices, discounts, coupons and special offers
made available by businesses within the resident's area code. Residents also
have the ability to search for offerings made by businesses with different area
codes. Although businesses can currently post offerings on My Place free of
charge, in the future, the Company intends to limit participation to advertisers
who have purchased enhanced listings on the Company's On'Village Yellow Pages
directory or who otherwise pay a specified fee. See "-- Advertising Services and
Pricing."
The Company believes that My Place provides advertisers with an efficient
method of reaching a targeted audience. Advertisers can currently narrowcast
their promotional campaigns to users within a specified area code. Within the 12
months following consummation of the Offering, the Company expects to be able to
furnish further refinements to its My Place service based on a user's city,
state and zip code. Ultimately, the Company's goal is to utilize the information
it gathers regarding its users to provide advertisers with the ability to
narrowcast their advertisements based on such "psychographic" information as
hobbies and areas of interest. No assurance can be given that the Company will
ever implement such refinements, that My Place will ever attract a significant
number of users, will be an effective platform for advertisers, or that My Place
will ever generate significant revenue.
ON'ZINE
The Company's On'Zine service provides an interactive service for users to
communicate and immediately access relevant and related content and information
on designated third-party Websites. These Websites are organized by category,
and have been selected, reviewed and rated by the Company. On'Zine currently
lists over 400 Websites in a total of 22 different categories (or "Zines"),
including On'Travel, On'Computers, On'Cars and On'Gossip. Users receive a direct
and immediate link to outside Websites by simply clicking on the desired Website
within a Zine. On'Zine also offers a "chat area" within each Zine where users
can interactively discuss topics of common interest. These "chat areas" are not
currently monitored by the Company, although the Company anticipates it will do
so in the future.
The Company believes that On'Zine will provide advertisers with an
efficient method of reaching targeted audiences. The Company also views On'Zine
as an effective pathway for users to access third-party Websites. Accordingly,
the Company plans to offer advertisers (in particular, businesses purchasing
enhanced advertisements on the On'Village Yellow Pages, either through
Independent Publishers or directly) and third-party Website hosts the
opportunity to purchase advertising banners and other forms of advertising
within the various 'Zines. See "-- Advertising Services and Pricing."
The Company may, in the future, expand On'Zine, and may offer users a
limited amount of Company-prepared content. To date, On'Zine has generated a
limited amount of traffic, and, due to, among other things, the Company's
limited marketing resources, the Company has not sold any advertising on its
On'Zine service. No assurance can be given that On'Zine will ever attract a
significant number of users, will be an effective platform for advertisers or
that On'Zine will ever generate significant revenue.
ONTOUR
The Company's recently introduced "OnTour" service provides users with a
compilation of information regarding select U.S. destinations. Currently, users
can access information regarding five national parks (Zion, Bryce Canyon, Canyon
Lands, Arches and the Grand Canyon), and several other tourist destinations
including Sonoma, California, Daytona Beach, Florida and Sun Valley, Idaho. By
clicking on the desired destination, users can locate listings of restaurants,
retail shops, hotels and other information regarding surrounding areas at such
destination. The Company plans to offer advertisers (in particular, businesses
purchasing enhanced advertisement on the On'Village Yellow Pages, either
directly or through Independent
35
<PAGE> 38
Publishers) and third-party Website hosts the opportunity to purchase
advertising banners and other forms of advertising on the Company's OnTour site.
To date, sales of advertisements on OnTour have been limited to businesses
located in Utah in conjunction with the Company's test-marketing activities and
OnTour has generated a limited amount of traffic. No assurance can be given that
OnTour will ever generate a significant number of users, will be an effective
platform for advertisers or that OnTour will ever generate significant revenue.
PROPOSED SERVICES
The Company may in the future host and sell customized Websites. Prices for
these services would depend upon the nature and extent of the desired Website.
The Company may also develop and market services that enable customers to engage
in business-to-consumer and business-to-business electronic commerce on the
Internet. These services would include hosting of transactions and could include
order taking, authorization, payment processing, security and customer service.
The Company anticipates that it would receive a fee for hosting these services
as well as a transaction fee based on the dollar amount of each sale. Online
purchasing of goods and services by consumers is in an early stage of
development, and has been hindered to date by, among other factors, a lack of
widely accepted secure payment mechanisms. See "Risk Factors -- Developing
Market; Unproven Acceptance of the Company's Services." No assurance can be
given that the Company will successfully develop such services, or that if
developed, such services will ever generate significant revenue.
STRATEGY
The Company believes that the Internet represents an important new growing
medium for advertisers to reach consumers. The Company's objective is to
position itself to take advantage of this growth by serving the needs of its
advertising customers. The Company designed its initial service offering, the
On'Village Yellow Pages, to provide businesses with the ability to undertake
measurable, targeted, cost-effective and interactive advertising on the
Internet. In an effort to differentiate its yellow page directory service from
other Internet-based yellow page directories, the Company introduced My Place,
On'Zine and OnTour. In the future, as the Company continues to address the
requirements of its advertising customers, the Company plans to invest resources
in the enhancement of its existing offerings and the possible development of
additional services (such as the hosting and sale of customized Websites and,
eventually, the hosting of electronic commerce).
The Company's strategy for revenue generation is to develop a critical mass
of advertising customers who purchase enhanced advertisements on the On'Village
Yellow Pages. The Company believes that the most effective way to achieve this
base of advertisers is through joint marketing and sales arrangements with
Independent Publishers. The Company's strategy is to initially seek to enter
into as many arrangements with Independent Publishers as possible by providing
the Independent Publishers with the opportunity, free of charge, to offer their
advertising customers with a means of advertising on the Internet through the
Company's basic "QuickStart" advertisement (the "QuickStart Ad"). In exchange
for access to the Company's Internet services, the Independent Publishers agree
to directly market and attempt to resell the Company's enhanced advertising
services to the Independent Publisher's existing base of customers. The Company
believes that this strategy will enable the Company to potentially leverage the
Independent Publishers' existing base of advertising customers and sales and
marketing personnel, to expand the Company's base of advertising customers. The
Company anticipates that once established, this base of advertising customers
may not only purchase enhanced advertising services from the Company, but may
also be willing to pay for basic advertising services in the future. The Company
believes that the Independent Publishers could provide an efficient means of
promoting and marketing the Company's services. To support this effort, the
Company plans to develop a nationwide sales management force dedicated to
establishing relationships with Independent Publishers. See "-- Sales, Marketing
and Distribution."
The Company anticipates that its principal source of revenue, if any, in
the future will be fees paid to the Company by advertising customers, both
indirectly through Independent Publishers and, to a lesser extent, directly, to
obtain enhanced advertisements on the On'Village Yellow Pages, to advertise on
On'Zine and
36
<PAGE> 39
OnTour, and to provide promotions and other offerings on My Place. To date, the
Company's extremely limited revenue has been derived primarily from sales of
enhanced advertisements to businesses located in Southern Utah, the location of
the Company's test-market site, and from the contracts entered into with a
limited number of Independent Publishers.
The Company believes that distributing and marketing its services widely is
a key to successfully growing its base of users as well as enhancing its
marketability to its advertising customers. Accordingly, the Company is party to
an agreement with Netscape which provides that the Company's yellow page
directory is listed as a yellow page service on Netscape's Web page, accessible
via the "Net Search" button, through April 1998 (subject to either party's
ability to terminate the agreement at any time upon 90 days' prior notice)
pursuant to the Netscape Distinguished Provider Program. The Company is
currently exploring the creation of alternate arrangements with Websites
providers, browser providers and other distribution channels, to replace and/or
supplement its arrangement with Netscape. See "-- Sales, Marketing and
Distribution."
The Company believes that cultivating a distinct brand image will be
critical to differentiating the Company's services. The Company plans to
maximize brand potential by providing consistent higher quality and innovative
services, and by conducting marketing activities that reinforce the Company's
image. The Company also believes that its relationships with Independent
Publishers (who are expected to include the "On'Village" name and address in
participating business listings in the print yellow pages they publish) will be
an important means of generating name recognition. See "-- Intellectual Property
and Proprietary Rights."
SALES, MARKETING AND DISTRIBUTION
The Company's sales and marketing efforts, which to date have been
extremely limited, were initially focused on sales by the Company of enhanced
advertisements in the On'Village Yellow Pages directly to businesses located in
Southern Utah, the location of the Company's test-market site. As a result of
these activities, the Company gained valuable information which was applied in
refining the Company's sales techniques, service offerings and technical
systems. In addition, the Company concluded that direct sales efforts would not
be a feasible means of establishing a critical mass of advertising customers,
due to the extensive nature of the required sales and marketing resources.
Accordingly, the Company changed its focus to the establishment of relationships
with Independent Publishers as the primary means of selling and marketing the
Company's services.
RELATIONSHIPS WITH INDEPENDENT PUBLISHERS
The Company's current standard agreement with Independent Publishers
provides that, for a period of one year, the Independent Publisher will offer
its advertising customers the opportunity to advertise on the Company's yellow
page directory through the Company's QuickStart Ad, at no charge to the
Independent Publisher. In exchange for affording the Independent Publishers'
advertising customers the opportunity to advertise on the Company's yellow page
site, the Independent Publisher is required to print the Company's name and
Internet address in its print yellow page directories (including at least one
full page display advertisement in each published directory) and to use its best
efforts to resell the Company's enhanced advertising services. These enhanced
services include priority listings, listings of the Company's other sites,
graphics and logo advertisements, enhanced textual advertisements, including
detailed display banners, listings of businesses by additional categories and
cities, and additional URL and e-mail links. During the term of the agreement,
the Independent Publisher is prohibited from representing or selling the
products of any other on-line or Internet-based yellow page service. The Company
will provide training and consulting services to the Independent Publishers and
will, in some cases, provide the Independent Publishers with the software
necessary to enable the Independent Publishers to directly input certain
enhanced advertisements on the On'Village Yellow Pages. The Company also plans
to sell advertisements on On'Zine, My Place and OnTour through the Independent
Publishers. As of August 1, 1997, the Company had entered into 70 arrangements
with Independent Publishers.
In the approximately 12 months following the consummation of the Offering,
the Company plans to add a total of an additional approximately 10 to 15
national and regional sales managers and sales support staff to
37
<PAGE> 40
develop contacts with Independent Publishers. No assurance can be given that the
Company will be able to add such personnel, or that any such personnel will lead
to increased sales of the Company's services. See "Business -- Employees."
ARRANGEMENT WITH NETSCAPE
In order to provide users with simple and instantaneous access to the
Company's services, the Company entered into an agreement with Netscape which
provides that the Company's services will be listed on Netscape's Web page,
accessible via the "Net Search" button, through April 1998 (subject to each
party's ability to terminate the agreement at any time upon 90 days' prior
notice) pursuant to the Netscape Distinguished Provider Program. Currently, two
competing yellow page services, as well as a number of leading navigational
services with yellow page directories, are also listed. The Company believes
that a significant percentage of the limited traffic to the Company's site is
generated through its Netscape listing. No assurance can be given that Netscape
will not terminate the agreement prior to its expiration date, that Netscape
will not enter into similar arrangements with other competing companies (thereby
resulting in an increase in the number of competitive companies listed on
Netscape's Web page), or that Netscape will not develop its own service
offerings competitive with those of the Company. If Netscape were to choose to
terminate the agreement, or if Netscape were to develop and market its own
competitive services or promote competing services from other third parties, the
Company would likely suffer a significant decrease in the traffic to its sites,
thereby decreasing the marketability of the Company's services. The Company is
currently exploring the creation of alternate arrangements with Website
providers, browser providers and other distribution channels, to replace and/or
supplement its arrangement with Netscape. No assurance can be given that the
Company will enter into any such arrangements on terms acceptable to the Company
or at all, or that any such arrangements will generate significant traffic to
the Company's on-line sites.
The Company also plans to pursue other means of marketing its services,
including on-line and trade advertising, attendance at Internet trade shows and
advertisements in various print media. The Company may also enter into
cross-marketing strategic arrangements with Internet service providers and
others.
ADVERTISING SERVICES AND PRICING
The Company's services are designed to provide businesses with the ability
to undertake measurable, targeted, cost-effective and interactive advertising on
the Internet. Businesses are afforded the opportunity to target the users of the
Company's yellow page directory in a general fashion, or to narrowcast
advertisements based on the geographic location of the user and by advertising
on the Company's other service offerings, thereby offering the advertiser the
opportunity to engage in high-response, product-specific advertising. For
example, the Company offers registered users of My Place the opportunity to take
advantage of special offers, discounts, and other benefits provided by the
Company's advertising customers and other listed businesses. Additionally, the
Company believes that, because users initiate the search for information
regarding a particular business, users are particularly receptive to the
advertising information they receive, thereby establishing the Company's
services as an attractive and effective platform for delivering information in
an unobtrusive manner.
The Company offers businesses a number of different advertising options,
ranging from simple text to more complicated graphical images. The Company has
bundled a number of its basic options into the QuickStart Ad. The QuickStart Ad
includes an enhanced textual advertisement appearing on the "page behind" of an
advertiser's yellow page listing, as well as a listing of business hours and
credit cards accepted. The QuickStart Ad also sets forth the URL link to an
advertisers' outside web site and e-mail address (if available). Businesses
which advertise through the QuickStart Ad can list their businesses under three
different categories on the Company's yellow page directory, and receive an
expanded listing icon next to their yellow page listing. Advertisers can change
the text of their advertisement at any time, subject to approval of the Company.
Initially, the Company intends to provide each advertising client of
participating Independent Publishers with a QuickStart Ad at no charge to the
Independent Publisher, in exchange for, among other things, a commitment by the
Independent Publisher to market and resell the Company's other product
offerings. See "-- Sales, Marketing and Distribution; Relationships with
Independent Publishers."
38
<PAGE> 41
The Company also offers several enhanced advertising services designed to
increase the visibility or effectiveness of an advertisement, including priority
listings, listings on the Company's My Place and OnTour sites, graphics and logo
advertisements, enhanced textual advertisements, including detailed display
banners, listings of businesses by additional categories and cities, and
additional URL and e-mail links. The suggested retail price of these products
currently range from $20 to $499. In addition, the Company offers advertisers
access to the Company's database of end-users, for the purpose of targeting
advertisements and offering promotional materials. In the future, the Company
also plans to offer businesses the opportunity to purchase advertising space on
the Company's On'Zine sites. These advertisements will be priced on a
case-by-case basis.
TECHNOLOGY
Pursuant to the Company's agreement with Network Publishing, which is
terminable by the Company upon 30 days' notice and by Network Publishing upon
120 days' notice, Network Publishing has agreed to host and maintain the
Company's computer hardware systems. The Company's software is developed and
maintained in-house by Kent Hinkson, the Company's Director of Technology, a
former consultant to Network Publishing. The Company's systems are powered by
the Oracle Database software as well as other server software, and employ
multiple T-1 lines from several telephone utilities, with hardware traffic
routing that provides consistent throughput. These T-1 lines connect the
Company's servers to telephone company providers, which employ more powerful
routers and dedicated high speed connection lines. All systems and maintenance
activities, including server hosting, are managed and maintained by Network
Publishing. The Company believes that Network Publishing is capable of
supporting the Company's technological needs for the foreseeable future. Network
Publishing has built and maintained Web sites for such major corporations as
Novell, Volkswagen USA, Verifone, The Smithsonian and The Utah Travel Council.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
COMPETITION
The market for Internet products and services is highly competitive, with
no substantial barriers to entry, and the Company expects that competition will
continue to intensify. The market for the Company's services has only recently
begun to develop, is rapidly evolving and is characterized by an increasing
number of market entrants with competing products and services. The Company
believes that the principal competitive factors in its market are brand
recognition, ease of use, comprehensiveness, enhancements and value added
benefits, entertainment value, and quality and responsiveness of search results
(i.e., narrowcasting). Although the Company believes that the diverse segments
of the Internet market may provide opportunities for more than one supplier of
services similar to those of the Company, it is possible that a single or few
suppliers may dominate one or more market segments. There can be no assurance
that the Company's competitors will not develop Internet services that are
superior to those of the Company or that achieve greater market acceptance than
the Company's offerings. Any failure of the Company to provide service offerings
that achieve success in the short-term could result in an insurmountable loss in
marketshare and brand acceptance, and could, therefore, have a material adverse
effect upon the Company's business in the long term.
A number of companies offer competitive services addressing certain of the
Company's target markets. Most of the Company's existing and potential
competitors have significantly greater financial, technical and marketing
resources than the Company. These companies include America Online, Inc.,
Excite, Inc., Lycos, Inc., The McKinley Group, CompuServe Corporation, Prodigy
Services Company, Infoseek Corporation and Yahoo! Corporation. Specifically, the
Company's On'Village Yellow Pages product competes with other Internet Yellow
Page directory services, including BigYellow, BigBook, YellowNet, GTE
SuperPages, Yellow Pages Online, Switchboard, InfoSpace, ZIP2, American Business
Information's Lookup USA and a Netscape Guide by Yahoo! featuring five Regional
Bell Operating Companies' Internet Yellow Page services. In addition, the
Company competes with metasearch services that allow a user to search the
databases of several catalogs and directories simultaneously. The Company also
competes indirectly with database vendors that offer information search and
retrieval capabilities with their core database products. In the future, the
39
<PAGE> 42
Company may encounter competition from providers of Web browser software,
including Netscape and Microsoft Corporation, online services and other
providers of other Internet products and services who elect to incorporate their
own search and retrieval features into their offerings.
Pro-CD and Netscape, as well as a number of the Company's current
advertising customers, have established relationships with certain of the
Company's competitors and future advertising customers, licensees and licensors
may establish similar relationships. In addition, the Company competes with
online services and other Website operators as well as traditional offline media
such as print (including print yellow page directories) and television for a
share of advertisers' total advertising budgets. Competition among current and
future suppliers of Internet navigational and directory services, as well as
competition with other media for advertising placements, could result in
significant price competition and reductions in advertising revenue. There can
be no assurance that the Company will be able to compete successfully against
its current or future competitors.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company relies on a combination of copyright and trademark laws and
contractual provisions to protect its proprietary rights. Litigation may be
necessary to protect the Company's proprietary technology. Any such litigation
may be time-consuming and costly. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's services or to obtain and use information that the Company regards as
proprietary. In addition, there are few barriers to entry into the market for
the Company's services. There can be no assurance, therefore, that any of the
Company's competitors, most of whom have far greater resources than the Company,
will not independently develop technologies that are substantially equivalent or
superior to the Company's technologies. See "-- Competition."
The Company has applied for a service mark registration for "On'Village."
Although this application was initially denied, the Company intends to respond
to the denial, arguing that the registration should be granted. There can be no
assurance, however, that the Company's application will be approved. The Company
intends to focus its efforts on achieving brand recognition for its products;
therefore, failure of the Company to obtain the "On'Village" service mark and
the use of the name by third parties, could have a material adverse effect on
the Company's business, results of operations and financial condition. The
Company will continue to evaluate the registration of additional service marks
and trademarks, as appropriate.
In addition, the Company relies on certain technology and data licensed
from third parties, and may be required to license additional technology and
data in the future, for use in providing services to users and advertising
customers. The Company's ability to generate fees from advertising and,
eventually, Internet commerce, may also depend on data encryption and
authentication technologies that the Company may be required to license from
third parties. There can be no assurance that these third party technology
licenses will be available or will continue to be available to the Company on
acceptable commercial terms, or at all.
There has been substantial litigation in the computer industry regarding
intellectual property rights. There can be no assurance that the Company will
not commence litigation to protect its position or third parties will not in the
future claim infringement by the Company with respect to current or future
services, trademarks or other rights (including the use of the "On'Village"
name), or that the Company will not counterclaim against any such parties in
such actions. Any such claims or counterclaims could be time-consuming, result
in costly litigation, or require the Company to redesign its services, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. Although the Company will take steps that it
considers appropriate to protect its intellectual property rights, the Company
believes its future success will depend primarily on its ability to rapidly
introduce new services and enhancements to its existing services, rather than
upon legal protections afforded existing intellectual property.
GOVERNMENT REGULATION
The Company may be subject to Sections 5 and 12 of the Federal Trade
Commission Act (the "FTC Act"), which regulate advertising in all media,
including the Internet, and require advertisers to have
40
<PAGE> 43
substantiation for advertising claims before disseminating advertisements. The
FTC Act prohibits the dissemination of false, deceptive, misleading and unfair
advertising, and grants the Federal Trade Commission ("FTC") enforcement powers
to impose and seek civil and criminal penalties, consumer redress, injunctive
relief and other remedies upon persons who disseminate prohibited
advertisements. The Company could be subject to liability under the FTC Act if
it were found to have participated in creating and/or disseminating a prohibited
advertisement with knowledge, or reason to know that the advertising was false
or deceptive. The FTC has recently brought several actions charging deceptive
advertising via the Internet, and is actively seeking new cases involving
advertising via the Internet.
The Company may also be subject to the provisions of the recently enacted
Communications Decency Act (the "CDA"), which, among other things, imposes
substantial monetary fines and/or criminal penalties on anyone that distributes
or displays certain prohibited material over the Internet or knowingly permits a
telecommunications device under its control to be used for such purposes.
Although the manner in which the CDA will be interpreted and enforced and its
effect on the Company's operations cannot yet be fully determined, the CDA could
subject the Company to substantial liability. The CDA could also dampen the
growth of the Internet generally and decrease the acceptance of the Internet as
an advertising medium. It is also possible that new laws and regulations may be
adopted covering issues such as privacy, copyright infringement, subject matter
and the pricing, characteristics and quality of Internet products and services.
Application to the Internet of existing laws and regulations governing issues
such as property ownership, libel and personal privacy is also subject to
substantial uncertainty.
There can be no assurance that the CDA or other current or new government
laws and regulations, or the application of existing laws and regulations, will
not subject the Company to significant liabilities, significantly dampen growth
in Internet usage, prevent the Company from offering certain Internet content or
services, or otherwise cause a material adverse effect on the Company's
business, financial condition or operating results.
EMPLOYEES
As of August 1, 1997, the Company had 22 full-time and three part-time
employees, including five in research and technology, eight in sales and
marketing and 12 in finance and administration. The Company believes that its
relations with its employees are satisfactory. The Company is not a party to any
collective bargaining agreements. The Company's future success depends on its
continuing ability to attract and retain highly qualified technical and
management personnel. To enable the Company to pursue its business strategy, the
Company plans to add an additional approximately 30 employees in the
approximately 12 months following the Offering in the areas of marketing,
product development and administration (including a total of approximately 10 to
15 national and regional sales managers and sales support staff). Competition
for employees in the Company's industry is intense, and there can be no
assurance that the Company will be able to attract or retain highly qualified
personnel in the future.
FACILITIES
The Company's principal administrative, sales, and marketing facility is
located in an approximately 6,300 square foot facility in Calabasas, California.
The five-year lease, which commenced in April 1997, provides for monthly
payments of approximately $8,800 during the first 12 months of the lease term,
with monthly payments of approximately $11,000 for the remaining 48 months and
an option to extend the lease for an additional three years. The Company
believes that its existing facility will be adequate for the Company's
requirements for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not currently engaged in any legal proceedings.
41
<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are the directors, director nominees and executive officers
of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- --------------------------------------------
<S> <C> <C>
Jack B. Tracht+ 48 Chief Executive Officer and Director
Robert D. Tracht 43 President, Chief Operating Officer and
Director
Jeff W. Walden 43 Senior Vice President of Marketing and
Director
James E. Austin 58 Senior Vice President of Sales, Secretary
and Director
William A. Rossi 39 Vice President and Chief Financial Officer
Nicholas M. Mitsakos*+ 37 Director Nominee
David A. Searls*+ 49 Director Nominee
</TABLE>
- ---------------
+ Proposed member of the Compensation Committee.
* Proposed member of the Audit Committee.
JACK B. TRACHT is a co-founder of the Company and has served as a Director
since the Company's inception in November 1995 and as the Company's Chief
Executive Officer since May 1996. From November 1995 to May 1996, Mr. Tracht
served as a Vice President of the Company. From 1987 to 1995, Mr. Tracht was
President and a principal of Inland Pacific Edge Inc., a distributor of apparel
and footwear to mass marketers in the U.S. and abroad. Mr. Tracht has over 20
years of experience in marketing, designing and merchandising various product
lines. Mr. Tracht has served in various positions in retail and wholesale
management at Allied Department Store Group, Great American Clothing Company and
Point Sportswear, a division of Alpha Pacific Corporation. Mr. Tracht is the
brother of Robert D. Tracht.
ROBERT D. TRACHT is a co-founder of the Company and has served as its
President and a Director since the Company's inception in November 1995, and has
served as the Company's Chief Operating Office since May 1996. From March 1995
to January 1997 Mr. Tracht served as the Company's Chief Financial Officer. Mr.
Tracht is the founder and a principal of Robert Tracht Enterprises, Inc.
("RTE"), a domestic and international wholesaler and distributor of apparel and
athletic footwear with a European giftware merchandising division, and has
served as that company's President since 1987. Mr. Tracht has over 20 years of
experience in the apparel, merchandising and accessory wholesale industry. Prior
to 1987, Mr. Tracht served as Regional Sales Manager for a division of Jordache
Jeans and Englishtown Sportswear. Mr. Tracht is the brother of Jack B. Tracht.
JEFF W. WALDEN is a co-founder of the Company and has served as a Director
since the Company's inception in November 1995 and as the Company's Senior Vice
President of Marketing since May 1996. From November 1995 to May 1996, Mr.
Walden served the Company as a Vice President. Mr. Walden's career spans 20
years across the apparel and giftware industries, where he developed, marketed
and merchandised numerous product lines. Mr. Walden is a principal in RTE where,
since 1990, he has managed its wholesale trading division. From 1986 to 1990,
Mr. Walden served as Vice President of American Marketing Works Incorporated's
branded division, which included the Body Glove brand. From 1981 to 1986, Mr.
Walden served as Vice President of PLSA, Inc., a manufacturer of men's and
women's outerwear apparel. Prior thereto, Mr. Walden served as Vice President of
Marketing and Sales of Alpha Pacific Corporation and as Vice President of
Marketing of American Characters International, Inc.
JAMES E. AUSTIN is a co-founder of the Company and has served as a Director
since the Company's inception in November 1995 and as the Company's Senior Vice
President of Sales since May 1996. From November 1995 to May 1996, Mr. Austin
served the Company as a Vice President. For over 30 years Mr. Austin has been
involved in the selling and merchandising of sportswear lines. For almost 20
years, Mr. Austin headed his own independent sales representative organization,
representing sportswear manufacturers such as Body Glove, Bugle Boy and B.U.M.
Equipment. From 1994 to 1995, Mr. Austin was employed
42
<PAGE> 45
by Authentic Image Marketing as National Sales Manager for its surf and
sportswear product line. From 1993 to 1994, he was employed by Inland Pacific
Edge, Inc. as a National Marketing Representative, and from 1991 to 1992 was a
sales representative for Yes Clothing Co. Mr. Austin previously served as
Regional Vice President at Point Sportswear, a division of the Alpha Pacific
Corporation and held various sales and other positions at Sprenger's Men's Wear,
Manhattan Shirt Company and Europa Sport. Mr. Austin was also a partner in
Retail Trends, a developer of retail franchises.
WILLIAM A. ROSSI joined the Company in February 1997 and has served as Vice
President and Chief Financial Officer since March 1997. Previously, Mr. Rossi
was Vice President and General Manager for the SunMed Service division of
Sunrise Medical, Inc., a publicly held manufacturer and distributor of home
medical equipment, from January 1995 to February 1997. From July 1991 to
December 1994, he served as Controller and then Vice President and Controller
for Sunrise Medical, Inc. Mr. Rossi is a certified public accountant in the
State of California.
NICHOLAS M. MITSAKOS will commence service as a member of the Company's
Board of Directors upon consummation of the Offering. Since April 1984, Mr.
Mitsakos has been the Chief Executive Officer of Mitsakos & Co., a private
investment company which focuses on providing venture capital to technology,
media, telecommunications and entertainment companies. Mr. Mitsakos has also
served as Chief Executive Officer of Mitsakos Holdings, LLC, a global investment
fund which focuses on publicly traded equities, since April 1989. Since November
1995, Mr. Mitsakos has been the Chairman of the Board of Capri Entertainment,
Inc., a music and new media venture. He also serves as a Director to InterVU, an
Internet-based services company, as an advisor to Berkeley Networks, Inc., an
Internet software and hardware networking company, and as an advisor to Morgan
Interactive, Inc., a computer animation company. Mr. Mitsakos serves on the
Boards of the UCLA Medical School Center for Cerebral Palsy and the Young
Musician's Foundation. Since 1993, Mr. Mitsakos has also been a part-time
instructor at the UCLA Anderson School of Business. Mr. Mitsakos graduated summa
cum laude from the University of Southern California and earned a Masters in
Business Administration from Harvard University.
DAVID A. SEARLS will commence service as a member of the Company's Board of
Directors upon consummation of the Offering. From 1992 to the present, Mr.
Searls has served as President of Searls, Inc., a computer consulting firm.
Since 1978, Mr. Searls has served as creative director and, most recently, head
of the public relations division and a director of Hodskins Simone & Searls, a
private advertising agency Mr. Searls co-founded in 1978.
Directors serve until the next annual meeting or until their successors are
elected or appointed. Officers are elected by and serve at the discretion of the
Board of Directors. Other than as described above, there are no family
relationships among the officers or directors of the Company.
KEY EMPLOYEES
The following individuals are additional key employees of the Company:
HOWARD M. FITES has served as the Company's Web Master and Senior Editor
since the Company's inception in November 1995. Mr. Fites' responsibilities at
the Company include working with the Company's Director of Technology in
maintaining the Company's computer assisted design program, which includes
Hypertext Markup Language ("HTML") scripting, graphic design, and data
optimization. He also is in charge of implementing the production of the
Company's advertising, marketing and promotional efforts. For the five years
prior to joining the Company, Mr. Fites developed computer generated advertising
programs and Websites for commercial clients through Pinstripe Design, a company
he founded in 1982.
KENT HINKSON has served as the Company's Director of Technology since April
1997. For the seven years prior to joining the Company, Mr. Hinkson acted as an
independent consultant and software engineer, pursuant to which he defined
hardware and support requirements, designed systems, and programmed, tested and
implemented final hardware/software solutions for various corporations. Mr.
Hinkson was a consultant for Network Publishing and, together with the Company,
designed all of the Company's existing systems.
43
<PAGE> 46
BOARD COMMITTEES AND DESIGNATED DIRECTORS
The Board of Directors intends to establish an Audit Committee and a
Compensation Committee. The functions of the Audit Committee will be to
recommend annually to the Board of Directors the appointment of the independent
public accountants of the Company, discuss and review the scope and the fees of
the prospective annual audit and review the results thereof with the independent
public accountants, review and approve non-audit services of the independent
public accountants, review compliance with existing major accounting and
financial policies of the Company, review the adequacy of the financial
organization of the Company and review management's procedures and policies
relative to the adequacy of the Company's internal accounting controls.
The functions of the Compensation Committee will be to review and approve
annual salaries and bonuses for all executive officers and review, approve and
recommend to the Board of Directors the terms and conditions of all employee
benefit plans or changes thereto. Messrs. Mitsakos and Searls will serve as
members of the Audit Committee and Messrs. Tracht, Mitsakos and Searls will
serve as members of the Compensation Committee..
The Company has agreed for a period of five years from the date of this
Prospectus if requested by the Underwriter, to nominate a designee of the
Underwriter who is reasonably acceptable to the Company to the Company's Board
of Directors. The Underwriter has informed the Company that it does not intend
to make such a request in the near future.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors receive $500 per
meeting plus out-of-pocket expenses for attending such meetings. In addition,
each non-employee director of the Company will be granted options to purchase
2,000 shares of Common Stock, at fair market value on the date of commencement
of service on the Company's Board of Directors, provided that unvested options
shall terminate upon the termination of the non-employee director's service on
the Board of Directors. All options granted to non-employee directors vest in
full 12 months after grant. Non-employee directors are not precluded from
serving the Company in any other capacity and receiving compensation therefor.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
for its fiscal year ended December 31, 1996 to Jack B. Tracht, the Chief
Executive Officer of the Company. No executive officer of the Company received
salary and bonus in excess of $100,000 in such fiscal year.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
---------------------------------
FISCAL YEAR ENDED
DECEMBER 31, ANNUAL SALARY
----------------- -------------
<S> <C> <C>
Jack B. Tracht, Chief Executive Officer.......... 1996 $17,697
</TABLE>
- ---------------
(1) Mr. Tracht began accruing a salary in October 1996 at an annual rate of
$92,500. No cash payments were made to Mr. Tracht in 1996.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement (the "Employment
Agreement") with each of Jack B. Tracht, the Company's Chief Executive Officer;
Robert D. Tracht, the Company's President and Chief Operating Officer; Jeff W.
Walden, the Company's Senior Vice President of Marketing; and James E. Austin,
the Company's Senior Vice President of Sales, in January 1997. The term of each
Employment Agreement commences on the closing of the Offering and expires at the
end of the 37th month after such date; provided, however, that the term may be
extended by mutual agreement between the Company and the employee. Each
Employment Agreement provides that in consideration for the respective
employee's services, he is to be paid a salary of $92,500 during the first 13
month period of the Employment Agreement. In
44
<PAGE> 47
addition, each employee will receive increases in salary and bonuses as deemed
appropriate by the Board of Directors after such 13 month period. Each
Employment Agreement also provides that in the event the employee is terminated
for "good cause," he shall not be entitled to any severance, and in the event
the employee is terminated for any reason other than "good cause", he shall be
entitled to severance pay equal to the lesser of (x) a lump sum amount equal to
one year's salary based on his then-current annual salary (excluding any bonuses
or fringe benefits) or (y) the remaining salary due under the term of the
Employment Agreement plus a continuation of the disability and health insurance
policies provided for in the Employment Agreement. Each Employment Agreement
contains standard non-compete, non-solicitation and confidentiality provisions.
The Company entered into an employment agreement with Kent Hinkson, the
Company's Director of Technology, in April 1997. The agreement provides for a
base annual salary of $70,000, plus bonuses and annual salary increases as
deemed appropriate by the Board of Directors. In addition, Mr. Hinkson is
entitled to additional compensation equal to 1% of the Company's net revenue
(the "Incentive Compensation"). The agreement may be terminated at any time by
the Company for "good cause", and upon 30 days' notice, at any time without
cause. Mr. Hinkson may terminate the agreement at any time upon 120 days'
notice. The agreement provides that in the event Mr. Hinkson is terminated for
"good cause" he shall not be entitled to any severance, and in the event he is
terminated for any reason other than "good cause," he shall be entitled to
severance pay equal to the Incentive Compensation for a period of three years
from the date of termination. In the event Mr. Hinkson terminates the agreement,
he shall be entitled to the Incentive Compensation for a period of (x) one year
following the date of termination, if the termination occurs during the first
year of the agreement, (y) two years following the date of termination, if the
termination occurs during the second year of the agreement, and (z) three years
following the date of termination, if the termination occurs after the second
year of the agreement. Mr. Hinkson's agreement contains standard non-compete,
non-solicitation and confidentiality agreements.
STOCK OPTION PLAN
In January and August 1997, respectively, the Board of Directors and the
Company's shareholders approved the Company's 1997 Stock Option Plan and an
amendment thereto (as amended, the "Option Plan"). The Option Plan provides for
the grant of options to officers, directors and other key employees of the
Company to purchase up to an aggregate of 300,000 shares of Class A Common
Stock. The Option Plan is administered by the Board of Directors or a committee
of the Board and is currently administered by the entire Board of Directors,
which has complete discretion to select the optionee and to establish the terms
and conditions of each option, subject to the provisions of the Option Plan.
Options granted under the Option Plan may be "incentive stock options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonqualified options, and will be designated as such.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the Company's Class A Common Stock as of the date of
grant (110% of the fair market value if the grant is to an employee who owns
more than 10% of the total combined voting power of all classes of capital stock
of the Company). The Code currently limits to $100,000 the aggregate value of
Class A Common Stock that may be acquired in any one year pursuant to incentive
stock options under the Option Plan or any other option plan adopted by the
Company. Nonqualified options may be granted under the Option Plan at an
exercise price less than the fair market value of the Class A Common Stock on
the date of grant. Nonqualified options also may be granted without regard to
any restriction on the amount of Class A Common Stock that may be acquired
pursuant to such options in any one year.
In general, upon termination of employment of an optionee, all options
granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate 90 days (one year in the case of termination by reason of death
or disability) following termination of employment except in the event of
termination for cause. In the event of termination for cause, all unexercised
options would terminate 30 days after termination.
Options may not be exercised more than ten years after the grant (five
years after the grant if the grant is an incentive stock option to an employee
who owns more than 10% of the total combined voting power of all
45
<PAGE> 48
classes of capital stock of the Company). Options granted under the Option Plan
may be transferable under certain limited circumstances. Under the Option Plan,
shares subject to cancelled or terminated options are reserved for subsequently
granted options. The number of options outstanding and the exercise price
thereof are subject to adjustment in the case of certain transactions such as
mergers, recapitalizations, stock splits or stock dividends. The Option Plan is
effective for ten years, unless sooner terminated or suspended.
As of the date of this Prospectus, options to purchase 30,000 shares were
outstanding at an exercise price of $4.00 per share, and options to purchase
270,000 shares were available for grant under the Option Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As allowed by the California Corporations Code, the Company's Restated
Articles of Incorporation provide that the liability of the directors of the
Company for monetary damages shall be eliminated to the fullest extent
permissible under California law. This is intended to eliminate the personal
liability of a director for monetary damages in an action brought by or in the
right of the Company for breach of a director's duties to the Company or its
shareholders except for liabilities: (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that a director believes to be contrary to the best interest of the
Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction from which a director derived an
improper personal benefit; (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute for approval of
certain improper distributions to shareholders or certain loans or guarantees.
This provision does not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. The Company's Amended and
Restated Bylaws require the Company to indemnify its officers and directors to
the full extent permitted by law, including circumstances in which
indemnification would otherwise be discretionary. Among other things, the Bylaws
require the Company to indemnify directors and officers against certain
liabilities that may arise by reason of their status or service as directors and
officers and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
The Company believes that it is the position of the Securities and Exchange
Commission that insofar as the foregoing provision may be invoked to disclaim
liability for damages arising under the Securities Act, the provision is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Such limitation of liability also does not affect the availability of equitable
remedies such as injunctive relief or rescission.
The Company intends to enter into indemnification agreements
("Indemnification Agreement(s)") with each of its directors and officers prior
to the consummation of the Offering. Each such Indemnification Agreement will
provide that the Company will indemnify the indemnitee against expenses,
including reasonable attorneys' fees, judgements, penalties, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
any civil or criminal action or administrative proceeding arising out of his
performance of his duties as a director or officer, other than an action
instituted by the director or officer. Such indemnification is available if the
indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal action, had no reasonable cause to believe his conduct was unlawful.
The Indemnification Agreements will also require that the Company indemnify the
director or other party thereto in all cases to the fullest extent permitted by
applicable law. Each Indemnification Agreement will permit the director or
officer that is party thereto to bring suit to seek recovery of amounts due
under the Indemnification Agreement and to recover the expenses of such a suit
if he is successful.
The Company has obtained directors' and officers' liability insurance.
46
<PAGE> 49
CERTAIN TRANSACTIONS
During the year ended December 31, 1996, the Company incurred approximately
$10,400 of expenses relating to certain bookkeeping services provided to the
Company by RTE. Robert D. Tracht, the Company's President and a director, and
Jeff W. Walden, the Company's Senior Vice President of Marketing and a director,
are each principals of RTE. As of January 31, 1997, RTE ceased providing these
services to the Company.
From the Company's inception in November 1995 through May 1997, the
Company's principal administrative, sales, and marketing facility was leased
from RTE. During the year ended December 31, 1996 and the six months ended June
30, 1997, the Company made total payments with respect to the lease of
approximately $10,700 and $7,400, respectively.
In March 1996, Robert D. Tracht advanced the Company approximately $5,480
to fund the purchase by the Company of two computers. A portion of the proceeds
of the Bridge Financing were used to repay this amount.
From November 1995 through October 1996, Messrs. J. Tracht, R. Tracht,
Walden, and Austin made loans to the Company each in the aggregate principal
amount of $20,000. Such loans bore interest at a rate of 10% per annum and the
principal and accrued interest on each loan was due in January 1999. In December
1996, the principal amount and accrued interest on such loans ($85,800 in the
aggregate) were contributed to the capital of the Company.
In May, June and July 1997, the Company issued an aggregate of $622,000
principal amount of promissory notes to the Underwriter and a corporation whose
sole shareholder is the wife of the sole shareholder of the Underwriter. A
portion of the proceeds of the Offering will be used to repay the foregoing
Blair Notes, together with accrued interest thereon. See "Use of Proceeds,"
"Capitalization -- Bridge Financings" and "Underwriting."
The Company believes that each of the foregoing transactions was on terms
at least as favorable to the Company as those that could have been obtained from
nonaffiliated third parties.
All material transactions between the Company and its officers, directors
or principal shareholders or other affiliates are now subject to ratification or
approval in accordance with applicable state corporation law. Under California
law as currently in effect, each contract or transaction between the Company and
a director or officer or an entity in which he or she has a financial interest
generally must be approved or ratified by a majority of the Company's
shareholders who do not have an interest in such transaction; or a majority of
the Board of Directors (or a committee of the Board of Directors) who do not
have a financial interest in such contract or transaction, if such contract or
transaction is just and reasonable as to the Company at the time it is
authorized; or such contract or transaction must be just and reasonable to the
Company at the time it is authorized, approved or ratified.
47
<PAGE> 50
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus, by
(i) each person who is known by the Company to own beneficially more than 5% of
the Company's outstanding Common Stock; (ii) each of the Company's directors,
director nominees and executive officers; and (iii) all officers, directors and
director nominees of the Company as a group (a) prior to the Offering, and (b)
as adjusted to give effect to the sale of the 1,900,000 Units offered hereby.
<TABLE>
<CAPTION>
PERCENT OF
OWNERSHIP AND PERCENT
AMOUNT AND TOTAL OF PERCENT OF
NATURE OF VOTING POWER OWNERSHIP TOTAL VOTING
BENEFICIAL BEFORE THE AFTER THE POWER AFTER THE
NAME AND ADDRESS(1) OWNERSHIP(2) OFFERING OFFERING OFFERING
- -------------------------------------------- ------------ ------------- --------- ---------------
<S> <C> <C> <C> <C>
Jack B. Tracht.............................. 264,091(3) 22.0% 8.5% 16.7%
Robert D. Tracht............................ 264,091(3) 22.0 8.5 16.7
James E. Austin............................. 264,091(3) 22.0 8.5 16.7
Jeff W. Walden.............................. 264,091(3) 22.0 8.5 16.7
William A. Rossi............................ 7,500(4) * * *
Nicholas M. Mitsakos(5)..................... -- -- -- --
David A. Searls(5).......................... -- -- -- --
All executive officers, directors and
director nominees as a group (7
persons).................................. 1,063,364 88.1 34.2 66.9
</TABLE>
- ---------------
* Less than 1%.
(1) The address of each individual is c/o the Company at 26135 Mureau Road,
Suite 100, Calabasas, California 91302.
(2) Nature of beneficial ownership of securities is direct and arises from sole
voting power and sole investment power, subject to community property laws
where applicable.
(3) Includes 176,061 Escrow Shares owned by each individual, or a total of
704,244 Escrow Shares for all executive officers, directors and director
nominees, as a group. See "-- Escrow Shares." All shares owned are shares of
Class B Common Stock. Each share of Class B Common Stock entitles the holder
thereof to five votes per share. See "Description of Securities."
(4) Consists of 7,500 shares of Class A Common Stock issuable upon the exercise
of options exercisable within 60 days of August 1, 1997.
(5) Excludes options to purchase 2,000 shares of Class A Common Stock to be
granted to such individual upon consummation of the Offering, none of which
are exercisable within 60 days of August 1, 1997.
ESCROW SHARES
In connection with the Offering, the holders of the Company's Class B
Common Stock have placed 800,000 of such shares into escrow pursuant to an
escrow agreement ("Escrow Agreement") with American Stock Transfer and Trust, as
escrow agent. The Escrow Shares are not assignable or transferable; however, the
Escrow Shares may be voted.
(a) Of the Escrow Shares, one-half (representing 400,000 shares of
Class B Common Stock) will be released from escrow, on a pro rata basis,
if, and only if, one or more of the following conditions are met:
(i) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings or charges as audited and
determined by the Company's independent certified public accountants
(the "Minimum Pretax Income") amounts to at least $3.0 million for the
fiscal year ending December 31, 1998;
48
<PAGE> 51
(ii) the Minimum Pretax Income amounts to at least $4.5 million for
the fiscal year ending December 31, 1999;
(iii) the Minimum Pretax Income amounts to at least $6.0 million
for the fiscal year ending December 31, 2000;
(iv) the Minimum Pretax Income amounts to at least $7.5 million for
the fiscal year ending December 31, 2001;
(v) commencing on the date of this Prospectus and ending 18 months
after the date of this Prospectus, the bid price of the Company's Class
A Common Stock averages in excess of $11.00 per share (subject to
adjustment in the event of any reverse stock splits or other similar
events) for 30 consecutive business days;
(vi) commencing 18 months after the date of this Prospectus and
ending 36 months after the date of this Prospectus, the bid price of the
Company's Class A Common Stock averages in excess of $15.00 per share
(subject to adjustment in the event of any reverse stock splits or other
similar events) for 30 consecutive business days; or
(vii) during the periods specified in (v) or (vi) above, the
Company is acquired by or merged into another entity in a transaction in
which the value of the per share consideration received by the
shareholders of the Company on the date of such transaction or at any
time during the applicable period set forth in (v) or (vi),
respectively, equals or exceeds the applicable levels set forth in (v)
or (vi), respectively.
(b) The remaining Escrow Shares (representing 400,000 shares of Class
B Common Stock) will be released from escrow, on a pro rata basis, if, and
only if, one or more of the following conditions is met:
(i) the Minimum Pretax Income amounts to at least $3.4 million for
the fiscal year ending on December 31, 1998;
(ii) the Minimum Pretax Income amounts to at least $5.2 million for
the fiscal year ending on December 31, 1999;
(iii) the Minimum Pretax Income amounts to at least $6.9 million
for the fiscal year ending on December 31, 2000;
(iv) the Minimum Pretax Income amounts to at least $8.6 million for
the fiscal year ending on December 31, 2001;
(v) commencing on the date of this Prospectus and ending 18 months
after the date of this Prospectus, the bid price of the Company's Class
A Common Stock averages in excess of $12.50 per share (subject to
adjustment in the event of any reverse stock splits or other similar
events) for 30 consecutive business days;
(vi) commencing 18 months after the date of this Prospectus and
ending 36 months after the date of this Prospectus, the bid price
averages in excess of $16.50 per share (subject to adjustment in the
event of any reverse stock splits or other similar events) for 30
consecutive business days; or
(vii) during the periods specified in (v) or (vi) above, the
Company is acquired by or merged into another entity in a transaction in
which the value of the per share consideration received by the
shareholders of the Company on the date of such transaction or at any
time during the applicable period set forth in (v) or (vi),
respectively, equals or exceeds the applicable levels set forth in (v)
or (vi), respectively.
The Minimum Pretax Income amounts set forth above (i) shall be calculated
exclusively of any extraordinary earnings, including, but not limited to, any
charge to income resulting from release of the Escrow Shares and (ii) shall be
increased proportionately, with certain limitations, in the event additional
shares of Common Stock or securities convertible into, exchangeable for or
exercisable into Common Stock are issued after completion of the Offering. The
bid price amounts set forth above are subject to adjustment in the event of any
stock splits, reverse stock splits or other similar events.
49
<PAGE> 52
Any money, securities, rights or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Shares. If none of the applicable Minimum Pretax Income or bid price levels set
forth above have been met by April 15, 2001, the Escrow Shares, as well as any
dividends or other distributions made with respect thereto, will be cancelled
and contributed to the capital of the Company. The Company expects that the
release of the Escrow Shares to officers, directors, employees and consultants
of the Company will be deemed compensatory and, accordingly, will result in a
substantial charge to reportable earnings, which would equal the fair market
value of such shares on the date of release. Such charge could substantially
increase the loss or reduce or eliminate the Company's net income for financial
reporting purposes for the period or periods during which such shares are, or
become probable of being, released from escrow. Although the amount of
compensation expense recognized by the Company will not affect the Company's
total shareholders' equity (due to a corresponding increase in additional
paid-in capital) it may have a negative effect on the market price of the
Company's securities. The Escrow Agreement cannot be terminated or amended in
any material respect without the prior consent of the holders of all of the
Company's Common Stock.
The Minimum Pretax Income and bid price levels set forth above were
determined by negotiation between the Company and the Underwriter and should not
be construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities.
DESCRIPTION OF SECURITIES
The following description of the capital stock of the Company and certain
provisions of the Company's Restated Articles of Incorporation and Amended and
Restated Bylaws is a summary and is qualified in its entirety by the provisions
of the Restated Articles of Incorporation and Amended and Restated Bylaws, which
have been filed as exhibits to the Company's Registration Statement, of which
this Prospectus is a part.
The authorized capital stock of the Company currently consists of
20,200,000 shares of Common Stock, which consists of 18,800,000 shares of Class
A Common Stock and 1,400,000 shares of Class B Common Stock, and 5,000,000
shares of Preferred Stock. As of the date of this Prospectus, there were
1,199,996 shares of Class B Common Stock outstanding, held of record by eight
shareholders, and no shares of Class A Common Stock or Preferred Stock
outstanding.
UNITS
Each Unit consists of one share of Class A Common Stock and one Warrant.
Each Warrant entitles the holder thereof to purchase one share of Class A Common
Stock. The Class A Common Stock and Warrants included in the Units are
immediately transferable separately upon issuance.
COMMON STOCK
The holders of Class A Common Stock and Class B Common Stock vote as a
single class on all matters submitted to a vote of the shareholders, with each
share of Class A Common Stock entitled to one vote and each share of Class B
Common Stock entitled to five votes, except as otherwise provided by law. The
holders of Common Stock are entitled to cumulative voting rights with respect to
the election of directors upon giving notice as required by law. Subject to
preferences that may be applicable to any shares of Preferred Stock issued in
the future, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefore. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding Preferred Stock. Each
share of Class B Common Stock converts automatically into one share of Class A
Common Stock upon its sale or transfer if, after such sale or transfer, such
share is not beneficially owned by (i) the holder of such share of Class B
Common Stock immediately prior to such sale or transfer or (ii) another holder
of Class B Common Stock. Holders of Common Stock have no preemptive rights and,
other than with respect to conversions of shares of Class B Common Stock into
Class A Common Stock as
50
<PAGE> 53
aforementioned, no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and all shares of
Common Stock to be outstanding upon completion of the Offering will be, fully
paid and nonassessable.
REDEEMABLE WARRANTS
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company, the
Underwriter and American Stock Transfer and Trust Company (the "Transfer and
Warrant Agent"). A copy of the Warrant Agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
The holder of each Warrant is entitled, upon payment of the exercise price
of $6.50, to purchase one share of Class A Common Stock. Unless previously
redeemed, the Warrants are exercisable at any time after issuance through the
fifth anniversary of the effective date of this Prospectus, provided that at
such time a current prospectus relating to the underlying Class A Common Stock
is in effect and the underlying Class A Common Stock is qualified for sale or
exempt from qualification under applicable state securities laws. The Warrants
included in the Units offered hereby are immediately transferable separately
from the Class A Common Stock issued with such Warrants as part of the Units.
The Warrants are subject to redemption, as described below.
REDEMPTION
The Warrants are subject to redemption by the Company commencing one year
from the date of this Prospectus, upon 30 days' written notice, at a price of
$.05 per Warrant, if the average closing bid price of the Class A Common Stock
for any 30 consecutive trading days ending within 15 days of the date on which
the notice of redemption is given shall have exceeded $9.10 per share. Holders
of Warrants will automatically forfeit their rights to purchase the shares of
Class A Common Stock issuable upon exercise of such Warrants unless the Warrants
are exercised before the close of business on the business day immediately prior
to the date set for redemption. All of the outstanding Warrants, except for
those underlying the Unit Purchase Option, must be redeemed if any Warrants are
redeemed. A notice of redemption shall be mailed to each of the registered
holders of the Warrants by first class mail, postage prepaid, upon 30 days'
notice before the date fixed for redemption. The notice of redemption shall
specify the redemption price, the date fixed for redemption, the place where the
Warrant certificates shall be delivered and the redemption price to be paid, and
that the right to exercise the Warrants shall terminate at 5:00 p.m. (New York
City time) on the business day immediately preceding the date fixed for
redemption.
GENERAL
The Warrants may be exercised upon surrender of the certificate or
certificates therefor on or prior to the expiration or the redemption date (as
explained above) at the offices of the Warrant Agent with the form of "Election
to Purchase" on the reverse side of the certificate or certificates completed
and executed as indicated, accompanied by payment (in the form of certified or
cashier's check payable to the order of the Company) of the full exercise price
for the number of Warrants being exercised.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price per share and the number of shares
issuable upon exercise thereof upon the occurrence of certain events, including
issuances of Common Stock (or securities convertible, exchangeable or
exercisable into Common Stock) at less than market value, stock dividends, stock
splits, mergers, sale of substantially all of the Company's assets, and for
other extraordinary events; provided, however, that no such adjustment shall be
made upon, among other things, (i) the issuance or exercise of options or other
securities under the Company's Stock Option Plan or other employee benefit plans
or (ii) the sale or exercise of outstanding options or warrants or the Warrants
offered hereby.
51
<PAGE> 54
The Company is not required to issue fractional shares of Class A Common
Stock, and in lieu thereof will make a cash payment based upon the current
market value of such fractional shares. The holder of the Warrants will not
possess any rights as a shareholder of the Company unless and until he exercises
the Warrants.
The Warrants do not confer upon holders any voting or any other rights as
shareholders of the Company.
PREFERRED STOCK
Shares of Preferred Stock may be issued without shareholder approval. The
Board of Directors is authorized to issue such shares in one or more series and
to fix the rights, preferences, privileges, qualifications, limitations and
restrictions thereof, including dividend rights and rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series or the designation of such
series, without any vote or action by the shareholders. No shares of Preferred
Stock will be outstanding upon the closing of the Offering and the Company has
no present intention to issue any shares of Preferred Stock. Any Preferred Stock
to be issued could rank prior to the Common Stock with respect to dividend
rights and rights on liquidation. The Board of Directors, without shareholder
approval, may issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of holders of Common Stock and
discourage, delay or prevent a change in control of the Company.
UNIT PURCHASE OPTION
Upon the closing of the Offering, the Company has agreed to grant to the
Underwriter the Unit Purchase Option to purchase up to 190,000 Units. The Units
issuable upon exercise of the Unit Purchase Option will, when so issued, be
identical to the Units offered hereby except that the Warrants included in the
Unit Purchase Option will not be subject to redemption by the Company until the
Unit Purchase Option has been exercised and the underlying Warrants are
outstanding. The Unit Purchase Option cannot be transferred, sold, assigned or
hypothecated for two years, except to any officer of the Underwriter or members
of the selling group or their officers. The Unit Purchase Option is exercisable
during the two-year period commencing three years from the date of this
Prospectus at an exercise price of $7.50 per Unit (150% of the initial public
offering price) subject to adjustment in certain events. The holders of the Unit
Purchase Option have certain demand and piggyback registration rights relating
to their options and the underlying securities. See "Underwriting."
TRANSFER AND WARRANT AGENT
American Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, assuming the Underwriter's over-allotment
option is not exercised, the Company will have 3,099,996 shares of Common Stock
outstanding. Of these shares, the 1,900,000 shares of Class A Common Stock sold
hereunder will be freely transferable without restriction or registration under
the Securities Act, unless held by persons deemed to be "affiliates" of the
Company (as that term is defined in Rule 144 under the Securities Act ("Rule
144")). The 1,199,996 shares of Class B Common Stock currently outstanding are
"restricted securities" within the meaning of Rule 144 (the "Restricted Shares")
and may not be sold unless they are registered under the Securities Act or sold
pursuant to Rule 144 or another exemption from registration. Pursuant to Rule
144, all of these restricted shares will be eligible for resale commencing 90
days after consummation of the Offering (upon which resale they will
automatically convert into shares of Class A Common Stock). However, all of the
current shareholders, executive officers, directors and director nominees of the
Company have agreed that they will not sell any of the Company's securities
owned by them for a period of 13 months from the date of this Prospectus without
the consent of the Underwriter. In addition, the holders of shares of Class B
Common Stock have agreed to place an aggregate of 800,000 of such shares in
escrow.
52
<PAGE> 55
Holders of Restricted Shares must comply with the requirements of Rule 144
in order to sell their shares in the open market without violating the
Securities Act. In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated), including an affiliate of the Company, who
has beneficially owned shares for at least one year is entitled to sell in the
open market within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then-outstanding shares of the Company's
Common Stock or (ii) the average weekly public trading volume during the four
calendar weeks preceding such sale. The holding period of shares of a
non-affiliate for this purpose includes the holding period of all prior
non-affiliate holders, provided that if an affiliate has held such shares at any
time, the holding period shall commence upon the sale to a non-affiliate by the
last affiliate to hold the shares. Sales under Rule 144 are also subject to
certain limitations on the manner of sale, notice requirements, and availability
of current public information about the Company. A non-affiliate who holds
restricted securities and who has not been affiliated with the Company during
the three-month period preceding the proposed sale thereof may sell such
securities without regard to the conditions imposed by Rule 144 if at least two
years have elapsed from the sale of such securities by the Company or any
affiliate. As defined in Rule 144, an "affiliate" of an issuer is a person that
directly or indirectly controls, or is controlled by, or is under common control
with the issuer of the securities. The foregoing is a summary of the provisions
of Rule 144 and is not intended to be complete.
The Bridge Financing investors have agreed with the Company not to
exercise, sell, transfer, assign, hypothecate or otherwise dispose of their
Public Bridge Warrants for a period of one year following the closing of the
Offering. The Company has agreed to register for resale on behalf of the Bridge
Financing investors the 1,200,000 Public Bridge Warrants and the shares of
Common Stock underlying such Public Bridge Warrants upon expiration of such
one-year period.
The Underwriter has demand and "piggy-back" registration rights with
respect to the securities underlying the Unit Purchase Option. See
"Underwriting."
Prior to the Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
53
<PAGE> 56
UNDERWRITING
D.H. Blair Investment Banking Corp., the Underwriter, has agreed, subject
to the terms and conditions of the Underwriting Agreement, to purchase the
1,900,000 Units offered hereby from the Company on a "firm commitment" basis, if
any are purchased. It is expected that Blair & Co. will distribute as a selling
group member a substantial portion of the Units offered hereby. Blair & Co. is
owned by a corporation that is substantially owned by family members of J.
Morton Davis. Mr. Davis is the sole shareholder of the Underwriter.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering price set forth on the cover page of this
Prospectus. The Underwriter may allow to selected dealers who are members of the
National Association of Securities Dealers, Inc. (the "NASD") concessions not in
excess of $. per Unit, of which not in excess of $. per Unit may be
reallowed to other dealers who are members of the NASD. After commencement of
the Offering, the public offering price, concession and the reallowance may be
changed by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter a nonaccountable expense allowance of 3%
of the gross proceeds derived from the sale of the Units offered hereby,
including any Units purchased pursuant to the Underwriter's over-allotment
option, $20,000 of which has been paid as of the date of this Prospectus.
The Underwriter has informed the Company that it does not expect sales to
any discretionary accounts to exceed 5% of the total number of shares of Class A
Common Stock offered hereby.
The Company has granted to the Underwriter an option, exercisable during
the 30-day period commencing on the date of this Prospectus, to purchase from
the Company at the public offering price, less underwriting discounts and
commissions, up to 285,000 additional Units for the purpose of covering over-
allotments, if any.
The Company has agreed to sell to the Underwriter and its designees, for
nominal consideration, the Unit Purchase Option to purchase up to 190,000 Units
substantially identical to the Units being offered hereby, except that the
Warrants included therein are subject to redemption by the Company at any time
after the Unit Purchase Option has been exercised and the underlying Warrants
are outstanding. The Unit Purchase Option will be exercisable during the
two-year period commencing three years from the date of this Prospectus at an
exercise price of $7.50 per Unit (150% of the initial public offering price),
subject to adjustment in certain events to protect against dilution, and are not
transferable for a period of two years from the date of this Prospectus except
to officers of the Underwriter or to members of the Underwriter's selling group
or officers thereof. The Company has agreed to register the securities issuable
upon exercise thereof under the Securities Act on two separate occasions (the
first at the Company's expense and the second at the expense of the holders of
the Unit Purchase Option) during the four-year period commencing one year from
the date of this Prospectus. The Unit Purchase Option includes a provision
permitting the holder to elect a cashless exercise of the Option pursuant to
which the holder may exercise a portion of the Option in exchange for a decrease
in the total number of Units underlying the Option. The Company has also granted
certain piggy-back rights to holders of the Unit Purchase Options.
The Underwriter has the right to designate one director to the Company's
Board of Directors for a period of five years from the completion of the
Offering, although it has not yet selected any such designee. Such designee may
be a director, officer, partner, employee or affiliate of the Underwriter.
During the five-year period from the date of this Prospectus, in the event
the Underwriter originates financing or a merger, acquisition, joint venture,
product or technology licensing arrangement, research and development
sponsorship or similar transaction to which the Company is a party, the
Underwriter will be entitled to receive a finder's fee in consideration for
origination of such transaction. The fee is based on a percentage of the
consideration paid in the transaction, ranging from 7% of the first $5,000,000
to 2% of any consideration in excess of $14,000,000.
54
<PAGE> 57
The Underwriter acted as placement agent in connection with the Bridge
Financing in January 1997 and, in connection therewith, received a placement
agent fee of $200,000 and a non-accountable expense allowance of $60,000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." During May, June and July 1997,
the Underwriter loaned the Company an aggregate of $432,000 and a corporation
whose sole shareholder is the wife of Mr. Davis, the Chairman of the
Underwriter, loaned the Company $190,000, all of which loans were utilized for
working capital purposes, including general and administrative expenses. All of
such loans bear interest at the rate of 10% per annum and will be paid, along
with accrued interest thereon, from the proceeds of the Offering. See "Use of
Proceeds."
The directors, director nominees, executive officers and holders of the
shares of the Company's Common Stock have agreed not to sell or otherwise
dispose of any of their shares of Common Stock for a period of 13 months from
the date of this Prospectus without the prior written consent of the
Underwriter.
The Company has agreed not to solicit Warrant exercises other than through
the Underwriter, unless the Underwriter declines to make such solicitation. Upon
any exercise of the Warrants after one year from the date of this Prospectus,
the Company will pay the Underwriter a fee of 5% of the aggregate exercise price
for Warrant exercises solicited in writing by the Underwriter or its
representatives or agents, if (i) the market price of the Company's Class A
Common Stock on the date the Warrant is exercised is greater than the then
exercise price of the Warrants; (ii) the exercise of the Warrant was solicited
in writing by a member of the NASD; (iii) the Warrant is not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrants;
and (v) the solicitation of exercise of the Warrant was not in violation of
Regulation M, which was recently adopted to replace Rule 10b-6 and certain other
rules promulgated under the Exchange Act. The Warrant Agreement requires that
such holder of the Warrant designates in writing that the exercise of the
Warrant was solicited by a member of the NASD.
Regulation M may prohibit Blair & Co. or any other soliciting broker-dealer
from engaging in any market making activities with regard to the Company's
securities for the period from five business days (or such other applicable
period as Regulation M may provide) prior to any solicitation by the Underwriter
of the exercise of Warrants until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
that the Underwriter may have to receive a fee for the exercise of Warrants
following such solicitation. As a result, Blair & Co. may be unable to provide a
market for the Company's securities during certain periods while the Warrants
are exercisable.
The Commission is conducting an investigation concerning various business
activities of the Underwriter and Blair & Co. The investigation appears to be
broad in scope, involving numerous aspects of the Underwriter's and Blair &
Co.'s compliance with the federal securities laws and compliance with the
federal securities laws by issuers whose securities were underwritten by the
Underwriter or Blair & Co., or in which the Underwriter or Blair & Co. made
over-the-counter markets, persons associated with the Underwriter or Blair &
Co., such issuers and other persons. The Company has been advised by the
Underwriter that the investigation has been ongoing since at least 1989 and that
it is cooperating with the investigation. The Underwriter cannot predict whether
this investigation will ever result in any type of formal enforcement action
against the Underwriter or Blair & Co. or, if so, whether any such action might
have an adverse effect on the Underwriter or the securities offered hereby. The
Company has been advised that Blair & Co. will make a market in the securities
following the Offering. An unfavorable resolution of the Commission's
investigation could have the effect of limiting such firm's ability to make a
market in the Company's securities, which could adversely affect the liquidity
or price of such securities.
In connection with the Offering, the Underwriter and certain selling group
members may engage in certain transactions that stabilize, maintain or otherwise
affect the market price of the Units, the Class A Common Stock and the Warrants.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such person may bid for or
purchase the Units, the Class A Common Stock and the Warrants for the purpose of
pegging, fixing or maintaining the market price of such securities. The
Underwriter may also create a short position in the Units by selling more Units
in
55
<PAGE> 58
connection with the Offering than it is committed to purchase from the Company,
and in such case the Underwriter may reduce all or a portion of that short
position by purchasing the Units, the Class A Common Stock and the Warrants in
the open market. The Underwriter may also elect to reduce any short position by
exercising all or any portion of the over-allotment option described herein. In
addition, the Underwriter may impose "penalty bids" whereby selling commissions
allowed to selling group members or other broker-dealers in respect of the Units
sold in the Offering for their account may be reclaimed by the Underwriter if
the securities comprising the Units are repurchased by the Underwriter or any
selling group member in stabilizing or covering transactions. Any of the
transactions described in this paragraph may stabilize or maintain the market
price of the Units, the Class A Common Stock and the Warrants at a level above
that which might otherwise prevail in the open market.
Neither the Company nor the Underwriter may make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Units, the Class A Common Stock and
the Warrants. In addition, neither the Company nor the Underwriter makes any
representation that the Underwriter or any selling group members will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
Prior to the Offering, there has been no market for any of the securities
offered hereby. Accordingly, the initial public offering price of the Units and
the exercise prices and other terms of the Warrants have been determined by
negotiations between the Company and the Underwriter and are not necessarily
related to the Company's assets, net worth or other established criteria of
value. Factors considered in determining such prices and terms, in addition to
prevailing market conditions, include the history of, and prospects for, the
industry in which the Company competes, the Company's management, the Company's
financial condition, the Company's capital structure and such other factors as
were deemed relevant.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Troy & Gould Professional Corporation, Los Angeles, California.
Certain legal matters will be passed upon for the Underwriter by Bachner, Tally,
Polevoy & Misher LLP, New York, New York.
EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods as set forth in
their report (which contains an explanatory paragraph regarding uncertainties as
to the Company's ability to continue as a going concern) appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act,
with respect to the securities offered by this Prospectus. This Prospectus omits
certain information contained in the Registration Statement, as permitted by the
Rules and Regulations of the Commission. For further information, reference is
made to the Registration Statement and to the other schedules filed therewith,
which may be examined without charge at the Washington, D.C. office of the
Commission and copies of all or any part thereof may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the Commission. The Company is an
electronic filer, and the Commission maintains a Website that contains reports,
proxy and information statements and other information regarding the Company at
www.sec.gov/edgarhp.htm. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance such statement is qualified by reference to each
such contract or document.
56
<PAGE> 59
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.............................. F-2
FINANCIAL STATEMENTS
Balance sheets................................................................ F-3
Statements of operations...................................................... F-4
Statements of shareholders' equity (deficit).................................. F-5
Statements of cash flows...................................................... F-6
NOTES TO FINANCIAL STATEMENTS................................................... F-7-F-15
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
On'Village Communications, Inc.
We have audited the accompanying balance sheets of On'Village
Communications, Inc. (a development stage company), as of December 31, 1995 and
1996, and the statements of operations, shareholders' equity (deficit) and cash
flows for the period November 13, 1995 (Inception) to December 31, 1995 and for
the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of On'Village Communications,
Inc., as of December 31, 1995 and 1996 and the results of its operations and its
cash flows for the period November 13, 1995 (Inception) to December 31, 1995 and
for the year ended December 31, 1996.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
had a working capital deficiency of $522,303 and a shareholders' deficit of
$337,958 as of December 31, 1996. These matters raise substantial doubt as to
the Company's ability to continue as a going concern. The Company's future
operations are dependent upon generating funds to finance the marketing and
expansion of its operations and the repayment of notes payable. Management plans
to generate these funds through an initial public offering of common stock and
warrants as more fully discussed in Note 2. There is no assurance that the
initial public offering will be successful. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
Los Angeles, California
February 26, 1997
F-2
<PAGE> 61
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents.......................... $ 27,526 $ 25,518 $ 207,921
Restricted cash.................................... -- -- 78,000
Accounts receivable, net of allowance for doubtful
accounts of $0, $3,671 and $7,671............... -- 20,335 30,331
Prepaid expenses and other assets.................. 5,000 10,588 --
------- -------- --------
Total current assets................................. $ 32,526 $ 56,441 $ 316,252
------- -------- --------
Property and equipment, net (Note 3)................. -- 11,340 13,906
Other assets
License agreements, net of accumulated amortization
of $6,250, $190,061, and $42,000 (Note 7)....... 93,750 81,605 58,000
Deposit............................................ -- -- 16,661
Deferred loan fees, net of accumulated amortization
of $0, $0 and $135,178.......................... -- 30,554 178,591
Deferred offering costs............................ -- 60,846 253,039
------- -------- --------
Total assets....................................... $126,276 $ 240,786 $ 836,449
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable................................... $ 915 $ 58,771 $ 24,857
Accrued expenses................................... 2,252 180,701 359,688
Royalties and production costs payable............. -- 17,861 2,653
Deferred revenues.................................. -- 29,744 65,906
Accrued license cost (Note 7)...................... 60,000 100,000 60,000
Notes payable (Note 4)............................. -- 191,667 2,222,300
------- -------- --------
Total current liabilities............................ 63,167 578,744 2,735,404
Long-term liabilities
Notes payable-related parties (Note 5)............. 48,000 -- --
------- -------- --------
Total liabilities.................................... 111,167 578,744 2,735,404
Commitments (Note 6)
Shareholders' equity (deficit) (Notes 2, 10 and 11)
Preferred Stock, 5,000,000 shares authorized;
none issued and outstanding................... -- --
Class A Common Stock, 18,800,000 shares
authorized; none issued and outstanding....... -- --
Class B Common Stock, 1,400,000 shares
authorized; 1,111,962, 1,199,996 and 1,199,996
shares issued and outstanding................. 33,684 152,940 152,940
Additional paid-in capital......................... -- 105,800 475,800
Deficit accumulated during the development stage... (18,575) (596,698) (2,527,695)
------- -------- --------
Total shareholders' equity (deficit)................. 15,109 (337,958) (1,898,955)
------- -------- --------
Total liabilities and shareholders' equity
(deficit).......................................... $126,276 $ 240,786 $ 836,449
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 62
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NOVEMBER 13, 1995
SIX MONTHS ENDED (INCEPTION) TO
NOVEMBER 13, 1995 ------------------------------- JUNE 30, 1997
(INCEPTION) TO YEAR ENDED JUNE 30, 1996 JUNE 30, 1997 (CUMULATIVE)
DECEMBER 31, 1995 DECEMBER 31, 1996 -------------- -------------- -----------------
----------------- ----------------- (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue............................. $ -- $ 65,548 $ 40,925 $ 23,914 $ 89,462
-------- --------- --------- ----------- -----------
Costs and expenses
Cost of revenue................... 6,250 114,052 51,998 63,031 183,333
Research and development.......... -- -- -- 59,249 59,249
General and administrative........ 12,325 357,552 173,716 961,632 1,331,509
Selling and marketing............. -- 152,365 24,187 487,651 640,016
-------- --------- --------- ----------- -----------
Total costs and expenses............ 18,575 623,969 249,901 1,571,563 2,214,107
-------- --------- --------- ----------- -----------
Operating loss...................... $ (18,575) $(558,421) $ (208,976) $ (1,547,649) $(2,124,645)
-------- --------- --------- ----------- -----------
Net interest expense................ -- 19,702 -- 383,348 403,050
Net loss............................ $ (18,575) $(578,123) $ (208,976) $ (1,930,997) $(2,527,695)
======== ========= ========= =========== ===========
Net loss per common share........... $ (0.02) $ (0.67) $ (0.25) $ (2.13)
======== ========= ========= ===========
Weighted average common shares
outstanding....................... 818,344 858,499 850,777 906,378
======== ========= ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 63
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD NOVEMBER 13, 1995 (INCEPTION) TO
DECEMBER 31, 1995, FOR THE YEAR
ENDED DECEMBER 31, 1996
AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON SHARES ADDITIONAL DURING THE
-------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTALS
--------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash from
initial contribution ($.03 per
share), November 1995................ 1,056,364 $ 32,000 -- -- $ 32,000
Issuance of common stock in exchange
for services ($.03 per share),
November 1995........................ 55,598 1,684 -- -- 1,684
Net loss............................... -- -- -- (18,575) (18,575)
--------- -------- -------- --------- ---------
Balance, December 31, 1995............. 1,111,962 33,684 -- (18,575) 15,109
Issuance of common stock in exchange
for services ($.03 per share),
January 1996......................... 27,799 842 -- -- 842
Issuance of common stock in exchange
for services ($.03 per share),
February 1996........................ 13,900 421 -- -- 421
Issuance of common stock for cash
($3.52 per share), June 1996......... 28,342 100,000 -- -- 100,000
Issuance of common stock in exchange
for services ($1.00 per share),
October 1996......................... 17,993 17,993 -- -- 17,993
Issuance of warrants in conjunction
with notes payable (Note 4).......... -- -- 20,000 -- 20,000
Contribution of notes payable and
accrued interest to capital (Note
5)................................... -- -- 85,800 -- 85,800
Net loss............................... -- -- -- (578,123) (578,123)
--------- -------- -------- --------- ---------
Balance, December 31, 1996............. 1,199,996 $152,940 $ 105,800 $ (596,698) $ (337,958)
Issuance of warrants in conjunction
with notes payable (unaudited) (Note
4)................................... 370,000 370,000
Net loss (unaudited)................... (1,930,997) (1,930,997)
--------- -------- -------- --------- ---------
Balance, June 30, 1997 (unaudited)..... 1,199,996 $152,940 $ 475,800 $(2,527,695) $(1,898,955)
========= ======== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 64
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NOVEMBER 13, 1995
NOVEMBER 13, 1995 SIX MONTHS ENDED (INCEPTION) TO
(INCEPTION) TO YEAR ENDED ----------------------------- JUNE 30, 1997
DECEMBER 31, 1995 DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1997 (CUMULATIVE)
----------------- ----------------- ------------- ------------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net loss............................ $ (18,575) $(578,123) $(208,976) $(1,930,997) $(2,527,695)
Adjustments to reconcile net loss to
net cash used for operating
activities:
Provision for doubtful
accounts..................... -- 3,671 -- 4,000 7,671
Depreciation and amortization... 6,250 185,216 35,416 125,005 316,471
Amortization of financing costs
and original issue
discount..................... -- 11,667 -- 303,812 315,479
Issuance of common stock for
services..................... 1,684 19,256 1,263 -- 20,940
Increase (decrease) in cash from
changes in:
Restricted cash................... -- -- -- (78,000) (78,000)
Accounts receivable............... -- (24,006) (28,356) (13,996) (38,002)
Prepaid expenses and other
assets.......................... (5,000) (5,588) (95,248) 10,588 --
License agreement................. (100,000) (171,666) -- (100,000) (371,666)
Deposits.......................... -- -- -- (16,661) (16,661)
Accounts payable.................. 915 57,856 12,706 (33,914) 24,857
Accrued expenses.................. 2,252 184,249 126,007 178,987 365,488
Accrued license costs............. 60,000 40,000 -- (40,000) 60,000
Royalties and production costs
payable......................... -- 17,861 9,417 (15,208) 2,653
Deferred revenues................. -- 29,744 -- 36,162 65,906
--------- --------- -------- --------- ---------
Net cash used for operating
activities.......................... (52,474) (229,863) (147,771) (1,570,222) (1,852,559)
--------- --------- -------- --------- ---------
Cash flows from investing activities
Purchase of property and
equipment......................... -- (12,745) (5,480) (3,966) (16,711)
--------- --------- -------- --------- ---------
Net cash used for investing
activities.......................... -- (12,745) (5,480) (3,966) (16,711)
--------- --------- -------- --------- ---------
Cash flows from financing activities
Net proceeds from issuance of common
stock............................. 32,000 100,000 -- -- 132,000
Net proceeds from private
placements........................ 48,000 232,000 128,000 2,148,785 2,428,785
Repayment of notes payable.......... -- -- -- (200,000) (200,000)
Registration costs.................. -- (91,400) -- (192,194) (283,594)
--------- --------- -------- --------- ---------
Net cash provided by financing
activities.......................... 80,000 240,600 128,000 1,756,591 2,077,191
--------- --------- -------- --------- ---------
Increase (decrease) in cash and cash
equivalents......................... 27,526 (2,008) (25,251) 182,403 207,921
Cash and cash equivalents, at
beginning of period................. -- 27,526 27,526 25,518 --
--------- --------- -------- --------- ---------
Cash and cash equivalents, at end of
period.............................. $ 27,526 $ 25,518 $ 2,275 $ 207,921 $ 207,921
========= ========= ======== ========= =========
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest.......................... $ 148 $ -- $ -- $ 10,469 $ 10,617
Income taxes...................... 800 -- -- 1,600 2,400
========= ========= ======== ========= =========
Supplemental disclosure of non-cash
activity
Issuance of common stock in exchange
for services...................... 1,684 19,256 1,263 -- 20,940
========= ========= ======== ========= =========
Contribution of notes payable and
accrued interest to capital (Note
5)................................ -- 85,800 -- -- 85,800
========= ========= ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 65
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
On'Village Communications, Inc. (the "Company") is engaged in the
development, publishing and marketing of Web-based services designed to help
users access information on the Internet, while at the same time providing
advertisers with an efficient and innovative means of reaching targeted
audiences. The Company's primary service offering is "On'Village Yellow Pages,"
an on-line national yellow page directory service.
The Company is still considered to be in the development stage as revenues
derived from operations have not been significant and the Company is still
primarily involved in raising capital and negotiating agreements with
independent local yellow page publishers.
Basis of Presentation
The unaudited interim financial statements for the six month periods ended
June 30, 1996 and 1997 and for the period November 13, 1995 (Inception) to June
30, 1997 included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
and, in the opinion of the Company, reflect all adjustments (consisting only of
normal recurring adjustments) and disclosures which are necessary for a fair
presentation. The results of operations for the six month period ended June 30,
1997 are not necessarily indicative of the results for the full year.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an initial maturity of three
months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are recorded net of allowances for returns and doubtful
accounts of $3,671 at December 31, 1996 and $7,671 at June 30, 1997.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation on property and equipment is computed using the straight-line
method over the estimated useful lives of the assets, which is generally five
years.
License Agreements
The Company has entered into a licensing agreement pursuant to which the
Company licenses a database of business listings and agrees to market, sell and
promote an Internet-based yellow page directory comprised
F-7
<PAGE> 66
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1996 AND 1997 IS UNAUDITED)
of the information derived from the database. The minimum annual royalty has
been capitalized and is being amortized over one year, which is the minimum term
of the agreement (Note 7).
Deferred Offering Costs
Deferred offering costs represent costs incurred in connection with the
Company's proposed public offering. The costs of the public offering will be
offset against the proceeds therefrom if the offering is successfully completed
or will be expensed if the offering is abandoned.
Income Taxes
The Company had elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
federal corporate income taxes on its taxable income unless the shareholders
revoke the S Corporation election. Instead, the Company's shareholders are
liable for individual federal income taxes. Accordingly, no provision for income
taxes has been made.
In January 1997, the Company filed an election to revoke its S Corporation
status and to become taxed under the provisions of Subchapter C of the Internal
Revenue Code.
Revenue Recognition
The Company enters into advertising agreements with its customers and
recognizes revenue ratably over the term of the advertisements. Any cash
received prior to the completion of the earnings process is classified as
deferred revenue.
Net Loss per Share
Net loss per common share is computed by dividing the net loss for each
period by the weighted average number of common shares plus the weighted average
of dilutive common share equivalents outstanding during the period as adjusted
for the effect of Securities and Exchange Commission Staff Accounting Bulletin
(SAB) No. 83. Pursuant to SAB No. 83, common stock issued by the Company at a
price less than the anticipated initial public offering price during the twelve
months immediately preceding the initial filing of the offering together with
common stock equivalents issued during such period with an exercise price less
than the anticipated initial public offering price, are treated as outstanding
for all periods presented. Net loss per share is computed using the treasury
stock method. Common share equivalents consist of stock options and warrants.
Common stock equivalents are considered dilutive for earnings per share if the
average stock price exceeds the exercise price during the period. The common
stock equivalents are weighted from the beginning of the earliest quarter in
which they become dilutive. The weighted average number of common shares used in
the net loss per share calculation was reduced by the 800,000 shares of Class B
Common Stock placed in escrow in connection with the proposed initial public
offering.
Stock Split
In October 1996, the Company effected a stock split of its common stock on
a 6.94975 shares for 1 share basis. All share and per share data included herein
have been retroactively adjusted to reflect this event.
New Accounting Pronouncements
Statements of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS No. 125) issued by the Financial Accounting
F-8
<PAGE> 67
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1996 AND 1997 IS UNAUDITED)
Standards Board (FASB) is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996, and
is to be applied prospectively. Earlier or retroactive applications is not
permitted. The new standard provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
The Company does not expect adoption of SFAS No. 125 to have a material effect
on its financial position or results of operations.
Statements of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS No. 128) issued by the FASB is effective for financial statements for both
interim and annual periods ending after December 15, 1997. Earlier application
is not permitted. SFAS 128 requires dual presentation of basic and diluted
earnings per share (EPS) on the face of the income statement. It also requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. This statement
also requires restatement of all prior period EPS data presented. The Company
does not expect adoption of SFAS No. 128 to have a material effect on its
Results of Operations.
Statements of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" (SFAS No. 129) issued by the FASB is
effective for financial statements ending after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 128. The Company does not expect adoption of SFAS No. 129
to have a material effect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company has not determined the effect
on its financial position or results of operations from the adoption of this
statement.
Statements of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997
(although the FASB is encouraging earlier application). The new standard
requires that public business enterprises report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to shareholders.
It also requires that public business enterprises report certain information
about their products and services, the geographic areas in which they operate
and their major customers. The Company has not determined the effect on its
financial position or results of operations from the adoption of this statement.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses, royalties
and production costs payable, and notes payable approximate fair value because
of the short maturity of these instruments. It is not practicable to estimate
the fair value of the related party notes payable due to their related party
nature.
NOTE 2 -- GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As of December 31, 1996, the
Company had a working capital deficiency of $522,303 and a shareholders'
deficiency of $337,958. These factors raise substantial doubt about the
Company's ability to continue as a going concern. In
F-9
<PAGE> 68
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1996 AND 1997 IS UNAUDITED)
January 1997, the Company raised approximately $1,680,000, after deduction of
all offering related expenses and commissions, in a private placement of notes
and warrants. Management plans to generate additional funds necessary to
continue to operate the Company through an initial public offering of common
stock and warrants. Management currently estimates that the initial public
offering will generate approximately $7,765,000 after the deduction of all
offering related expenses and commissions. There is no assurance that the
initial public offering will be successful. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amount of liabilities that might be necessary
should the Company be unable to continue in existence.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997
DECEMBER 31, ------------
1996
------------ (UNAUDITED)
<S> <C> <C>
Computers and equipment..................... $12,745 $ 16,711
Less accumulated depreciation............... (1,405) (2,805)
------- -------
Totals...................................... $11,340 $ 13,906
======= =======
</TABLE>
NOTE 4 -- NOTES PAYABLE
In October and November 1996, the Company borrowed an aggregate of
$200,000, in the form of three promissory notes, from three individual
investors. The notes were repaid with a portion of the proceeds from the sale of
the Bridge Units (as defined in Note 9). In connection with the issuance of
these notes, the Company also issued to the investors five-year warrants to
purchase a total of 200,000 shares of the Company's Class B Common Stock at
$3.00 per share. The Company allocated $20,000 of the total proceeds of the
notes to an original issue discount, which represents the estimated fair market
value of these warrants at the date of issue. The unamortized original issue
discount was $8,333 at December 31, 1996. Upon consummation of the sale of the
Bridge Units, each of these warrants automatically converted into Bridge
Warrants (as defined in Note 9).
In January 1997, the Company received approximately $1,680,000 from the
issuance of $2,000,000 principal amount of Bridge Notes and 1,000,000 Bridge
Warrants, net of issuance costs. See Note 9. The Company allocated $370,000 of
the total proceeds of the notes to an original issue discount. The unamortized
original issue discount was $209,700 at June 30, 1997.
In May and June 1997, the Company borrowed an aggregate of $432,000 from an
investment banker. The terms of these notes are similar to the terms of the
Bridge Notes.
NOTE 5 -- NOTES PAYABLE -- RELATED PARTIES
Notes payable consist of a total of $48,000 at December 31, 1995 of
advances made by the four executive officers of the Company. These notes are
unsecured, bear interest at 10% per annum, with principal and interest due
January 1, 1999. In December 1996, the noteholders contributed $85,800 to
capital which was comprised of these notes payable together with additional
advances made during 1996 and accrued interest.
F-10
<PAGE> 69
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 6 -- COMMITMENTS
The Company leased its facility on a month-to-month basis until May 31,
1997. As of June 1, 1997, the Company leases its office space under a
non-cancellable lease agreement which expires in May 2002. The Company also
leases certain office equipment under operating lease agreements which terminate
on various dates in 2000. Minimum commitments under these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------
<S> <C>
1997................................................. $100,373
1998................................................. 188,085
1999................................................. 199,140
2000................................................. 160,661
2001................................................. 132,636
2002................................................. 55,265
--------
$836,160
========
</TABLE>
Total rent expense from November 13, 1995 (Inception) to December 31, 1995
and for the year ended December 31, 1996 was $-0- and $10,738, respectively and
for the six months ended June 30, 1996 (unaudited) and June 30, 1997 (unaudited)
was $4,114 and $19,760, respectively.
In October 1995, the Company entered into an agreement with a company (the
"provider") pursuant to which the Company has agreed to edit, market, sell and
promote Internet yellow pages products. The provider has agreed to build and
maintain the software programs which support the Company's search engine and
other technological components. The Company is committed to pay the provider a
percentage of revenue generated by the Company in exchange for the foregoing
services. Based upon meeting its minimum Web page development requirements, even
if the agreement is cancelled, the Company is committed to pay the provider 1%
of future revenues for these development services. If the agreement is not
cancelled, the Company will be required to pay the provider a stated percentage
of annual revenues as follows:
<TABLE>
<CAPTION>
PERCENT REVENUE
--------------------------------------------- ------------------------
<S> <C>
5%.......................................... $0 - $7,499,999
6%.......................................... $7,500,000 - $9,499,999
7%.......................................... $9,500,000 - 12,499,999
7.5%.......................................... (greater than or
equal to) $12,500,000
</TABLE>
In March 1997, the Company modified the above agreement whereby the Company
will now be required to pay the provider (i) $2,000 per month for hosting,
maintenance and internet usage and (ii) 1% of future advertising revenues.
In June 1997, in connection with its facility lease agreement, the Company
issued a letter of credit to the lessor in the amount of $78,000. The letter of
credit is collateralized by a certificate of deposit in the amount of $78,000.
According to the terms of the lease, the letter of credit may be cancelled upon
the consummation of an initial public offering by the Company.
F-11
<PAGE> 70
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 7 -- LICENSE AGREEMENTS
In December 1995, the Company entered into a five-year license agreement
with a company that generates a nationwide database of business listings from
print yellow pages (the "licensor"). Pursuant to this agreement, the Company has
agreed to market, sell and promote Internet services in the United States. The
Company is committed to pay an annual royalty based on net advertising revenues
(as defined in the agreement), subject to a minimum annual royalty, and provide
50 electronic bill boards to the licensor free of charge.
In December 1996, the Company entered into an agreement, retroactive to
September 4, 1996, with a company (the "Web Page Provider") that provides that
the Company's services will be listed on the Web Page Provider's Web Page,
accessible via a search button, through March 1997. The Company is committed to
make total payments to the Web Page Provider of $171,666 through March 31, 1997.
In April 1997, the Company entered into a new agreement with the Web Page
Provider, which agreement expires in April 1998. The new agreement provides for
the Web Page Provider to continue providing its services substantially as
provided for under the previous agreement in exchange for $30,000 per month. The
new agreement allows either party to terminate the agreement within 90 days
written notice to the other party.
The assets arising from these agreements are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
LIFE 1995 1996 1997
--------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Minimum royalty -- database............ 1 Year $100,000 $100,000 $100,000
Web page provider...................... 7 Months $ -- 171,666 --
-------- -------- -------- --------
100,000 271,666 $100,000
Less accumulated amortization.......... 6,250 190,061 42,000
-------- -------- --------
$ 93,750 $ 81,605 $ 58,000
======== ======== ========
</TABLE>
NOTE 8 -- RELATED PARTY TRANSACTIONS
Included in accounts payable at December 31, 1996, is $5,480 due to an
officer of the Company, for a loan to fund the purchase by the Company of two
computers.
Included in general and administrative expenses for the year ended December
31, 1996, is $10,412 for bookkeeping services and $10,738 for office rent paid
to an entity owned by an officer of the Company. Payments for bookkeeping
services were $0 and $1,213 for the six months ended June 30, 1996 (unaudited)
and June 30, 1997 (unaudited), respectively. Office rent payments totalled $0
and $7,388 for the six months ended June 30, 1996 (unaudited) and June 30, 1997
(unaudited), respectively.
NOTE 9 -- AGREEMENT WITH INVESTMENT BANKER
On October 18, 1996, the Company entered into a letter of intent with an
investment banker relating to a private placement of units, consisting of notes
and warrants, and a proposed initial public offering of units, consisting of
shares of common stock and warrants, of the Company. In conjunction with this
letter of intent, the Company also signed a mergers and acquisitions agreement
with the investment banker that provides for the payment of finder's fees to the
investment banker upon the consummation of certain corporate finance, mergers,
acquisitions and other transactions as specified in the agreement.
F-12
<PAGE> 71
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1996 AND 1997 IS UNAUDITED)
The private placement, which was completed in January 1997, consisted of
the sale of 40 units ("Bridge Units") at a purchase price of $50,000 per Bridge
Unit. Each Bridge Unit consisted of one $50,000 promissory note, bearing
interest at 10% per annum and due the earlier of one year after the date of
issuance or the completion of the proposed initial public offering, and warrants
(the "Bridge Warrants") to purchase 25,000 shares of the Company's Class A
Common Stock at $3.00 per share. Each outstanding Bridge Warrant which is not
exercised prior to the proposed initial public offering will automatically be
converted into 25,000 warrants (see description of warrants below). In
conjunction with this private placement, the investment banker received a
placement fee of 10% of the gross proceeds of the private placement, a
non-accountable expense allowance of 3% of the gross proceeds of the private
placement and warrants equal to 10% of the shares of Class A Common Stock
underlying the warrants sold in the private placement (which warrants will be
cancelled upon the issuance to the investment banker of the units referred to
below).
The initial public offering is expected to consist of the sale of 1,900,000
units ("Units"), plus an option for the underwriter to sell an additional
285,000 units to cover overallotments, at an initial public offering price of
$5.00 per Unit. Each Unit is expected to consist of one share of the Company's
Class A Common Stock, and one warrant. Each warrant, upon its exercise at $6.50
per warrant, entitles the holder to purchase one share of the Company's Class A
Common Stock. In conjunction with this proposed initial public offering, the
investment banker is expected to receive an underwriting fee of 10% of the gross
proceeds of the initial public offering, a non-accountable expense allowance of
3% of the gross proceeds of the initial public offering and an option to
purchase units equal to 10% of the units sold in the initial public offering
(excluding any units sold pursuant to exercise of the overallotment option).
If the Company consummates the proposed initial public offering, 800,000
shares of the Company's Class B Common Stock shall be subject to an escrow and
subsequent transfer to the Company, without consideration, if the Company does
not attain certain earnings or share price levels for its Class A Common Stock.
In the event any of these escrow shares owned by securityholders of the Company
who are officers, directors, employees or consultants of the Company are
released from escrow, compensation expense will be recorded for financial
reporting purposes.
NOTE 10 -- CAPITAL STOCK TRANSACTIONS
In exchange for consulting services rendered during 1996, the Company
issued 17,993 shares of Class B Common Stock to an individual in October 1996.
In October 1996, the Company amended its Articles of Incorporation to
authorize the issuance of 20,200,000 shares of common stock and 5,000,000 shares
of preferred stock. The Board of Directors is authorized to determine and alter
the rights, preferences, privileges, restrictions and the number of shares of
any series of unissued preferred stock. In addition, the Company effected a
stock split of the Company's common stock on a 6.94975 shares for 1 share basis.
All shares and per share data included herein has been retroactively
adjusted to reflect the foregoing amendments.
NOTE 11 -- AMENDMENTS TO ARTICLES OF INCORPORATION
In January 1997, the Company amended its Articles of Incorporation to
create two classes of Common Stock, Class A and Class B. All shares outstanding
as of the date of this amendment were designated as Class B Shares. These Class
B shares will be convertible into Class A shares under certain circumstances
defined within the amended articles of incorporation, and will be identical in
all respects to Class A shares except that on every matter for which one share
of Class A Common Stock is entitled to one vote, each share
F-13
<PAGE> 72
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1996 AND 1997 IS UNAUDITED)
of Class B Common Stock will be entitled to five votes. Pursuant to this
amendment, the Company changed its name from "e.ventures, inc." to "On'Village
Communications, Inc."
All shares and per share data included herein has been retroactively
adjusted to reflect the foregoing amendments.
NOTE 12 -- EMPLOYMENT AGREEMENTS
The Company entered into employment agreements (the "Employment Agreement")
with four members of senior management in January 1997. The term of each
Employment Agreement commences on the closing of the initial public offering and
expires at the end of the 37th month after such date; provided, however, that
the term may be extended by mutual agreement between the Company and the
employee. Each Employment Agreement provides that in consideration for the
respective employee's services, he is to be paid a salary of $92,500 during the
first 13 month period of the Employment Agreement. In addition, each employee
will receive increases in salary and bonuses as deemed appropriate by the Board
of Directors after such 13 month period. Each Employment Agreement also provides
that in the event the employee is terminated for "good cause," he shall not be
entitled to any severance, and in the event the employee is terminated for any
reason other than "good cause", he shall be entitled to severance pay equal to
the lesser of (x) a lump sum amount equal to one year's salary based on his
then-current annual salary (excluding any bonuses or fringe benefits) or (y) the
remaining salary due under the term of the Employment Agreement plus a
continuation of the disability and health insurance policies provided for in the
Employment Agreement. Each Employment Agreement contains standard non-compete,
non-solicitation and confidentiality provisions. The four members of senior
management began accruing salaries at a rate based on the above discussed annual
salary as of October 1996.
The Company entered into an employment agreement with the Company's
Director of Technology in April 1997. The agreement provides for an annual
salary of $70,000, plus bonuses and annual salary increases as deemed
appropriate by the Board of Directors. In addition, the employee is entitled to
additional compensation equal to 1% of the Company's net revenue (the "Incentive
Compensation"). The agreement may be terminated at any time by the Company for
"good cause", and upon 30 days' notice, at any time without cause. Mr. Hinkson
may terminate the agreement at any time upon 120 days' notice. The agreement
provides that in the event Mr. Hinkson is terminated for "good cause" he shall
not be entitled to any severance, and in the event he is terminated for any
reason other than "good cause," he shall be entitled to severance pay equal to
the Incentive Compensation for a period of three years from the date of
termination. In the event Mr. Hinkson terminates the agreement, he shall be
entitled to the Incentive Compensation for a period of (x) one year following
the date of termination, if the termination occurs during the first year of the
agreement, (y) two years following the date of termination, if the termination
occurs during the second year of the agreement, and (z) three years following
the date of termination, if the termination occurs after the second year of the
agreement. Mr. Hinkson's agreement contains standard non-compete,
non-solicitation and confidentiality agreements.
NOTE 13 -- STOCK OPTION PLAN
In January 1997, the Board of Directors and the Company's shareholders
approved the Company's 1997 Stock Option Plan (the "Option Plan"). The Option
Plan provides for the grant of options to officers, directors and other key
employees of the Company to purchase up to an aggregate of 200,000 shares of
Class A Common Stock. The exercise price of incentive stock options may not be
less than 100% of the fair market value of the Company's Class A Common Stock as
of the date of grant (110% of the fair market value if the grant is to an
employee who owns more than 10% of the total combined voting power of all
classes of capital
F-14
<PAGE> 73
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1996 AND 1997 IS UNAUDITED)
stock of the Company). Nonqualified options may be granted under the Option Plan
at an exercise price less than the fair market value of the Class A Common Stock
on the date of grant. Nonqualified options also may be granted without regard to
any restriction on the amount of Class A Common Stock that may be acquired
pursuant to such options in any one year. Options may not be exercised more than
ten years after the grant (five years after the grant if the grant is an
incentive stock option to an employee who owns more than 10% of the total
combined voting power of all classes of capital stock of the Company). As of
February 26, 1997, options to purchase 200,000 shares were available for grant
under the Option Plan. In August 1997, the Board of Directors and the Company's
shareholders approved an amendment to the Option Plan, increasing the number of
shares issuable to 300,000 shares. The Company issued 30,000 options,
exercisable at $4.00 per share, under the Plan in August 1997.
F-15
<PAGE> 74
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
SECURITIES IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 20
Dividend Policy....................... 21
Dilution.............................. 22
Capitalization........................ 23
Selected Financial Data............... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 31
Management............................ 42
Certain Transactions.................. 47
Principal Shareholders................ 48
Description of Securities............. 50
Shares Eligible for Future Sale....... 52
Underwriting.......................... 54
Legal Matters......................... 56
Experts............................... 56
Additional Information................ 56
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
ON'VILLAGE
COMMUNICATIONS, INC.
1,900,000 UNITS
CONSISTING OF
1,900,000 SHARES OF CLASS A COMMON STOCK AND
1,900,000 REDEEMABLE WARRANTS
------------------------
PROSPECTUS
------------------------
D.H. BLAIR
INVESTMENT BANKING CORP.
, 1997
======================================================
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As allowed by the California Corporations Code, the Company's Restated
Articles of Incorporation provide that the liability of the directors of the
Company for monetary damages shall be eliminated to the fullest extent
permissible under California law. This is intended to eliminate the personal
liability of a director for monetary damages in an action brought by or in the
right of the Company for breach of a director's duties to the Company or its
shareholders except for liabilities: (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that a director believes to be contrary to the best interest of the
Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction from which a director derived an
improper personal benefit; (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute for approval of
certain improper distributions to shareholders or certain loans or guarantees.
This provision does not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. The Company's Amended and
Restated Bylaws require the Company to indemnify its officers and directors to
the full extent permitted by law, including circumstances in which
indemnification would otherwise be discretionary. Among other things, the
Amended and Restated Bylaws require the Company to indemnify directors and
officers against certain liabilities that may arise by reason of their status or
service as directors and officers and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
Section 317 of the California Corporations Code ("Section 317") provides
that the Company may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative (other than action by
or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the Company or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation or enterprise, against expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Company, and, with
respect to any criminal action or proceeding, had no cause to believe his
conduct was unlawful.
Section 317 also provides that the Company may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted under similar standards, except that no indemnification may be made in
respect to any claim, issue or matter as to which such persons shall have been
adjudged to be liable to the Company unless and only to the extent that the
court in which such action or suit was brought shall determine that despite the
adjudication of liability, such person is fairly and reasonably entitled to be
indemnified for such expenses which the court shall deem proper.
Section 317 also provides that to the extent a director or officer of the
Company has been successful in the defense of any action, suit or proceeding
referred to in the previous paragraphs or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith; that indemnification authorized by
Section 317 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and that the Company may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against
II-1
<PAGE> 76
him or incurred by him in any such capacity or arising out of his status as such
whether or not the Company would have the power to indemnify him against such
liabilities under Section 317.
The Company intends to enter into agreements with its directors and
executive officers that require the Company to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Company or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriter of the Company and its
officers and directors for certain liabilities arising under the Securities Act
or otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses to be
incurred in connection with the issuance and distribution of the securities that
are the subject of this Registration Statement. All amounts shown, other than
the Securities and Exchange Commission registration fee, the NASD filing fee and
the Nasdaq fee, are estimates only.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 19,890
NASD fee.......................................................... 7,062
Nasdaq fee........................................................ 9,000
Printing and engraving expenses................................... 130,000
Accounting fees and expenses...................................... 65,000
Legal fees and expenses........................................... 150,000
Blue Sky filing fees and expenses................................. 50,000
Transfer agent's fees and expenses................................ 5,000
Representative's nonaccountable expense allowance (3%)............ 327,750*
Miscellaneous expenses............................................ 64,068
--------
Total................................................... $827,750
========
</TABLE>
- ---------------
* Assumes the exercise of the over-allotment option (i.e., $10,925,000 of Units
sold in total).
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth all of the unregistered sales of securities
by the Company since the Company's inception in November 1995.
<TABLE>
<CAPTION>
DATE PURCHASER SECURITIES PURCHASED (1) CONSIDERATION
- --------------- ------------------- -------------------------------------------- -------------
<S> <C> <C> <C>
November 1995 Jack B. Tracht 264,091 shares of Class B Common Stock $ 8,000
November 1995 Robert D. Tracht 264,091 shares of Class B Common Stock $ 8,000
November 1995 James E. Austin 264,091 shares of Class B Common Stock $ 8,000
November 1995 Jeffrey W. Walden 264,091 shares of Class B Common Stock $ 8,000
November 1995 Howard M. Fites 55,598 shares of Class B Common Stock (2)
January 1996 James C. Neil 27,799 shares of Class B Common Stock (3)
February 1996 James C. Neil 13,900 shares of Class B Common Stock (3)
June 1996 Ki T. Lee 28,342 shares of Class B Common Stock $ 100,000
October 1996 James Goldberg 17,993 shares of Class B Common Stock (4)
</TABLE>
II-2
<PAGE> 77
<TABLE>
<CAPTION>
DATE PURCHASER SECURITIES PURCHASED (1) CONSIDERATION
- --------------- ------------------- -------------------------------------------- -------------
<S> <C> <C> <C>
October 1996 Steve Gorlin $100,000 principal amount of 10% Notes and $ 100,000
warrants to purchase 100,000 shares of Class
B Common Stock (which warrants were
subsequently exchanged for Bridge Warrants)
November 1996 Brynde Berkowitz $50,000 principal amount of 10% Notes and $ 50,000
warrants to purchase 50,000 shares of Class
B Common Stock (which warrants were subse-
quently exchanged for Bridge Warrants)
November 1996 Marc Roberts $50,000 principal amount of 10% Notes and $ 50,000
warrants to purchase 50,000 shares of Class
B Common Stock (which warrants were subse-
quently exchanged for Bridge Warrants)
January 1997 Bridge Financing $2,000,000 principal amount of 10% Notes and $ 2,000,000
warrants to purchase 1,000,000 shares of
Class A Common Stock(5)
</TABLE>
- ---------------
(1) Reflects the Recapitalization, including an approximately 6.94975-for-1
stock split effected in October 1996.
(2) Shares issued to an employee for services.
(3) Shares issued to the Company's law firm for legal services.
(4) Shares issued for consulting services.
(5) Issued solely to a total of 42 individual and institutional accredited
investors in connection with a private placement pursuant to Rule 506 of
Regulation D of the Securities Act in which D.H. Blair Investment Banking
Corp. acted as placement agent and received $260,000 in fees and expenses.
The Company believes that the issuances of securities pursuant to the
foregoing transactions were exempt from registration under the Securities Act of
1933, as amended, by virtue of Section 4(2) thereof as transactions not
involving public offerings. Except as indicated above, all securities referenced
in the preceding table were sold for cash.
ITEM 27. EXHIBITS
(a) The following exhibits, which are furnished with this Registration
Statement or incorporated herein by reference, are filed as part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of the Company.*
3.2 Amended and Restated Bylaws of the Company.*
4.1 Specimen Class A Common Stock Certificate.
4.2 Form of Warrant Agreement by and among the Company, American Stock Transfer &
Trust Company and the Underwriter (including the form of Warrant certificate).
4.3 Form of Underwriter's Unit Purchase Option.
4.4 Warrant Agreement dated January 9, 1997 by and among the Company, American
Stock Transfer & Trust Company and the Underwriter.*
4.5 Escrow Agreement, dated as of January 21, 1997, among the Company, American
Stock Transfer & Trust Company and the shareholders of the Company listed on
the signature page thereto (the "Escrow Agreement).*
4.6 Amendment, dated August , 1997, to the Escrow Agreement.**
</TABLE>
II-3
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Troy & Gould Professional Corporation.
10.1 1997 Stock Option Plan.*
10.2 Employment Agreement, dated as of January 24, 1997, between the Company and
Jack B. Tracht.*
10.3 Employment Agreement, dated as of January 24, 1997, between the Company and
Robert D. Tracht.*
10.4 Employment Agreement, dated as of January 24, 1997, between the Company and
James E. Austin.*
10.5 Employment Agreement, dated as of January 24, 1997, between the Company and
Jeff W. Walden.*
10.6 Form of Indemnification Agreement.*
10.7 Agreement, executed as of May 1997, between the Company and Netscape
Communications Corporation.***
10.8 Agreement, dated as of October 24, 1996, between the Company and Network
Publishing, Inc.*
10.9 License Agreement, dated December 1, 1995, between the Company and Pro CD,
Inc.***
10.10 Form of Independent Publisher Agreement*
10.11 Amendment to the 1997 Stock Option Plan.
10.12 Amended Agreement, dated as of March 21, 1997, between the Company and Network
Publishing, Inc.
10.13 Service Agreement, dated March 21, 1997, between the Company and Network
Publishing, Inc.
10.14 Employment Agreement, dated April 9, 1997, between the Company and Kent
Hinkson.
10.15 Standard Office Lease for Calabasas Commerce Center -- Building No. 3, by and
between Arden Realty Limited Partnership and the Company.
11.1 Statement regarding computation of net loss per share.
23.1 Consent of BDO Seidman LLP.
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit 5.1).
24.1 Power of Attorney.*
27.1 Financial Data Schedule
99.1 Consent of Nicholas M. Mitsakos
99.2 Consent of David A. Searls
</TABLE>
- ---------------
* Previously filed.
** To be filed by Amendment.
*** Incomplete version filed; portions for which confidential treatment have
been requested filed supplementally.
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement, certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
II-4
<PAGE> 79
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the Registrant shall treat the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the Securities Act
as part of this Registration Statement as of the time the Commission
declares it effective.
(2) For the purpose of determining any liability under the Securities
Act, the Registrant shall treat each post-effective amendment that contains
a form of prospectus as a new registration statement relating for the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement;
(iii) To include any additional or changed material information
with respect to the plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE> 80
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on August 8,
1997.
ON'VILLAGE COMMUNICATIONS, INC.
By: /s/ JACK B. TRACHT
------------------------------------
Jack B. Tracht
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<S> <C> <C>
/s/ JACK B. TRACHT Chief Executive Officer and August 8, 1997
- --------------------------------------------- Director (Principal Executive
Jack B. Tracht Officer)
* President, Chief Operating August 8, 1997
- --------------------------------------------- Officer and Director
Robert D. Tracht
* Senior Vice President of August 8, 1997
- --------------------------------------------- Sales and Director
James E. Austin
* Senior Vice President of August 8, 1997
- --------------------------------------------- Marketing and Director
Jeff W. Walden
/s/ WILLIAM ROSSI Vice President and Chief August 8, 1997
- --------------------------------------------- Financial Officer (Principal
William Rossi Financial and Accounting
Officer)
*By: /s/ JACK B. TRACHT
- ---------------------------------------------
Jack B. Tracht, Attorney-in-Fact
</TABLE>
II-6
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.........................................
3.1 Restated Articles of Incorporation of the Company*.....................
3.2 Amended and Restated Bylaws of the Company*............................
4.1 Specimen Class A Common Stock Certificate..............................
4.2 Form of Warrant Agreement by and among the Company, American Stock
Transfer & Trust Company and the Underwriter (including form of Warrant
certificate)...........................................................
4.3 Form of Underwriter's Unit Purchase Option.............................
4.4 Warrant Agreement dated January 9, 1997 by and among the Company,
American Stock Transfer & Trust Company and the Underwriter*...........
4.5 Escrow Agreement, dated as of January 21, 1997, among the Company,
American Stock Transfer & Trust Company and the shareholders of the
Company listed on the signature page thereto*..........................
4.6 Amendment dated August , 1997, to the Escrow Agreement**.............
5.1 Opinion of Troy & Gould Professional Corporation.......................
10.1 1997 Stock Option Plan.*...............................................
10.2 Employment Agreement, dated as of January 24, 1997, between the Company
and Jack B. Tracht*....................................................
10.3 Employment Agreement, dated as of January 24, 1997, between the Company
and Robert D. Tracht*..................................................
10.4 Employment Agreement, dated as of January 24, 1997, between the Company
and James E. Austin*...................................................
10.5 Employment Agreement, dated as of January 24, 1997, between the Company
and Jeff W. Walden*....................................................
10.6 Form of Indemnification Agreement*.....................................
10.7 Agreement, executed as of May 1997, between the Company and Netscape
Communications Corporation***..........................................
10.8 Agreement, dated as of October 24, 1996, between the Company and
Network Publishing, Inc.*..............................................
10.9 License Agreement, dated December 1, 1995, between the Company and Pro
CD, Inc.***............................................................
10.10 Form of Independent Publisher Agreement*...............................
10.11 Amendment to the 1997 Stock Option Plan.
10.12 Amended Agreement, dated as of March 21, 1997, between the Company and
Network Publishing, Inc. ..............................................
10.13 Service Agreement, dated March 21, 1997, between the Company and
Network Publishing, Inc. ..............................................
10.14 Employment Agreement, dated April 9, 1997, between the Company and Kent
Hinkson................................................................
10.15 Standard Office Lease for Calabasas Commerce Center -- Building No. 3,
by and between Arden Realty Limited Partnership and the Company........
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------------------------------------------------------------------- -------------
<C> <S> <C>
11.1 Statement regarding computation of net loss per share..................
23.1 Consent of BDO Seidman LLP.............................................
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1)...................................................................
24.1 Power of Attorney*.....................................................
27.1 Financial Data Schedule................................................
99.1 Consent of Nicholas M. Mitsakos........................................
99.2 Consent of David A. Searls.............................................
</TABLE>
- ---------------
* Previously filed.
** To be filed by Amendment.
*** Incomplete version filed; portions for which confidential treatment have
been requested filed supplementally.
<PAGE> 1
EXHIBIT 1.1
1,900,000 Units
(each Unit consisting of (i) one share of Class A Common Stock and (ii)
one redeemable Class A warrant to purchase one share of Class A Common Stock)
ON'VILLAGE COMMUNICATIONS, INC.
UNDERWRITING AGREEMENT
August __, 1997
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
On'Village Communications, Inc., a California corporation (the
"Company"), proposes to issue and sell to you, as underwriter (the
"Underwriter") pursuant to this Agreement, (the "Agreement"), an aggregate of
1,900,000 Units, each unit being hereinafter referred to as a "Unit" and
consisting of (i) one share of Class A Common Stock ("Shares") and (ii) one
redeemable warrant ("Warrants") to purchase one share of Class A Common Stock at
a price of $6.50 from __________ 1997 to _________ 2002. The Warrants are
subject to redemption, in certain instances commencing one year from the date of
this Agreement. In addition, the Company proposes to grant to the Underwriter
the option referred to in Section 2(b) to purchase all or any part of an
aggregate of 285,000 additional Units. Unless the context otherwise indicates,
the term "Units" shall include the 285,000 additional Units referred to above.
The aggregate of 1,900,000 Units to be sold by the Company, together
with all or any part of the 285,000 Units which the Underwriter has the option
to purchase, and the Shares and the Warrants comprising such Units, are herein
called the "Units." The Class A Common Stock of the Company to be outstanding
after giving effect to the sale of the Shares is herein called the "Class A
Common Stock." The Shares and Warrants included in the Units (including the
Units which the Underwriter have the option to purchase) are herein collectively
called the "Securities."
You have advised the Company that you desire to purchase the Units. The
Company confirms the agreements made by it with respect to the purchase of the
Units you as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
<PAGE> 2
(a) A registration statement (File No. 333-22811) on Form
SB-2 relating to the public offering of the Units, including a form of
prospectus subject to completion, copies of which have heretofore been delivered
to you, has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the Commission
under the Act and one or more amendments to such registration statement may have
been so filed. After the execution of this Agreement, the Company will file with
the Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act,
either (A) if the Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Units that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under the
Act or (B) if the Company does not rely on Rule 434 under the Act a prospectus
in the form most recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule 430A under
the Act or permitted by Rule 424(b) under the Act and in the case of either
clause (i)(A) or (i)(B) of this sentence, as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment shall be furnished to
and approved by you prior to the execution of this Agreement.
As used in this Agreement, the term "Registration Statement" means such
registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means (A) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Shares and Warrants that is first filed pursuant to Rule
424(b)(7) under the Act, together with the Preliminary Prospectus identified
therein that such Term Sheet supplements; (B) if the Company does not rely on
Rule 434 under the Act, the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act or (C) if the Company does not rely on Rule 434
under the Act and if no prospectus is required to be filed pursuant to said Rule
424(b), such term means the prospectus included in the Registration Statement;
except that if such registration statement or prospectus is amended or such
prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be, and the term
"Term Sheet" means any term sheet that satisfies the requirements of Rule 434
under the Act. Any
-2-
<PAGE> 3
reference to the "date" of a Prospectus that includes a Term Sheet shall mean
the date of such Term Sheet.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
Closing Date (as hereinafter defined) or the Option Closing Date (as hereafter
defined), as the case may be, (i) the Registration Statement and Prospectus will
conform in all material respects to the requirements of the Act and the Rules
and Regulations; and (ii) the Registration Statement will not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make statements therein not misleading and the
Prospectus will not include any untrue statement of material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation thereof. It is
understood that the statements set forth in the Prospectus on page 2 with
respect to stabilization, under the heading "Underwriting," "Risk Factors
Possible Adverse Effect on Liquidity of the Company's Securities Due to
Investigation by the Securities and Exchange Commission of the Underwriter and
D.H. Blair & Co." and "Risk Factors - Possible Restrictions on Market Making
Activities in the Company's Securities" and the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute the only information
furnished in writing by or on behalf of the Underwriter for inclusion in the
Registration Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with full power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus and is
duly qualified to do business as a foreign corporation and is in good standing
in all other jurisdictions in which the nature of its business or the character
or location of its properties requires such qualification, except where failure
to so qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding capital stock of
the Company as of June 30, 1997 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and are
fully paid and non-assessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered into by the
Company; and the capital stock conforms to all statements relating thereto
contained in the Registration Statement and Prospectus.
-3-
<PAGE> 4
(e) The Units and the Shares are duly authorized, and when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of the Company. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Class A Common
Stock, except as described in the Registration Statement.
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms and entitled to the benefits provided
by the warrant agreement pursuant to which such Warrants are to be issued (the
"Warrant Agreement"), which will be substantially in the form filed as an
exhibit to the Registration Statement. The shares of Class A Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights and no
personal liability will attach to the ownership thereof. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, will have been duly executed and delivered and will constitute the
valid and legally binding obligation of the Company enforceable in accordance
with its terms. The Warrants and the Warrant Agreement conform to the respective
descriptions thereof in the Registration Statement and Prospectus.
The Shares and the Warrants contained in the Unit Purchase Option have
been duly authorized and, when duly issued and delivered, such Warrants will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms and entitled to the benefits provided by the Unit
Purchase Option. The Shares included in the Unit Purchase Option (and the shares
of Class A Common Stock issuable upon exercise of such Warrants) when issued and
sold, will be duly authorized, validly issued, fully paid and non-assessable and
free of preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement, the Unit Purchase Option, the M/A
Agreement (as defined herein) and the Escrow Agreement (as defined herein) have
been duly and validly authorized, executed and delivered by the Company. The
Company has full power and lawful authority to authorize, issue and sell the
Units to be sold by it hereunder on the terms and conditions set forth herein,
and no consent, approval, authorization or other order of any governmental
authority is required in connection with such authorization, execution and
delivery or with the authorization, issue and sale of the Units or the Unit
Purchase Option, except such as may be required under the Act or state
securities laws.
(g) Except as described in the Prospectus and except as
would not have a material adverse effect on the Company's business, properties
of financial condition (a
-4-
<PAGE> 5
"Material Adverse Effect"), the Company is not in violation, breach or default
of or under, and consummation of the transactions herein contemplated and the
fulfillment of the terms of this Agreement will not conflict with, or result in
a breach or violation of, any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the property or assets of the Company pursuant to the
terms of any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the property or assets of the Company is
subject, nor will such action result in any violation of the provisions of the
articles of incorporation or the by-laws of the Company, as amended, or any
statute or any order, rule or regulation applicable to the Company of any court
or of any regulatory authority or other governmental body having jurisdiction
over the Company.
(h) Subject to the qualifications stated in the Prospectus,
the Company has good and marketable title to all properties and assets described
in the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to its business; all of the material leases and subleases
under which the Company is the lessor or sublessor of properties or assets or
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and, except as
described in the Prospectus, the Company is not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company as lessor, sublessor, lessee or sublessee under any of the leases or
subleases mentioned above, or affecting or questioning the right of the Company
to continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company owns or leases all such properties described in the Prospectus as
are necessary to its operations as now conducted and, except as otherwise stated
in the Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) BDO Seidman LLP, who have given their reports on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
(j) The financial statements, together with related notes, set
forth in the Prospectus (or if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or the Registration Statement present fairly the
financial position and results of operations and changes in cash flow position
of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and related notes have been prepared in accordance with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. The information set forth under the captions "Dilution",
"Capitalization", and "Selected Financial Data" in the Prospectus fairly
present, on the basis stated in the Prospectus, the information included
therein. The pro forma financial information filed as part of the Registration
Statement or included in the Prospectus (or preliminary prospectus) has been
prepared in accordance with the Commission's
-5-
<PAGE> 6
rules and guidelines with respect to pro forma financial statements, and
includes all adjustments necessary to present fairly the pro forma financial
condition and results of operations at the respective dates and for the
respective periods indicated and all assumptions used in preparing such pro
forma financial statements are reasonable.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), the Company has not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which is material to the business of the Company, and there
has not been any change in the capital stock of, or any incurrence of short-term
or long-term debt by, the Company or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or any adverse change or any
development involving, so far as the Company can now reasonably foresee a
prospective adverse change in the condition (financial or other), net worth,
results of operations, business, key personnel or properties of it which would
be material to the business or financial condition of the Company and the
Company has not become a party to, and neither the business nor the property of
the Company has become the subject of, any material litigation whether or not in
the ordinary course of business.
(1) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company is a party before or by any court or
governmental agency or body, which might result in any material adverse change
in the condition (financial or other), business prospects, net worth, or
properties of the Company, nor are there any actions, suits or proceedings
related to environmental matters or related to discrimination on the basis of
age, sex, religion or race; and no labor disputes involving the employees of the
Company exist or are imminent which might be expected to adversely affect the
conduct of the business, property or operations or the financial condition or
results of operations of the Company.
(m) Except as disclosed in the Prospectus, the Company has
filed all necessary federal, state and foreign income and franchise tax returns
and has paid all taxes shown as due thereon; and there is no tax deficiency
which has been or to the knowledge of the Company might be asserted against the
Company.
(n) Except as disclosed in the Prospectus, the Company has
sufficient licenses, permits and other governmental authorizations currently
required for the conduct of its business or the ownership of its properties as
described in the Prospectus and is in all material respects complying therewith
and owns or possesses adequate rights to use all material patents, patent
applications, trademarks, service marks, trade-names, trademark registrations,
service mark registrations, copyrights and licenses necessary for the conduct of
such business and had not received any notice of conflict with the asserted
rights of others in respect thereof. To the best knowledge of the Company, none
of the activities or business of the Company are in violation of, or cause the
Company to violate, any law, rule, regulation or order of the United
-6-
<PAGE> 7
States, any state, county or locality, or of any agency or body of the United
States or of any state, county or locality, the violation of which would have a
Material Adverse Effect.
(o) The Company has not, directly or indirectly, at any time
(i) made any contributions to any candidate for political office, or failed to
disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or
other taxes (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Units to the Underwriter hereunder
will have been fully paid or provided for by the Company and all laws imposing
such taxes will have been fully complied with.
(q) All contracts and other documents of the Company which
are, under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Class A Common Stock to facilitate
the sale or resale of the Units hereby.
(s) The Company has no subsidiaries and does not own any
equity interest in any other corporation, joint venture, partnership or other
business entity.
(t) The Company has not entered into any agreement pursuant to
which any person is entitled either directly or indirectly to compensation from
the Company for services as a finder in connection with the proposed public
offering.
(u) Except as previously disclosed in writing by the
Company to you, no officer, director or stockholder of the Company has any
affiliation or association with any member of the National Association of
Securities Dealers Inc. ("NASD").
(v) The Company is not, and upon receipt of the proceeds from
the sale of the Units will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(w) The Company has not distributed and will not
distribute prior to the First Closing Date (as hereinafter defined) any offering
material in connection with the
-7-
<PAGE> 8
offering and sale of the Units other than the Preliminary Prospectus,
Prospectus, the Registration Statement or the other materials permitted by the
Act, if any.
(x) The conditions for use of Form SB-2, as set forth in
the General Instructions thereto, have been satisfied.
(y) There are no business relationships or related-party
transactions of the nature described in Item 404 of Regulation S-B involving the
Company and any person described in such Item that are required to be disclosed
in the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and that have not been so disclosed.
(z) The Company has complied with all provisions of Section
517.075 Florida Statutes relating to doing business with the government of Cuba
or with any person or affiliate located in Cuba.
2. Purchase, Delivery and Sale of the Units.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties, and agreements herein
contained, the Company agrees to issue and sell to the Underwriter, and
Underwriter agrees to buy from the Company at $5.00 per Unit, at the place and
time hereinafter specified, 1,900,000 Units.
Delivery of the First Units against payment therefor shall
take place at the offices of D.H. Blair Investment Banking Corp., 44 Wall
Street, New York, N.Y. (or at such other place as may be designated by agreement
between you and the Company) at 10:00 a.m., New York time, on _______ __, 1997,
or at such later time and date as you may designate, such time and date of
payment and delivery for the First Units being herein called the "First Closing
Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter to
purchase all or any part of an aggregate of an additional 285,000 Units at the
same price per Unit as the Underwriter shall pay for the First Units being sold
pursuant to the provisions of subsection (a) of this Section 2 (such additional
Units being referred to herein as the "Option Units"). This option may be
exercised within 30 days after the effective date of the Registration Statement
upon notice by you in writing to the Company advising as to the amount of Option
Units as to which the option is being exercised, the names and denominations in
which the certificates for such Option Units are to be registered and the time
and date when such certificates are to be delivered. Such time and date shall be
determined by you but shall not be earlier than four nor later than ten full
business days after the exercise of said option, nor in any event prior to the
First Closing Date, and such time and date is referred to herein as the "Option
Closing Date." Delivery of the Option Units against payment therefor shall take
place at the offices of D.H. Blair Investment Banking Corp., 44 Wall Street, New
York, N.Y. The Option granted hereunder may be exercised only to cover
overallotments in
-8-
<PAGE> 9
the sale by the Underwriter of First Units referred to in subsection (a) above.
In the event the Company declares or pays a dividend or distribution on its
Class A Common Stock, whether in the form of cash, shares of Class A Common
Stock or any other consideration, prior to the Option Closing Date, such
dividend or distribution shall also be paid on the shares of Class A Common
stock underlying the Option Units on the Option Closing Date.
(c) The Company will make the certificates for the securities
comprising the Units to be purchased by the Underwriter hereunder available to
you for checking at least two full business days prior to the First Closing Date
or the Option Closing Date (which are collectively referred to herein as the
"Closing Dates"). The certificates shall be in such names and denominations as
you may request, at least two full business days prior to the Closing Dates.
Time shall be of the essence and delivery at the time and place specified in
this Agreement is a further condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Units to be
purchased by the Underwriter hereunder will be delivered by the Company to you
against payment of the purchase price by certified or bank cashier's checks in
New York Clearing House funds, payable to the order of the Company.
In addition, in the event the Underwriter exercises the option
to purchase from the Company all or any portion of the Option Units pursuant to
the provisions of subsection (b) above, payment for such Units shall be made to
or upon the order of the Company by certified or bank cashier's checks payable
in New York Clearing House funds at the offices of D.H. Blair Investment Banking
Corp., at the time and date of delivery of such Units as required by the
provisions of subsection (b) above, against receipt of the certificates for such
Units by the Underwriter for the account of the Underwriter registered in such
names and in such denominations as the Underwriter may request.
It is understood that the Underwriter proposes to offer the
Units to be purchased hereunder to the public upon the terms and conditions set
forth in the Registration Statement, after the Registration Statement becomes
effective.
3. Covenants of the Company. The Company covenants and agrees
with the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible. If required,
the Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. Upon notification from the Commission that the Registration Statement has
become effective, the Company will so advise you and will not at any time,
whether before or after the effective date, file the Prospectus, Term Sheet or
any amendment to the Registration Statement or supplement to the Prospectus of
which you shall not previously have been advised and furnished with a copy or to
which you or your counsel shall have objected in writing or
-9-
<PAGE> 10
which is not in compliance with the Act and the Rules and Regulations. At any
time prior to the later of (A) the completion by the Underwriter of the
distribution of the Units contemplated hereby (but in no event more than nine
months after the date on which the Registration Statement shall have become or
been declared effective) and (B) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which, in
your opinion, may be necessary or advisable in connection with the distribution
of the Units.
As soon as the Company is advised thereof, the Company will
advise you, and confirm the advice in writing, of the receipt of any comments of
the Commission, of the effectiveness of any post-effective amendment to the
Registration Statement, of the filing of any supplement to the Prospectus or any
amended Prospectus, of any request made by the Commission for amendment of the
Registration Statement or for supplementing of the Prospectus or for additional
information with respect thereto, of the issuance by the Commission or any state
or regulatory body of any stop order or other order or threat thereof suspending
the effectiveness of the Registration Statement or any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Units for offering in any jurisdiction, or of the
institution of any proceedings for any of such purposes, and will use its best
efforts to prevent the issuance of any such order, and, if issued, to obtain as
soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company authorizes
the Underwriter and dealers to use the Prospectus in connection with the sale of
the Units for such period as in the opinion of counsel to the Underwriter the
use thereof is required to comply with the applicable provisions of the Act and
the Rules and Regulations. In case of the happening, at any time within such
period as a Prospectus is required under the Act to be delivered in connection
with sales by an underwriter or dealer of any event of which the Company has
knowledge and which materially affects the Company or the securities of the
Company, or which in the opinion of counsel for the Company or counsel for the
Underwriter should be set forth in an amendment of the Registration Statement or
a supplement to the Prospectus in order to make the statements therein not then
misleading, in light of the circumstances existing at the time the Prospectus is
required to be delivered to a purchaser of the Units or in case it shall be
necessary to amend or supplement the Prospectus to comply with law or with the
Rules and Regulations, the Company will notify you promptly and forthwith
prepare and furnish to you copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriter, except that in case any
Underwriter is
-10-
<PAGE> 11
required, in connection with the sale of the Units to deliver a Prospectus nine
months or more after the effective date of the Registration Statement, the
Company will upon request of and at the expense of the Underwriter, amend or
supplement the Registration Statement and Prospectus and furnish the Underwriter
with reasonable quantities of prospectuses complying with Section 10(a)(3) of
the Act.
The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934 and the rules and
regulations thereunder in connection with the offering and issuance of the
Units.
(b) The Company will use its best efforts to qualify to
register the Units for sale under the securities or "blue sky" laws of such
jurisdictions as the Underwriter may designate and will make such applications
and furnish such information as may be required for that purpose and to comply
with such laws, provided the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Units. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as the Underwriter
may reasonably request.
(c) If the sale of the Units provided for herein is not
consummated for any reason caused by the Company, the Company shall pay all
costs and expenses incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in Section
8, including the actual accountable out-of-pocket expenses of the Underwriter up
to a maximum of 285,000.
(d) The Company will use its best efforts to (i) cause a
registration statement under the Securities Exchange Act of 1934 to be declared
effective concurrently with the completion of this offering and will notify you
in writing immediately upon the effectiveness of such registration statement,
and (ii) if requested by you, to obtain a listing on the Pacific Stock Exchange
and to obtain and keep current a listing in the Standard & Poors or Moody's
Industrial OTC Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Securities Exchange Act of 1934, the
Company, at its expense, will furnish to its stockholders an annual report
(including financial statements audited by independent public accountants), in
reasonable detail and at its expense, will furnish to you during the period
ending five (5) years from the date hereof, (i) as soon as practicable after the
end of each fiscal year, a balance sheet of the Company and any of its
subsidiaries as at the end of such fiscal year, together with statements of
income, surplus and cash flow of the Company and any subsidiaries for such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as
practicable after the end of each of the first three fiscal quarters of each
fiscal year, unaudited consolidated summary financial information of the Company
for such quarter in reasonable detail; (iii) as soon as they
-11-
<PAGE> 12
are available, a copy of all reports (financial or other) mailed to security
holders; (iv) as soon as they are available, a copy of all non-confidential
reports and financial statements furnished to or filed with the Commission or
any securities exchange or automated quotation system on which any class of
securities of the Company is listed; and (v) such other information as you may
from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First
Closing Date (if and to the extent not previously delivered) two signed copies
of the Registration Statement including all financial statements and exhibits
filed therewith, and of all amendments thereto, and will deliver to the
Underwriter such number of conformed copies of the Registration Statement,
including such financial statements but without exhibits, and of all amendments
thereto, as the Underwriter may reasonably request. The Company will deliver to
or upon the order of the Underwriter, from time to time until the effective date
of the Registration Statement, as many copies of any Preliminary Prospectus
filed with the Commission prior to the effective date of the Registration
Statement as the Underwriter may reasonably request. The Company will deliver to
the Underwriter on the effective date of the Registration Statement and
thereafter for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in final form, or as
thereafter amended or supplemented, as the Underwriter may from time to time
reasonably request. The Company, not later than (i) 5:00 p.m., New York City
time, on the date of determination of the public offering price, if such
determination occurred at or prior to 12:00 noon, New York City time, on such
date or (ii) 6:00 p.m., New York City time, on the business day following the
date of determination of the public offering price, if such determination
occurred after 12:00 noon, New York City time, on such date, will deliver to the
Underwriter, without charge, as many copies of the Prospectus and any amendment
or supplement thereto as the Underwriter may reasonably request for purposes of
confirming orders that are expected to settle on the First Closing Date.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to you as soon
as it is practicable to do so but in no event later than 90 days after the end
of twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of
the Units for the purposes set forth under "Use of Proceeds" in the Prospectus,
and will file such reports with the Commission with respect to the sale of the
Units and the application of the proceeds therefrom as may be required pursuant
to Rule 463 under the Act.
-12-
<PAGE> 13
(j) The Company will, promptly upon your request, prepare and
file with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action, which
in the reasonable opinion of Bachner, Tally, Polevoy & Misher LLP, counsel to
the Underwriter, may be reasonably necessary or advisable in connection with the
distribution of the Units, and will use its best efforts to cause the same to
become effective as promptly as possible.
(k) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Unit Purchase Option outstanding from time to time.
(l) For a period of thirteen months from the First Closing
Date, no officer, director or existing stockholder of the Company (the
"Principal Stockholders") will directly or indirectly, offer, sell (including
any short sale), grant any option for the sale of, acquire any option to dispose
of, or otherwise dispose of any shares of Common Stock or other securities of
the Company, without the prior written consent of the Underwriter. In order to
enforce this covenant, the Company shall impose stop-transfer instructions with
respect to the shares owned by the Principal Stockholders until the end of such
period.
(m) Prior to completion of this offering, the Company will
make all filings required, including registration under the Securities Exchange
Act of 1934, to obtain the listing of the Units, Class A Common Stock, and
Warrants on the Nasdaq SmallCap Market (or a listing on such other market or
exchange as the Underwriter consents to), and will use its best efforts to
effect and maintain such listing for at least five years from the date of this
Agreement.
(n) The Company and each of the Principal Stockholders
represents that it or he has not taken and agree that it or he will not take,
directly or indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Units, Shares or the Warrants or to facilitate
the sale or resale of the Securities.
(o) On the Closing Date and simultaneously with the delivery
of the Units, the Company shall execute and deliver to you, the Unit Purchase
Option. The Unit Purchase Option will be substantially in the form of the
Underwriter's Unit Purchase Option filed as an Exhibit to the Registration
Statement.
(p) During the 18 month period commencing on the date of this
Agreement, the Company will not, without the prior written consent of the
Underwriter, grant options to employees to purchase shares of Class A Common
Stock at an exercise price less than the greater of (i) the initial public
offering price of the Units (without allocating any value to the Warrants) or
(ii) the fair market value of the Class A Common Stock on the date of grant.
During the six month period commencing on the date of this Agreement, the
Company will not, without the prior written consent of the Underwriter, grant
options to any current officer of the Company. During the three year period
commencing on the date of this Agreement, the
-13-
<PAGE> 14
Company will not, without the prior written consent of the Underwriter, offer or
sell any of its securities pursuant to Regulation S under the Act.
(q) The Company will not, without the prior written consent of
the Underwriter, grant registration rights to any person which are exercisable
sooner than 13 months from the First Closing Date.
(r) Jack B. Tracht shall be the Chief Executive Officer,
Robert D. Tracht shall be the President and Chief Operating Officer and Jeff W.
Walden and James E. Austin will each be a Senior Vice President of the Company
on the Closing Dates. The Company has obtained key person life insurance on the
lives of each of Jack B. Tracht, Robert D. Tracht, Jeff W. Walden and James E.
Austin, respectively, in an amount of not less than $2 million and will use its
best efforts to maintain such insurance during the three year period commencing
on the First Closing Date or the term of their employment, whichever period is
longer. In the event Jack B. Tracht's. employment is terminated prior to the
three year period commencing on the First Closing Date, the Company will obtain
a comparable policy on the life of his successor for the balance of the three
year period. For a period of thirteen months from the First Closing Date, the
compensation of the executive officers of the Company shall not be increased
from the compensation levels disclosed in the Prospectus.
(s) On the Closing Date and simultaneously with the delivery
of the Units the Company shall deliver to you, an agreement with you regarding
mergers, acquisitions, joint ventures and certain other forms of transactions,
in the form previously delivered to the, Company by you (the "M/A Agreement").
(t) So long as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance with the Act and without any lapse
of time between the effectiveness of any such post-effective amendments and
cause a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Warrant and to furnish to the Underwriter and dealer as many
copies of each such Prospectus as the Underwriter or dealer may reasonably
request. The Company shall not call for redemption any of the Warrants unless a
registration statement covering the securities underlying the Warrants has been
declared effective by the Commission and remains current at least until the date
fixed for redemption. In addition, for so long as any Warrant is outstanding,
the Company will promptly notify the Underwriter of any material change in the
business, financial condition or prospects of the Company.
(u) Upon the exercise of any Warrant or Warrants after
, 1998, the Company will pay D.H. Blair Investment Banking Corp.,
a fee of 5% of the aggregate exercise price of the Warrants, of which 1% may be
reallowed to the dealer who solicited in writing the exercise (which may also be
D.H. Blair Investment Banking Corp.) if (i) the market price of the Company's
Class A Common Stock is greater than the exercise price of the Warrants on the
date of exercise; (ii) the exercise of the Warrant was solicited by a member of
the National Association of Securities Dealers, Inc., (iii) the Warrant is not
held in a discretionary
-14-
<PAGE> 15
account; (iv) the disclosure of compensation arrangements has been made in
documents provided to customers, both as part of the original offering and at
the time of exercise, and (v) the solicitation of the Warrant was not in
violation of Regulation M promulgated under the Securities Exchange Act of 1934,
as amended. The Company agrees not to solicit the exercise of any Warrants other
than through D.H. Blair Investment Banking Corp. and will not authorize any
other dealer to engage in such solicitation without the prior written consent of
D.H. Blair investment Banking Corp.
(v) For a period of five (5) years from the Effective Date the
Company (i) at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders and (ii) shall not change its accounting firm without the prior
written consent of the Chairman or the President of the Underwriter which
consent shall not be withheld in connection with a change to any "Big 6"
accounting firm.
(w) As promptly as practicable after the Closing Date, the
Company will prepare, at its own expense, hard cover "bound volumes" relating to
the offering, and will distribute at least four of such volumes to the
individuals designated by the Underwriter or counsel to the Underwriter.
(x) For a period of five years from the First Closing Date (i)
the Underwriter shall have the right, but not the obligation, to designate one
director of the Board of Directors of the Company and (ii) the Company shall
engage a public relations firm reasonably acceptable to the Underwriter.
(y) The Company shall, for a period of six years after date of
this Agreement, submit which reports to the Secretary of the Treasury and to
stockholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder, in
order for the Company to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in the Company.
(z) The Company shall, within nine months after the First
Closing Date, file a registration statement pursuant to the Act, covering the
Warrants and the shares of Class A Common Stock issuable upon exercise of the
Warrants (the "Bridge Securities"), held by the holders ("Bridge Lenders") of
the Warrants issued in connection with the Company's private placement completed
in January 1997 and use its best efforts to cause such registration statement to
become effective upon the expiration of the lock-up agreement between each
Bridge Lender and the Company relating to the Bridge Securities.
4. Conditions of Underwriter' Obligation. The obligations of the
Underwriter to purchase and pay for the Units which they have respectively
agreed to purchase
-15-
<PAGE> 16
hereunder, are subject to the accuracy (as of the date hereof, and as of the
Closing Dates) of and compliance with the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder,
and to the following conditions:
(a) The Registration Statement shall have become
effective and you shall have received notice thereof not later than
10:00 A.M., New York time, on the date on which the amendment to the
registration statement originally filed with respect to the Units or to
the Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Units has been filed
with the Commission, or such later time and date as shall have been
agreed to by you; if required, the Prospectus or any Term Sheet that
constitutes a part thereof and any amendment or supplement thereto
shall have been filed with the Commission in the manner and within the
time period required by Rule 434 and 424(b) under the Act; on or prior
to the Closing Dates no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that or a similar purpose shall have been instituted or shall be
pending or, to the knowledge of the Company, shall be contemplated by
the Commission; any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Bachner, Tally, Polevoy & Misher LLP, counsel to the
Underwriter;
(b) At the First Closing Date, you shall have received
the opinion, dated as of the First Closing Date, of Troy & Gould
Professional Corporation, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriter, to the effect
that:
(i) the Company has been duly incorporated and
is validly existing as a corporation in good standing under
the laws of the State of California, and has all requisite
corporate power and authority to own its properties and
conduct its business as described in the Registration
Statement and Prospectus. The Company is duly qualified or
licensed to do business as a foreign corporation and is in
good standing in the State of California;
(ii) to the best knowledge of such counsel, (a)
the Company has obtained, or is in the process of obtaining,
all material licenses, permits and other governmental
authorizations necessary to the conduct of its business as
described in the Prospectus, (b) such licenses, permits and
other governmental authorizations as have been obtained are in
full force and effect, and (c) the Company is in all material
respects complying therewith;
(iii) the authorized capitalization of the Company
as of June 30, 1997 is as set forth under "Capitalization" in
the Prospectus; all shares of
-16-
<PAGE> 17
the Company's outstanding stock requiring authorization for
issuance by the Company's board of directors have been duly
authorized, validly issued, are fully paid and non-assessable
and conform to the description thereof contained in the
Prospectus; to the best of such counsel's knowledge, the
outstanding shares of Class A Common Stock of the Company have
not been issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do not have
any preemptive rights or other rights to subscribe for or to
purchase, nor, except as described in the Prospectus, are
there any restrictions upon the voting or transfer of any of
the Stock; the Class A Common Stock, the Warrants, the Unit
Purchase Option and the Warrant Agreement conform to the
respective descriptions thereof contained in the Prospectus;
the Shares have been, and the shares of Class A Common Stock
to be issued upon exercise of the Warrants and the Unit
Purchase Option, upon issuance in accordance with the terms of
such Warrants, the Warrant Agreement and Unit Purchase Option
have been duly authorized and, when issued and delivered in
accordance with the terms of such documents, will be duly and
validly issued, fully paid and non-assessable, free of
preemptive rights and no personal liability will attach to the
ownership thereof, all prior sales by the Company of the
Company's securities have been made in compliance with or
under an exemption from registration under the Act and
applicable state securities laws and no shareholders of the
Company have any rescission rights with respect to Company
securities; a sufficient number of shares of Class A Common
Stock has been reserved for issuance upon exercise of the
Warrants and Unit Purchase Option and to the best of such
counsel's knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any registration
rights or other rights, other than those which have been
waived or satisfied for or relating to the registration of any
shares of Class A Common Stock;
(iv) this Agreement, the Unit Purchase Option,
the Warrant Agreement, the M/A Agreement and the Escrow
Agreement have been duly and validly authorized, executed and
delivered by the Company and, if the laws of the State of
California were to govern the enforcement of such documents
(as to which such counsel need express no opinion), each
constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its
respective terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application
of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited
by applicable law);
-17-
<PAGE> 18
(v) the certificates evidencing the shares of
Class A Common Stock are in valid and proper legal form; the
Warrants will be exercisable for shares of Class A Common
Stock of the Company in accordance with the terms of the
Warrants and at the prices therein provided for; the shares of
Class A Common Stock of the Company issuable upon exercise of
the Warrants have been duly authorized and reserved for
issuance at all times during the term of the Warrants upon
such exercise and such shares, when issued upon such exercise
in accordance with the terms of the Warrants and at the price
provided for, will be duly and validly issued, fully paid and
non-assessable;
(vi) such counsel knows of no pending or
threatened legal or governmental proceedings to which the
Company is a party which could materially adversely affect the
business, property, financial condition or operations of the
Company; or which question the validity of the Securities,
this Agreement, the Warrant Agreement, the Unit Purchase
Option, the M/A Agreement or the Escrow Agreement or of any
action taken or to be taken by the Company pursuant to this
Agreement, the Warrant Agreement, the Unit Purchase Option,
the M/A Agreement or the Escrow Agreement and no such
proceedings are known to such counsel to be contemplated
against the Company; to the best of such counsel's knowledge,
there are no governmental proceedings or regulations required
to be described or referred to in the Registration Statement
which are not so described or referred to;
(vii) to the best of such counsel's knowledge, the
Company is not in violation of or default under, nor will the
execution and delivery of this Agreement, the Unit Purchase
Option, the Warrant Agreement, the M/A Agreement or the Escrow
Agreement and the incurrence of the obligations herein and
therein set forth and the consummation of the transactions
herein or therein contemplated, result in a breach or
violation of, or constitute a default under the certificate or
articles of incorporation or by-laws, in the performance or
observance of any material obligations, agreement, covenant or
condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture,
mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Company is a party or by
which it or any of its properties may be bound or in
violation of any material order, rule, regulation, writ,
injunction, or decree of any government, governmental
instrumentality or court, domestic or foreign;
(viii) the Registration Statement has become
effective under the Act, and to the best of such counsel's
knowledge, based on oral advice of the SEC, no stop order
suspending the effectiveness of the Registration
-18-
<PAGE> 19
Statement is in effect, and no proceedings for that purpose
have been instituted or are pending before, or threatened by,
the Commission; the Registration Statement and the Prospectus
(except for the financial statements and other financial data
and statistical data contained therein, or omitted therefrom,
as to which such counsel need express no opinion) comply as to
form in all material respects with the applicable requirements
of the Act and the Rules and Regulations;
(ix) such counsel has participated in the
preparation of the Registration Statement and the Prospectus
and nothing has come to the attention of such counsel to cause
such counsel to have reason to believe that the Registration
Statement or any amendment thereto at the time it became
effective or as of the Closing Dates contained any untrue
statement of a material fact required to be stated therein or
omitted to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading or that the Prospectus or any supplement thereto
contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make statements
therein, in light of the circumstances under which they were
made, not misleading (except, in the case of both the
Registration Statement and any amendment thereto and the
Prospectus and any supplement thereto, for the financial
statements, notes thereto and other financial information and
schedules contained therein, as to which such counsel need
express no opinion);
(x) all descriptions in the Registration
Statement and the Prospectus, and any amendment or supplement
thereto, of contracts and other documents are accurate in all
material respects and fairly present the information required
to be shown, and such counsel is familiar with all contracts
and other documents referred to in the Registration Statement
and the Prospectus and any such amendment or supplement or
filed as exhibits to the Registration Statement, and such
counsel does not know of any contracts or documents of a
character required to be summarized or described therein or to
be filed as exhibits thereto which are not so summarized,
described or filed;
(xi) no authorization, approval, consent, or
license of any governmental or regulatory authority or agency
is necessary in connection with the authorization, issuance,
transfer, sale or delivery of the Units by the Company, in
connection with the execution, delivery and performance of
this Agreement by the Company or in connection with the taking
of any action contemplated herein, or the issuance of the Unit
Purchase Option or the Securities underlying the Unit Purchase
Option, other than registrations or qualifications of the
Units under applicable state or foreign securities or Blue Sky
laws and registration under the Act;
-19-
<PAGE> 20
(xii) the statements in the Registration Statement
under the captions "Business", "Use of Proceeds",
"Management", and "Description of Securities" have been
reviewed by such counsel and insofar as they refer to
descriptions of agreements, statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions,
are correct in all material respects except that such counsel
need express no opinion with respect to the statements set
forth in the caption "Business -Government Regulation" or any
other statement regarding trademark or copyright law;
(xiii) the Units, the Class A Common Stock and the
Warrants have been duly authorized for quotation on the Nasdaq
SmallCap Market; and
(xiv) to such counsel's knowledge, there are no
business relationships or related-party transactions of the
nature described in Item 404 of Regulation S-B involving the
Company, any Subsidiary and any person described in such Item
that are required to be disclosed in the Prospectus and which
have not been so disclosed.
(c) At the First Closing Date, you shall have
received the opinion, addressed to the Underwriter, dated as of the
First Closing Date, of Cole, Raywid & Braverman LLP, regulatory counsel
to the Company, in form and substance satisfactory to counsel for the
Underwriter, to the effect that:
(i) The information in the Prospectus
under the captions entitled "Risk Factors -- Government
Regulation and Legal Uncertainties" and "Business of the
Company" insofar as it pertains to legal and regulatory
matters, has been reviewed and analyzed by us and in our
opinion accurately and adequately describes in all material
respects the nature and extent to which the Company's
operations and proposed business may be subject to government
regulations and guidelines in the United States.
(ii) The business as presently conducted
by the Company and as proposed to be conducted as stated in
the Prospectus does not, to our knowledge, violate any rules,
regulations or policies of the Federal Trade Commission, the
Department of Justice or the Federal Communications
Commission.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as you or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law other than the law of
-20-
<PAGE> 21
the United States or of the State of California upon opinions of counsel
satisfactory to you, in which case the opinion shall state that they have no
reason to believe that you and they are not entitled to so rely.
(d) All corporate proceedings and other legal matters
relating to this Agreement, the Registration Statement, the Prospectus and other
related matters shall be satisfactory to or approved by Bachner, Tally, Polevoy
& Misher LLP, counsel to the Underwriter, and you shall have received from such
counsel a signed opinion, dated as of the First Closing Date, with respect to
the validity of the issuance of the Units, the form of the Registration
Statement and Prospectus (other than the financial statements and other
financial data contained therein), the execution of this Agreement and other
related matters as you may reasonably require. The Company shall have furnished
to counsel for the Underwriter such documents as they may reasonably request
for the purpose of enabling them to render such opinion.
(e) You shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the First
Closing Date from BDO Seidman LLP, independent public accountants for the
Company, substantially in the form approved by you, and including estimates of
the Company's revenues and results of operations for the period ending at the
end of the month immediately preceding the effective date and results of the
comparable period during the prior fiscal year.
(f) At the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the Company
shall have performed all of its obligations hereunder and satisfied all the
conditions on its part to be satisfied at or prior to such Closing Date; (ii)
the Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
(with respect to the Prospectus, in light of the circumstances in which they
were made) not misleading; (iii) there shall have been, since the respective
dates as of which information is given, no material adverse change, or any
development involving a prospective material adverse change, in the business,
properties, condition (financial or otherwise), results of operations, capital
stock, long-term or short-term debt or general affairs of the Company from that
set forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company shall not have
incurred any material liabilities or entered into any agreement not in the
ordinary course of business other than as referred to in the Registration
Statement and Prospectus; and (iv) except as set forth in the Prospectus, no
action, suit or proceeding at law or in equity shall be pending or threatened
against the Company which would be required to be set forth in the Registration
Statement, and no proceedings shall be pending or threatened against
-21-
<PAGE> 22
the Company before or by any commission, board or administrative agency in the
United States or elsewhere, wherein an unfavorable decision, ruling or finding
would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations or general affairs of the
Company, and (v) you shall have received, at the First Closing Date, a
certificate signed by each of the Chairman of the Board or the President and the
principal financial or accounting officer of the Company, dated as of the First
Closing Date, evidencing compliance with the provisions of this subsection (f).
(g) Upon exercise of the option provided for in Section
2(b) hereof, the obligations of the Underwriter to purchase and pay for the
Option Units referred to therein will be subject (as of the date hereof and as
of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, and no stop order
suspending the effectiveness thereof shall have been issued
and no proceedings for that purpose shall have been instituted
or shall be pending, or, to your knowledge or the knowledge of
the Company, shall be contemplated by the Commission, and any
reasonable request on the part of the Commission for
additional information shall have been complied with to the
satisfaction of Bachner, Tally, Polevoy & Misher LLP, counsel
to the Underwriter.
(ii) At the Option Closing Date there shall have
been delivered to you the signed opinions of Troy & Gould
Professional Corporation and Cole, Raywid & Braverman LLP,
counsels for the Company, dated as of the Option Closing Date,
in form and substance satisfactory to Bachner, Tally, Polevoy
& Misher LLP, counsel to the Underwriter, which opinions shall
be substantially the same in scope and substance as the
opinions furnished to you at the First Closing Date pursuant
to Section 4(b) and (c) hereof, except that such opinion,
where appropriate, shall cover the Option Units.
(iii) At the Option Closing Date there shall have
been delivered to you a certificate of the Chairman of the
Board or the President and the principal financial or
accounting officer of the Company, dated the Option Closing
Date, in form and substance satisfactory to Bachner, Tally,
Polevoy & Misher LLP, counsel to the Underwriter,
substantially the same in scope and substance as the
certificate furnished to you at the First Closing Date
pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date there shall have
been delivered to you a letter in form and substance
satisfactory to you from BDO Seidman LLP, dated the Option
Closing Date and addressed to the Underwriter confirming the
information in their letter referred to in
-22-
<PAGE> 23
Section 4(e) hereof and stating that nothing has come to their
attention during the period from the ending date of their
review referred to in said letter to a date not more than five
business days prior to the Option Closing Date, which would
require any change in said letter if it were required to be
dated the Option Closing Date.
(v) All proceedings taken at or prior to the
Option Closing Date in connection with the sale and issuance
of the Option Units shall be satisfactory in form and
substance to you, and you and Bachner, Tally, Polevoy & Misher
LLP, counsel to the Underwriter, shall have been furnished
with all such documents, certificates, and opinions as you may
request in connection with this transaction in order to
evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or
its compliance with any of the covenants or conditions
contained herein.
(h) No action shall have been taken by the Commission or
the NASD the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Units, Class A Common Stock or the Warrants and no proceedings for
the taking of such action shall have been instituted or shall be pending, or, to
the knowledge of the Underwriter or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or the
NASD. The Company shall have advised the Underwriter of any NASD affiliation of
any of its officers, directors, stockholders or their affiliates.
(i) If any of the conditions herein provided for in this
Section shall not have been fulfilled as of the date indicated, this Agreement
and all obligations of the Underwriter under this Agreement may be cancelled at,
or at any time prior to, each Closing Date by the Underwriter. Any such
cancellation shall be without liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company. The obligation
of the Company to sell and deliver the Units is subject to the condition that at
the Closing Dates, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued under the Act or any proceedings
therefor initiated or threatened by the Commission.
If the condition to the obligations of the Company provided
for in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Units on
exercise of the option provided for in Section 2(b) hereof shall be affected.
-23-
<PAGE> 24
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, and will reimburse, as incurred, such Underwriter
and such controlling persons for any legal or other expenses reasonably incurred
in connection with investigating, defending against or appearing as a third
party witness in connection with any losses, claims, damages or liabilities,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
(B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Units under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment
or supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein (in the case of
the Preliminary Prospectus or Prospectus, in light of the circumstances under
which they were made) not misleading; provided, however, that the Company will
not be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto. This indemnity will
be in addition to any liability which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the
Company, each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
director, nominee, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements
-24-
<PAGE> 25
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto (i) in reliance upon and in
conformity with written information furnished to the Company by you specifically
for use in the preparation thereof and (ii) relates to the transactions effected
by the Underwriter in connection with the offer and sale of the Units
contemplated hereby. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission to so notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Underwriter, it is advisable for the Underwriter or controlling persons to be
represented by separate counsel (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
Underwriter and controlling persons, which firm shall be designated in writing
by you). No settlement of any action against an indemnified party shall be made
without the consent of the indemnifying party, which shall not be unreasonably
withheld in light of all factors of importance to such indemnifying party.
-25-
<PAGE> 26
7. Contribution.
In order to provide for just and equitable contribution under
the Act in any case in which (i) the Underwriter makes claim for indemnification
pursuant to Section 6 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of the Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that the Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that (a) if such allocation is not permitted by
applicable law then the relative fault of the Company and the Underwriter and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company, or the Underwriter and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriter to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages (even if the Underwriter in the aggregate were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the first sentence of
this Section 7. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company
and the Underwriter. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in light
of all factors of importance to such party.
-26-
<PAGE> 27
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or
the sale of the Units to the Underwriter is consummated, the Company will pay
all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented, or the Term Sheet, the fee of the NASD in connection with the
filing required by the NASD relating to the offering of the Units contemplated
hereby; all expenses, including reasonable fees and disbursements of counsel to
the Underwriter, in connection with the qualification of the Units under the
state securities or blue sky laws which you shall designate; the cost of
printing and furnishing to the Underwriter copies of the Registration Statement,
each Preliminary Prospectus, the Prospectus, this Agreement, Selling Agreement,
and the Blue Sky Memorandum, any fees relating to the listing of the Units,
Class A Common Stock and Warrants on the Nasdaq Small Cap Market or any other
securities exchange, the cost of printing the certificates representing the
securities comprising the Units, the fees of the transfer agent and warrant
agent, the cost of publication of at least three "tombstones" of the offering
(at least one of which shall be in national business newspaper and one of which
shall be in a major New York newspaper) and the cost of preparing at least four
hard cover "bound volumes" relating to the offering, in accordance with the
Underwriter's request. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock or other tax imposed by any jurisdiction) on
sales to the Underwriter hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company
shall at the First Closing Date pay to D.H. Blair Investment Banking Corp., a
non-accountable expense allowance of $285,000 of which $20,000 has been paid. In
the event the overallotment option is exercised, the Company shall pay to D.H.
Blair Investment Banking Corp. the Option Closing Date an additional amount
equal to 3% of the gross proceeds received upon exercise of the overallotment
option. In the event the transactions contemplated hereby are not consummated by
reason of any action by the Underwriter (except if such prevention is based upon
a breach by the Company of any covenant, representation or warranty contained
herein or because any other condition to the Underwriter's obligations hereunder
required to be fulfilled by the Company is not fulfilled) the Company shall be
liable for the actual out-of-pocket accountable expenses of the Underwriter,
including legal fees up to a maximum of $40,000. In the event the transactions
contemplated hereby are not consummated by reason of any action of the Company
or because of a breach by the Company of any covenant, representation or
warranty herein, the Company shall be liable for the actual out-of-pocket
accountable expenses of you, including legal fees, up to a maximum of $285,000.
In the event the offering is not consummated for any reason, any portion of the
non-accountable expense allowance previously paid to you which is not accounted
for shall be returned to the Company.
-27-
<PAGE> 28
(c) No person is entitled either directly or indirectly
to compensation from the Company, from the Underwriter or from any other person
for services as a finder in connection with the proposed offering, and the
Company agrees to indemnify and hold harmless the Underwriter, against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), to which the Underwriter or person
may become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution except
that you may, at your option, delay its effectiveness until 11:00 A.M., New
York time on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective date of the
Registration Statement as you in your discretion shall first commence the
initial public offering by the Underwriter of any of the Units. The time of the
initial public offering shall mean the time of release by you of the first
newspaper advertisement with respect to the Units, or the time when the Units
are first generally offered by you to dealers by letter or telegram, whichever
shall first occur. This Agreement may be terminated by you at any time before it
becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13,
14 and 15 shall remain in effect notwithstanding such termination.
10. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8,
12, 13, 14 and 15 hereof, may be terminated at any time prior to the First
Closing Date, and the option referred to in Section 2(b) hereof, if exercised,
may be cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriter for the resale of the Units agreed to be purchased hereunder by
reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree; (ii)
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq SmallCap Market or the Nasdaq National Market having been
suspended or limited; (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof); (iv) a banking moratorium having been declared by federal or New York
state authorities; (v) an outbreak of international hostilities or other
national or international calamity or crisis or change in economic or political
conditions having occurred; (vi) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification having been received by the Company of the threat of any such
proceeding or action, which could materially adversely affect the Company; (vii)
except as contemplated by the Prospectus, the Company is merged or consolidated
into or all or substantially all of the capital stock or assets of the Company
are
-28-
<PAGE> 29
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
(viii) the passage by the Congress of the United States or by any state
legislative body or federal or state agency or other authority of any act, rule
or regulation, measure, or the adoption of any orders, rules or regulations by
any governmental body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed likely by you to have a
material impact on the business, financial condition or financial statements of
the Company or the market for the securities offered pursuant to the Prospectus;
(ix) any adverse change in the financial or securities markets beyond normal
market fluctuations having occurred since the date of this Agreement, or (x) any
material adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10 or in
Section 9, the Company shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
11. Unit Purchase Option.
At or before the First Closing Date, the Company will sell to
D.H. Blair Investment Banking Corp. (for its own account), or its designees for
a consideration of $190, and upon the terms and conditions set forth in the form
of Unit Purchase Option annexed as an exhibit to the Registration Statement, a
Unit Purchase Option to purchase an aggregate of 190,000 Units. In the event of
conflict in the terms of this Agreement and the Unit Purchase Option, the
language of the Unit Purchase Option shall control.
12. Representations, Warranties and Agreements to Survive
Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company or its Principal Stockholders,
where appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriter, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
13. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be mailed, delivered and confirmed to
them at D.H. Blair Investment Banking Corp., 44 Wall Street, New York, New York
10005, with a copy sent to Bachner, Tally, Polevoy & Misher LLP, 380 Madison
Avenue, New York, New York 10017, or if sent to the Company, will be mailed,
delivered and confirmed to it at On'Village Communications, Inc., 26135 Mureu
Road, Suite 100, Calabasas, California 91502, with a copy to Troy & Gould
-29-
<PAGE> 30
Professional Corporation, 1801 Century Park East, Suite 1600, Los Angeles,
California 90038,
Attention: Lawrence Schnapp.
14. Parties in Interest.
The Agreement herein set forth is made solely for the benefit
of the Underwriter, the Company and, to the extent expressed, the Principal
Stockholders, any person controlling the Company or the Underwriter, and
directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from the Underwriter of the Units.
15. Applicable Law.
This Agreement will be governed by, and construed in
accordance with, the laws of the State of New York applicable to agreements made
and to be entirely performed within New York.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
ON'VILLAGE COMMUNICATIONS, INC.
By:________________________________________
Jack B. Tracht, Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
D.H. BLAIR INVESTMENT BANKING CORP.
By:________________________________________
Martin A. Bell, Vice Chairman and
General Counsel
-30-
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
ON'VILLAGE(SM)
INTERNET YELLOW PAGE +
www.onvillage.com
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR STATEMENTS RELATING
THE STATE OF CALIFORNIA TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
CUSIP 682199 10 4
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF THE CLASS A COMMON STOCK, NO PAR VALUE,
OF
ON'VILLAGE COMMUNICATIONS, INC.
transferrable only on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[ON'VILLAGE SEAL]
[SIG] [SIG]
SECRETARY CHAIRMAN
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY APRIL 24, 1997 se
3504 ATLANTIC AVENUE
SUITE 12 050199fc
LONG BEACH, CA 90807
(582) 989-2333
(FAX) (582) 426-7450 7B Proof [Initial] REV. 1
---------
<PAGE> 2
A statement of the rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes or series of shares and upon the
holders thereof as established, from time to time, by the Articles of
Incorporation of the Corporation and by any certificate of determination, and
the number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon written request and without
charge from the Secretary of the Corporation at its corporate headquarters.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _____________ Custodian _____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _________________________________
in common (State)
UNIF TRF MIN ACT - ___________ Custodian (until age ___ )
(Cust)
_______________ under Uniform Transfers
to Minors Act _________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Date __________________________
X _____________________________________________
X _____________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed
By ________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
- -------------------------------------------------
AMERICAN BANK NOTE COMPANY APRIL 23, 1997 se
3504 ATLANTIC AVENUE
SUITE 12 050199bk
LONG BEACH, CA 90807
(582) 989-2333
(FAX) (582) 426-7450 Proof [INITIAL] NEW
---------
- -------------------------------------------------
<PAGE> 1
EXHIBIT 4.2
WARRANT AGREEMENT
AGREEMENT, dated as of this ____th day of ___________, 1997,
by and among ON'VILLAGE COMMUNICATIONS, INC., a California corporation
("Company"), AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the
"Warrant Agent"), and D.H. BLAIR INVESTMENT BANKING CORP., a New York
corporation ("Blair").
W I T N E S S E T H
WHEREAS, in connection with (i) a public offering of up to
2,185,000 units ("Units"), each unit consisting of one (1) share of the
Company's Class A Common Stock ("Common Stock") and one (1) redeemable warrant
("Warrants") pursuant to an underwriting agreement (the "Underwriting
Agreement") dated _______________, 1997 between the Company and Blair, (ii) the
issuance to Blair or its designees of Unit Purchase Options to purchase an
aggregate of 190,000 additional Units, to be dated as of __________, 1997 (the
"Unit Purchase Options"), and (iii) the conversion of 1,200,000 warrants issued
in connection with a private placement by the Company in January 1997 into
1,200,000 Warrants, the Company may issue up to 3,575,000 Class A Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, the exercise
of the Warrants, and the rights of the Registered Holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Aggregate Per Share Price" shall mean the Purchase Price
per share multiplied by the number of shares of Common Stock purchasable upon
the exercise of a Warrant.
(b) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to participate
in the distribution of earnings and assets of the Company without limit as to
amount or percentage, which at the date hereof consists of 18,800,000 shares of
Class A Common Stock, and 1,400,000 shares of Class B Common Stock.
<PAGE> 2
(c) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at 40 Wall
Street, New York, New York.
(d) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(e) "Initial Warrant Exercise Date" shall mean __________,
1997.
(f) "Market Price" shall mean shall mean (i) the average
closing bid price of the Class A Common Stock, for thirty (30) consecutive
business days ending on the Calculation Date as reported by Nasdaq, if the
Common Stock is traded on the Nasdaq SmallCap Market, or (ii) the average last
reported sale price of the Class A Common Stock, for thirty (30) consecutive
business days ending on the Calculation Date, as reported by the primary
exchange on which the Class A Common Stock is traded, if the Class A Common
Stock is traded on a national securities exchange, or by Nasdaq, if the Class A
Common Stock is traded on the Nasdaq National Market.
(g) "Purchase Price" shall mean the purchase price to be paid
upon exercise of each Warrant in accordance with the terms hereof, which price
shall be $6.50, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right to reduce the
Purchase Price upon notice to all Registered Holders of Warrants.
(h) "Redemption Price" shall mean the price at which the
Company may, at its option in accordance with the terms hereof, redeem the
Warrants, which price shall be $0.05 per Warrant.
(i) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(j) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(k) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on _________, 2002 (subject to extension as provided herein and in Section
9(e) or, with respect to Warrants which are outstanding as of the applicable
Redemption Date (as defined in Section 8) and specifically excluding Warrants
issuable upon exercise of Unit Purchase Options if the Unit Purchase Options
have not been exercised, the Redemption Date, whichever is earlier; provided
that if such date shall in the State of New York be a holiday or a day on which
banks are authorized or required to close, then 5:00 P.M. (New York time) on the
next following day
-2-
<PAGE> 3
which in the State of New York is not a holiday or a day on which banks are
authorized or required to close. Upon notice to all Registered Holders, the
Company shall have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share of Class
A Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) The Class A Warrants included in the offering of Units
will be detachable and separately transferable immediately from the shares of
Class A Common Stock constituting part of such Units.
(c) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent
as part of the Units.
(d) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 3,575,000 shares
of Class A Common Stock, subject to adjustment as described herein, upon the
exercise of Warrants in accordance with this Agreement.
(e) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the Unit
Purchase Option; and (vi) at the option of the Company, in such form as may be
approved by the its Board of Directors, to reflect any adjustment or change in
the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Target Price therefor made pursuant to Section 8
hereof.
(f) Pursuant to the terms of the Unit Purchase Options, Blair
may purchase up to 190,000 Units, which include up to 190,000 Warrants.
Notwithstanding anything to the
-3-
<PAGE> 4
contrary contained herein, the Warrants underlying the Unit Purchase Option
shall not be subject to redemption by the Company except under the terms and
conditions set forth in the Unit Purchase Options.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage or to the requirements of Section
2(c). The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen, or destroyed Warrant Certificates) and issued in registered form.
Warrant Certificates shall be numbered serially with the letter W on Warrants of
all denominations.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date, the Warrant Agent
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in
-4-
<PAGE> 5
any event within five days after the date of such notice from the Warrant Agent,
the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise, (plus a Warrant Certificate for any remaining unexercised Warrants of
the Registered Holder) unless prior to the date of issuance of such certificates
the Company shall instruct the Warrant Agent to refrain from causing such
issuance of certificates pending clearance of checks received in payment of the
Purchase Price pursuant to such Warrants. Notwithstanding the foregoing, in the
case of payment made in the form of a check drawn on an account of Blair or such
other investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, certificates shall immediately be issued without
prior notice to the Company or any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing, subject to the provisions of Sections 4(b)
and 4(c) hereof.
(b) If, at the Exercise Date in respect of the exercise of any
Warrant after , ------ 1998, (i) the market price of the Company's Class A
Common Stock is greater than the then Purchase Price of the Warrant, (ii) the
exercise of the Warrant was solicited by a member of the National Association of
Securities Dealers, Inc. ("NASD") as designated in writing on the Warrant
Certificate Subscription Form, (iii) the Warrant was not held in a discretionary
account, (iv) disclosure of compensation arrangements was made both at the time
of the original offering and at the time of exercise; and (v) the solicitation
of the exercise of the Warrant was not in violation of Regulation M (as such
rule or any successor rule may be in effect as of such time of exercise)
promulgated under the Securities Exchange Act of 1934, then the Warrant Agent,
simultaneously with the distribution of the Warrant Proceeds to the Company
shall, on behalf of the Company, pay from the Warrant Proceeds, a fee of 5% (the
"Blair Fee") of the Purchase Price to Blair (of which a portion may be reallowed
by Blair to the dealer who solicited the exercise, which may also be Blair or
D.H. Blair & Co., Inc.). In the event the Blair Fee is not received within five
days of the date on which the Company receives Warrant Proceeds, then the Blair
Fee shall begin accruing interest at an annual rate of prime plus four percent
(4%), payable by the Company to Blair at the time Blair receives the Blair Fee.
Within five days after the exercise, the Warrant Agent shall send to Blair a
copy of the reverse side of each Warrant exercised. Blair shall reimburse the
Warrant Agent, upon request, for its reasonable expenses relating to compliance
with this section 4(b). The Company shall pay all fees and expenses including
all blue sky fees and expenses and all out-of-pocket expenses of Blair,
including legal fees, in connection with the solicitation, redemption or
exchange of the Warrants. In addition, Blair and the Company may at any time
during business hours, examine the records of the Warrant Agent, including its
ledger of original Warrant Certificates returned to the Warrant Agent upon
exercise of Warrants. The provisions of this paragraph may not be modified,
amended or deleted without the prior written consent of Blair.
(c) In order to enforce the provisions of Section 4(b) above,
in the event there is any dispute or question as to the amount or payment of the
Blair Fee, the Warrant Agent is hereby expressly authorized to withhold payment
to the Company of the Warrant Proceeds
-5-
<PAGE> 6
unless and until the Company establishes an escrow account for the purpose of
depositing the entire amount of the Blair Fee, which amount will be deducted
from the net Warrant Proceeds to be paid to the Company. The funds placed in the
escrow account may not be released to the Company without a written agreement
from Blair that the required Blair Fee has been received by Blair.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Class A Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Class A Common Stock which shall be
issuable upon exercise of the Warrants shall, at the time of delivery, be duly
and validly issued, fully paid, nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, (other than those which the Company
shall promptly pay or discharge) and that upon issuance such shares shall be
listed on each national securities exchange, on which the other shares of
outstanding Class A Common Stock of the Company are then listed or shall be
eligible for inclusion in the Nasdaq National Market or the Nasdaq SmallCap
Market if the other shares of outstanding Class A Common Stock of the Company
are so included.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as reasonably
possible, endeavor to secure such registration or approval. The Company will use
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Class A Common Stock issued to,
any Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares upon exercise of
the Warrants; provided, however, that if the shares of Class A Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Class A Common Stock issuable upon exercise of the
Warrants, and the Company will authorize the Transfer Agent to comply with all
such proper requisitions. The Company will file with the Warrant Agent a
statement setting forth the name and address of the Transfer Agent of the
Company for shares of Class A Common Stock issuable upon exercise of the
Warrants.
-6-
<PAGE> 7
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for
any exchange or registration of transfer of Warrant Certificates. In addition,
the Company may require payment by such holder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly cancelled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or, with the
prior written consent of Blair, disposed of or destroyed, at the direction of
the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants, which are being publicly offered in Units
with shares of Common Stock pursuant to the Underwriting Agreement, will be
immediately detachable from the Common Stock and transferable separately
therefrom.
-7-
<PAGE> 8
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall ( in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) Subject to the provisions of paragraph 2(f) hereof, on not
less than thirty (30) days notice given at any time after ________ __ , 1998
(the "Redemption Notice"), to Registered Holders of the Warrants being redeemed,
the Warrants may be redeemed, at the option of the Company, at a redemption
price of $0.05 per Warrant, provided the Market Price shall exceed $9.10 (the
"Target Price"), subject to adjustment as set forth in Section 8(f), below. All
Warrants must be redeemed if any are redeemed, provided that the Warrants
underlying the Unit Purchase Option may only be redeemed in compliance with and
subject to the terms and conditions of the Unit Purchase Option. For purposes of
this Section 8, the Calculation Date shall mean a date within 15 days of the
mailing of the Redemption Notice. The date fixed for redemption of the Warrants
is referred to herein as the "Redemption Date".
(b) If the conditions set forth in Section 8(a) are met, and
the Company desires to exercise its right to redeem the Warrants, it shall
request Blair to mail a Redemption Notice to each of the Registered Holders of
the Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth day before the date fixed for redemption, at their last address as
shall appear on the records maintained pursuant to Section 6(b). Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption
price, (ii) the Redemption Date, (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid, (iv) that Blair will assist
each Registered Holder of a Warrant in connection with the exercise thereof and
(v) that the right to exercise the Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of Blair or the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
-8-
<PAGE> 9
(d) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Registered Holders of the Warrants shall
have no further rights except to receive, upon surrender of the Warrant, the
Redemption Price.
(e) From and after the Redemption Date, the Company shall, at
the place specified in the Redemption Notice, upon presentation and surrender to
the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock, the
Target Price shall be proportionally adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such event
bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
SECTION 9. Adjustment of Exercise Price and Number of Shares
of Class A Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g)
below, in the event the Company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock for a consideration per share
less than the Market Price (as defined in Section 8) on the date of the sale or
issue any shares of Common Stock as a stock dividend to the holders of Common
Stock, or subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Purchase Price in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent) determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f)(F) below) for the issuance of such additional shares would purchase at the
Market Price and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made. For purposes of this Section 9, the Calculation Date shall
mean the date of the sale, issuance, modification or other transaction referred
to in this Section 9.
-9-
<PAGE> 10
Upon each adjustment of the Purchase Price pursuant to
this Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest one-hundredth;
provided, however, that in no event shall the Aggregate Per Share Price increase
as a result of such rounding calculation) purchasable at the Purchase Price in
effect immediately prior to such adjustment multiplied by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Class A Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that eachWarrant
outstanding after such adjustment shall represent the right to purchase one
share of Class A Common Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of Warrants
(calculated to the nearest tenth) determined by multiplying the number one by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment. Upon each adjustment
of the number of Warrants pursuant to this Section 9, the Company shall, as
promptly as practicable, cause to be distributed to each Registered Holder of
Warrant Certificates on the date of such adjustment Warrant Certificates
evidencing, subject to Section 10 hereof, the number of additional Warrants to
which such Holder shall be entitled as a result of such adjustment or, at the
option of the Company, cause to be distributed to such Holder in substitution
and replacement for the Warrant Certificates held by him prior to the date of
adjustment (and upon surrender thereof, if required by the Company) new Warrant
Certificates evidencing the number of Warrants to which such Holder shall be
entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
-10-
<PAGE> 11
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations of the Company under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Class A Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(f) hereof, continue to express the Purchase
Price per share, the number of shares purchasable thereunder and the Redemption
Price therefor as the Purchase Price per share, and the number of shares
purchasable and the Redemption Price therefor were expressed in the Warrant
Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Class A Common Stock
purchasable upon exercise of each Warrant after such adjustment and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the Registered Holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a
statement showing in detail the method of calculation and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any securities
issued or sold or deemed to have been issued, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Purchase Price in
effect immediately prior to such issue or sale and as adjusted and readjusted
(if required by Section 9) on account thereof. The Company will promptly file
such certificate with the Warrant Agent and furnish a copy thereof to be sent no
later than thirty (30) days after the adjustment by ordinary first class mail to
Blair and to each Registered Holder of Warrants at his last address as it shall
appear on the registry books of the Warrant Agent. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail such
notice, or except as to the holder whose notice was defective. If such mailing
is not made within such 30-day period the Warrant Expiration Date shall be
extended by the period of time equal to the period commencing on the 31st day
and expires on the date such mailing is effectuated. The Company will, upon the
written request at any time of Blair, furnish to Blair a report by BDO Seidman
LLP, or other independent public accountants of recognized national standing
(which may be the regular auditors of the Company) selected by the Company to
verify such computation and setting forth such adjustment or readjustment and
showing in detail the method
-11-
<PAGE> 12
of calculation and the facts upon which such adjustment or readjustment is
based. The Company will also keep copies of all such certificates and reports at
its principal office.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock outstanding at
any given time shall include shares of Common Stock owned or
held by or for the account of the Company and the sale or
issuance of such treasury shares or the distribution of any
such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be made
unless such adjustment would require an increase or decrease
of at least $.10 in the Purchase Price; provided that any
adjustments which by reason of this clause (B) are not
required to be made shall be carried forward and shall be made
at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried
forward, shall require an increase or decrease of at least
$.10 in the Purchase Price then in effect hereunder.
(C) In case of (1) the sale by the Company for cash (or as
a component of a unit being sold for cash) of any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or any securities convertible into
or exchangeable for Common Stock without the payment of any
further consideration other than cash, if any (such securities
convertible, exercisable or exchangeable into Common Stock
being herein called "Convertible Securities"), or (2) the
issuance by the Company, without the receipt by the Company of
any consideration therefor, of any rights or warrants to
subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, in each case, if (and
only if) the consideration payable to the Company upon the
exercise of such rights, warrants or options shall consist of
cash, whether or not such rights, warrants or options, or the
right to convert or exchange such Convertible Securities, are
immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum
aggregate consideration payable to the Company upon the
exercise of such rights, warrants or options, plus the
consideration, if any, received by the Company for the
issuance or sale of such rights, warrants or options, plus, in
the case of such Convertible Securities, the minimum aggregate
amount of additional consideration, other than such
Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such
rights, warrants or
-12-
<PAGE> 13
options) is less than the Market Price of the Class A Common
Stock on the Calculation Date, then the total maximum number
of shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange
of such Convertible Securities (as of the date of the issuance
or sale of such rights, warrants or options) shall be deemed
to be outstanding shares of Common Stock for purposes of
Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(D) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion
or exchange thereunder is immediately exercisable, and the
price per share for which Common Stock is issuable upon the
conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration
received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock issuable upon
the conversion or exchange of such Convertible Securities) is
less than the Market Price of the Class A Common Stock on the
Calculation Date, then the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding
shares of Common Stock for purposes of Sections 9(a) and 9(b)
hereof and shall be deemed to have been sold for cash in an
amount equal to such price per share.
(E) In case the Company shall modify the rights of
conversion, exchange or exercise of any of the securities
referred to in (C) or (D) above or any other securities of the
Company convertible, exchangeable or exercisable for shares of
Common Stock, for any reason other than an event that would
require adjustment to prevent dilution, so that the
consideration per share received by the Company after such
modification is less than the Market Price on the date prior
to such modification, the Purchase Price to be in effect after
such modification shall be determined by multiplying the
Purchase Price in effect immediately prior to such event by a
fraction, of which the numerator shall be the number of shares
of Common Stock outstanding on the Calculation Date plus the
number of shares of Common Stock which the aggregate
consideration receivable by the Company for the securities
affected by the modification would purchase at the Market
Price and of which the denominator shall be the number of
shares of Common Stock outstanding on such date plus the
number of shares of Common Stock to be issued upon conversion,
exchange or exercise of the modified securities at the
modified rate. Such adjustment shall become effective as of
the date upon which such modification shall take effect. On
the expiration of any such right, warrant or option or the
termination of any such right to convert or exchange any such
-13-
<PAGE> 14
Convertible Securities referred to in Paragraph (C) or (D)
above, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have
obtained (a) had the adjustments made upon the issuance or
sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only
the number of shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon
the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities and (b)
had adjustments been made on the basis of the Purchase Price
as adjusted under clause (a) for all transactions (which would
have affected such adjusted Purchase Price) made after the
issuance or sale of such rights, warrants, options or
Convertible Securities.
(F) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefore shall be
deemed to be the gross sales price therefor without deducting
therefrom any expense paid or incurred by the Company or any
underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith.
(G) In case any event shall occur as to which the
provisions of Section 9 are not strictly applicable but the
failure to make any adjustment would not fairly protect the
purchase rights represented by the Warrants in accordance with
the essential intent and principles of Section 9, then, in
each such case, the Board of Directors of the Company shall in
good faith by resolution provide for the adjustment, if any,
on a basis consistent with the essential intent and principles
established in Section 9, necessary to preserve, without
dilution, the purchase rights represented by the Warrants. The
Company will promptly make the adjustments described therein.
(g) No adjustment to the Purchase Price of the Warrants or to
the number of shares of Common Stock purchasable upon the exercise of each
Warrant will be made, however,
(i) upon the exercise of any of the options presently
outstanding under the Company's Stock Option Plan (the "Plan")
for officers, directors and certain other key personnel of the
Company; or
(ii) upon the issuance or exercise of any other securities
which may hereafter be granted or exercised under the Plan or
under any other employee benefit plan of the Company approved
by the Company's stockholders; or
(iii) upon the sale or exercise of the Warrants, including
without limitation the sale or exercise of any of the Warrants
comprising the Unit Purchase Option or upon the sale or
exercise of the Unit Purchase Option; or
-14-
<PAGE> 15
(iv) upon the sale of any shares of Common Stock and/or
Convertible Securities in a firm commitment underwritten
public offering, including, without limitation, shares sold
upon the exercise of any overallotment option granted to Blair
in connection with such offering; or
(v) upon the sale by the Company of any shares of Common
Stock and/or Convertible Securities in a private placement for
which the Underwriter is the Placement Agent; or
(vi) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether
or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were
thereafter issued or sold; or
(vii) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, whether
or not any adjustment in the Purchase Price was made or
required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible
Securities were outstanding on the date of the original sale
of the Warrants or were thereafter issued or sold.
(h) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase
-15-
<PAGE> 16
of, Common Stock or securities convertible into or exchangeable for or carrying
a right, warrant or option to purchase Common Stock, the Company shall
concurrently therewith grant to each Registered Holder as of the record date for
such transaction of the Warrants then outstanding, the rights, warrants or
options to which each Registered Holder would have been entitled if, on the
record date used to determine the stockholders entitled to the rights, warrants
or options being granted by the Company, the Registered Holder were the holder
of record of the number of whole shares of Common Stock then issuable upon
exercise (assuming, for purposes of this Section 9(j), that exercise of Warrants
is permissible during periods prior to the Initial Warrant Exercise Date) of his
Warrants. Such grant by the Company to the holders of the Warrants shall be in
lieu of any adjustment which otherwise might be called for pursuant to this
Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Class A Common Stock
purchasable upon the exercise of each Warrant is adjusted pursuant to Section 9
hereof, the Company nevertheless shall not be required to issue fractions of
shares, upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional shares. With respect to any fraction of a
share called for upon the exercise of any Warrant, the Company shall pay to the
Holder an amount in cash equal to such fraction multiplied by the current market
value of such fractional share, determined as follows:
(1) If the Class A Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or is traded on the Nasdaq National Market,
the current market value shall be the last reported sale price
of the Class A Common Stock on such exchange or market on the
last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average of
the closing bid and asked prices for such day on such exchange
or market; or
(2) If the Class A Common Stock is not listed or admitted
to unlisted trading privileges on a national securities
exchange or is not traded on the Nasdaq National Market, the
current market value shall be the mean of the last reported
bid and asked prices reported by the Nasdaq SmallCap Market
or, if not traded thereon, by the National Quotation Bureau,
Inc. on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Class A Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked
prices are not so reported, the current market value shall be
an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder
of Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of
-16-
<PAGE> 17
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with
respect to this Agreement are vested in the respective Registered Holders of the
Warrants, and any Registered Holder of a Warrant, without consent of the Warrant
Agent or of the holder of any other Warrant, may, in his own behalf and for his
own benefit, enforce against the Company his right to exercise his Warrants for
the purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon be
delivered to the Warrant Agent and cancelled by it and retired. The Warrant
Agent shall also cancel the Warrant Certificate or Warrant Certificates
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent
acts hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant
-17-
<PAGE> 18
Certificates or by any other act hereunder be deemed to make any representations
as to the validity, value or authorization of the Warrant Certificates or the
Warrants represented thereby or of any securities or other property delivered
upon exercise of any Warrant or whether any stock issued upon exercise of any
Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any
duty or responsibility to any holder of Warrant Certificates to make or cause to
be made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts contained
herein or for any action taken, suffered or omitted by it in reliance on any
Warrant Certificate or other document or instrument believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or wilful
misconduct.
The Warrant Agent may at any time consult with
counsel satisfactory to it (who may be counsel for the Company) and shall incur
no liability or responsibility for any action taken, suffered or omitted by it
in good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board, President, any Vice President,
its Secretary, or Assistant Secretary, (unless other evidence in respect thereof
is herein specifically prescribed). The Warrant Agent shall not be liable for
any action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to be
genuine.
The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; it further agrees to indemnify the Warrant Agent
and save it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or wilful misconduct),
after giving 30 days' prior written notice to the Company. At least 15 days
prior to the date such resignation is to become effective, the Warrant Agent
shall cause a copy of such notice of resignation to be mailed to the Registered
Holder of each Warrant Certificate at the Company's expense. Upon such
resignation, or any inability of the Warrant Agent to act as such hereunder, the
Company shall appoint a new warrant agent in
-18-
<PAGE> 19
writing. If the Company shall fail to make such appointment within a period of
15 days after it has been notified in writing of such resignation by the
resigning Warrant Agent, then the Registered Holder of any Warrant Certificate
may apply to any court of competent jurisdiction for the appointment of a new
warrant agent. Any new warrant agent, whether appointed by the Company or by
such a court, shall be a bank or trust company having a capital and surplus, as
shown by its last published report to its stockholders, of not less than
$10,000,000 or a stock transfer company that is a registered transfer agent
under the Securities Exchange Act of 1934. After acceptance in writing of such
appointment by the new warrant agent is received by the Company, such new
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any
new warrant agent may be converted or merged or any corporation resulting from
any consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates,
and any of its or their officers or directors, may buy and hold or sell Warrants
or other securities of the Company and otherwise deal with the Company in the
same manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the
provisions of Section 4(b), the parties hereto and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; (ii) to reflect an increase in the number of Warrants which are to be
governed by this Agreement resulting from a subsequent public offering of
Company securities which includes Warrants having the same terms and conditions
as the Warrants originally covered by or subsequently added to this Agreement
under this Section 16, or (iii) that they may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than 50% of the Warrants then outstanding;
-19-
<PAGE> 20
and provided, further, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant, or the Purchase Price therefor, or
the acceleration of the Warrant Expiration Date, shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate
representing such Warrant, other than such changes as are specifically
prescribed by this Agreement as originally executed or are made in compliance
with applicable law.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 26135 Mureu Road, Calabasas, California 91502,
attention: Jack B. Tracht, or at such other address as may have been furnished
to the Warrant Agent in writing by the Company; if to the Warrant Agent, at its
Corporate Office; if to Blair, at D.H. Blair Investment Banking Corp., 44 Wall
Street, New York, New York 10005.
SECTION 18. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Company and, the Warrant Agent and their
respective successors and assigns, and the holders from time to time of Warrant
Certificates . Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the
close of business on the earlier of the Warrant Expiration Date or the date upon
which all Warrants (including the warrants issuable upon exercise of the Unit
Purchase Options) have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
-20-
<PAGE> 21
SECTION 21. Counterparts. This Agreement may be executed in
several counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
ON'VILLAGE COMMUNICATIONS, INC.
By: _______________________________________
Jack B. Tracht, Chief Executive Officer
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: _______________________________________
Authorized Officer
D.H. BLAIR INVESTMENT BANKING CORP.
By: _______________________________________
Martin A. Bell, Vice Chairman and
General Counsel
-21-
<PAGE> 22
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ________ Warrants
VOID AFTER ________ __, 2002
WARRANT CERTIFICATE FOR PURCHASE
OF CLASS A COMMON STOCK
ON'VILLAGE COMMUNICATIONS, INC.
This certifies that FOR VALUE RECEIVED __________________ or
registered assigns (the "Registered Holder") is the owner of the number of
redeemable warrants ("Warrants") specified above. Each Warrant represented
hereby initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Warrant Certificate and the Warrant
Agreement (as hereinafter defined), one fully paid and nonassessable share of
Class A Common Stock ("Class A Common Stock"), of On'Village Communications,
Inc., a California corporation (the "Company") at any time between ____________,
and the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the reverse
hereof duly executed, at the corporate office of American Stock Transfer & Trust
Company as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $6.50 (the "Purchase Price") in lawful money of the United States of
America in cash or by official bank or certified check made payable to
On'Village Communications, Inc.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
________ __, 1997 by and among the Company, the Warrant Agent and D.H. Blair
Investment Banking Corp. ("Blair").
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Class A Common
Stock subject to purchase upon the exercise of each Warrant represented hereby
are subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate
A-1
<PAGE> 23
upon the surrender hereof and shall execute and deliver a new Warrant
Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall
countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on ________ __, 2002 or such earlier date as the Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
P.M. (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of the Warrants represented hereby unless a
registration statement under the Securities Act of 1933, as amended, with
respect to such securities is effective. The Company has covenanted and agreed
that it will file a registration statement and will use its best efforts to
cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding. The Warrants represented
hereby shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any applicable
transfer fee in addition to any tax or other governmental charge imposed in
connection therewith, for registration of transfer of this Warrant Certificate
at such office, a new Warrant Certificate or Warrant Certificates representing
an equal aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Warrants represented hereby may be redeemed at the option
of the Company, at a redemption price of $0.05 per Warrant at any time after
________ __, 1998 provided the Market Price (as defined in the Warrant
Agreement) for the Class A Common Stock shall exceed $9.10 per share. Notice of
redemption shall be given not later than the thirtieth day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
the Warrants represented hereby except to receive the $0.05 per Warrant upon
surrender of this Warrant Certificate.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of
A-2
<PAGE> 24
each Warrant represented hereby (notwithstanding any notations of ownership or
writing hereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase
Price upon certain conditions as specified in the Warrant Agreement upon the
exercise of the Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
ON'VILLAGE COMMUNICATIONS, INC.
Dated: By: _______________________________
By: _______________________________
[seal]
Countersigned:
___________________________________
AMERICAN STOCK TRANSFER &
TRUST COMPANY, as Warrant Agent
By ________________________________
Authorized Officer
A-3
<PAGE> 25
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _______ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
<PAGE> 26
The undersigned represents that the exercise of the Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise indicated by listing the name
of another NASD member firm, it will be assumed that the exercise was solicited
by D.H. Blair Investment Banking Corp. or D.H. Blair & Co., Inc.
____________________________________
(Name of NASD Member)
Dated: X __________________________________
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
____________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-5
<PAGE> 27
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
_________________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints ____________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated:________________ X ___________________________________
Signature Guaranteed
_____________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-6
<PAGE> 1
EXHIBIT 4.3
Option to Purchase
________Units
ON'VILLAGE COMMUNICATIONS, INC.
Unit Purchase Option
Dated: ___________, 1997.
THIS CERTIFIES THAT D.H. Blair Investment Banking Corp.,
(herein sometimes called the "Holder") is entitled to purchase from On'Village
Communications, Inc., a California corporation (hereinafter called the
"Company"), at the prices and during the periods as hereinafter specified, up to
one hundred ninety thousand (190,000) Units ("Units"), each Unit consisting of
one share of the Company's Class A Common Stock, as now constituted ("Class A
Common Stock"), and one warrant ("Warrants"). Each Warrant is exercisable to
purchase one share of Common Stock at an exercise price of $6.50 from ________
__, 1997 to _______ , 2002.
The Units have been registered under a Registration Statement
on Form SB-2, (File No. 333-22811) declared effective by the Securities and
Exchange Commission on _______, 1997 (the "Registration Statement"). This
Option, together with options of like tenor, constituting in the aggregate
options (the "Options") to purchase 190,000 Units, subject to adjustment in
accordance with Section 8 of this Option (the "Option Units"), was originally
issued pursuant to an underwriting agreement between the Company and D.H. Blair
Investment Banking Corp., as underwriter (the "Underwriter") in connection with
a public offering (the "Offering") of 1,900,000 Units (the "Public Units")
through the Underwriter, in consideration of $190 received for the Options.
Except as specifically otherwise provided herein, the Common
Stock and the Warrants issued pursuant to the option herein granted (the
"Option") shall bear the same terms and conditions as described under the
caption "Description of Securities" in the Registration Statement, and the
Warrants shall be governed by the terms of the Warrant Agreement dated as of
_______, 1997 executed in connection with such public offering (the "Warrant
Agreement"), and except that (i) the holder shall have registration rights under
the Securities Act of 1933, as amended (the "Act"), for the Option, the Common
Stock and the Warrants included in the Option Units, and the shares of Common
Stock underlying the Warrants, as more fully described in Section 6 of this
Option and (ii) the Warrants issuable upon exercise of the Option will be
subject to redemption by the Company pursuant to the Warrant Agreement at any
time after the Option has been exercised and the Warrants underlying the Option
Units are outstanding. Any such redemption shall be on the same terms and
conditions as the Warrants included in the Public Units (the "Public Warrants").
The Company will list the Common Stock underlying this Option and, at the
Holder's request the Warrants, on the Nasdaq National Market, the Nasdaq Small
Cap Market or such other exchange or market as the Common Stock or Public
Warrants
<PAGE> 2
may then be listed or quoted. In the event of any extension of the expiration
date or reduction of the exercise price of the Public Warrants, the same changes
to the Warrants included in the Option Units shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at
the prices, subject to adjustment in accordance with Section 8 of this Option
("the "Exercise Price"), and during the periods as follows:
(a) During the period from _______, 1997 to
_______, 2000 inclusive, the Holder shall have no right to
purchase any Option Units hereunder, except that in the
event of any merger, consolidation or sale of all or
substantially all the capital stock or assets of the
Company or in the case of any statutory exchange of
securities with another corporation (including any exchange
effected in connection with a merger of another corporation
into the Company) subsequent to _______, the Holder shall
have the right to exercise this Option and the Warrants
included herein at such time and receive the kind and
amount of shares of stock and other securities and property
(including cash) which a holder of the number of shares of
Common Stock underlying this Option and the Warrants
included in this Option would have owned or been entitled
to receive had this Option been exercised immediately prior
thereto.
(b) Between _______, 2000 and _______,2002
inclusive, the Holder shall have the option to purchase
Option Units hereunder at a price of $7.50 per Unit [150%
of the price of the Public Units].
(c) After _________, 2002 the Holder shall have no
right to purchase any Units hereunder.
2. (a) The rights represented by this Option may be exercised
at any time within the period above specified, in whole or in part, by (i) the
surrender of this Option (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company (or such other office
or agency of the Company as it may designate by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company); and (ii)
payment to the Company of the exercise price then in effect for the number of
Option Units specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any. This Option shall be deemed to have
been exercised, in whole or in part to the extent specified, immediately prior
to the close of business on the date this Option is surrendered and payment is
made in accordance with the foregoing provisions of this Section 2, and the
person or persons in whose name or names the certificates for shares of Class A
Common Stock and Warrants shall be issuable upon such exercise shall become the
holder or holders of record of such Class A Common Stock and Warrants at that
time and date. The certificates for the Common Stock and Warrants so purchased
shall be delivered to the Holder as soon as
-2-
<PAGE> 3
practicable but not later than ten (10) days after the rights represented by
this Option shall have been so exercised.
(b) At any time during the period above specified,
during which this Option may be exercised, the Holder may, at its option,
exchange this Option, in whole or in part (an "Option Exchange"), into the
number of Option Units determined in accordance with this Section (b), by
surrendering this Option at the principal office of the Company or at the office
of its stock transfer agent, accompanied by a notice stating such Holder's
intent to effect such exchange, the number of Option Units into which this
Option is to be exchanged and the date on which the Holder requests that such
Option Exchange occur (the "Notice of Exchange"). The Option Exchange shall take
place on the date specified in the Notice of Exchange or, if later, the date the
Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the shares of Class A Common Stock and Warrants issuable upon
such Option Exchange and, if applicable, a new Option of like tenor evidencing
the balance of the Option Units remaining subject to this Option, shall be
issued as of the Exchange Date and delivered to the Holder within seven (7) days
following the Exchange Date. In connection with any Option Exchange, this Option
shall represent the right to subscribe for and acquire the number of Option
Units (rounded to the next highest integer) equal to (x) the number of Option
Units specified by the Holder in its Notice of Exchange up to the maximum number
of Option Units subject to this option (the "Total Number") less (y) the number
of Option Units equal to the quotient obtained by dividing (A) the product of
the Total Number and the existing Exercise Price by (B) the Fair Market Value.
"Fair Market Value" shall mean first, if there is a trading market as indicated
in Subsection (i) below for the Units, such Fair Market Value of the Units and
if there is no such trading market in the Units, then Fair Market Value shall
have the meaning indicated in Subsections (ii) through (v) below for the
aggregate value of all shares of Class A Common Stock and Warrants which
comprise a Unit:
(i) If the Units are listed on a national securities
exchange or listed or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market or the Nasdaq SmallCap Market, the Fair Market Value
shall be the average of the last reported sale prices or the
average of the means of the last reported bid and asked
prices, respectively, of the Units on such exchange or market
for five (5) business days ending on the last business day
prior to the Exchange Date; or
(ii) If the Class A Common Stock or Warrants are
listed on a national securities exchange or admitted to
unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value shall be the average of the last
reported sale prices or the average of the means of the last
reported bid and asked prices, respectively, of Class A Common
Stock or Warrants, respectively, on such exchange or market
for the twenty (20) business days ending on the last business
day prior to the Exchange Date; or
-3-
<PAGE> 4
(iii) If the Class A Common Stock or Warrants are not
so listed or admitted to unlisted trading privileges, the Fair
Market Value shall be the average of the means of the last
reported bid and asked prices of the Class A Common Stock or
Warrants, respectively, for the five (5) business days ending
on the last business day prior to the Exchange Date; or
(iv) If the Class A Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked
prices are not so reported, the Fair Market Value shall be an
amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the
Exchange Date, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company; or
(v) If the Warrants are not so listed or admitted to
unlisted trading privileges, and bid and asked prices are not
so reported for Warrants, then Fair Market Value for the
Warrants shall be an amount equal to the difference between
(i) the Fair Market Value of the shares of Class A Common
Stock and Warrants which may be received upon the exercise of
the Warrants, as determined herein, and (ii) the Warrant
Exercise Price.
3. Neither this Option nor the underlying securities shall be
transferred, sold, assigned, or hypothecated for a period of two years
commencing on the effective date of the Registration Statement except that they
may be transferred to successors of the Holder, and may be assigned in whole or
in part to any person who is an officer of the Holder, any member participating
in the selling group relating to the Offering or any officer of such selling
group member. Any such assignment shall be effected by the Holder (i) executing
the form of assignment at the end hereof and (ii) surrendering this Option for
cancellation at the office or agency of the Company referred to in Section 2
hereof, accompanied by a certificate (signed by an officer of the Holder if the
Holder is a corporation), stating that each transferee is a permitted transferee
under this Section 3 hereof; whereupon the Company shall issue, in the name or
names specified by the Holder (including the Holder) a new Option or Options of
like tenor and representing in the aggregate rights to purchase the same number
of Option Units as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Class A
Common Stock which may be issued as part of the Option Units purchased hereunder
and the Class A Common Stock which may be issued upon exercise of the Warrants
will, upon issuance, be duly and validly issued, fully paid and nonassessable
and no personal liability will attach to the holder thereof. The Company further
covenants and agrees that during the periods within which this Option may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Class A Common Stock to provide for the
exercise of this Option and that it will have authorized and reserved a
sufficient number of shares of Class A Common Stock for issuance upon exercise
of the Warrants included in the Option Units.
-4-
<PAGE> 5
5. This Option shall not entitle the Holder to any voting
rights or any other rights, or subject to the Holder to any liabilities, as a
stockholder of the Company.
6. (a) The Company shall advise the Holder or its transferee,
whether the Holder holds the Option or has exercised the Option and holds Option
Units or any of the securities underlying the Option Units, by written notice at
least four weeks prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act covering any securities of the Company, for its
own account or for the account of others, and will for a period of seven years
from the effective date of the Registration Statement, upon the request of the
Holder, include in any such post-effective amendment or registration statement,
such information as may be required to permit a public offering of the Option,
all or any of the Option Units, the Common Stock or Warrants included in the
Option Units or the Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities"); provided, however, the right of any Holder to include
its Registrable Securities in any such post-effective amendment or registration
statement may be waived by the written consent of D.H. Blair Investment Banking
Corp., D.H. Blair & Co. Inc. or J. Morton Davis.
(b) If D.H. Blair Investment Banking Corp., D.H. Blair &
Co., Inc. or J. Morton Davis, (each a "Majority Holder") shall give notice to
the Company at any time to the effect that such holder desires to register under
the Act this Option, the Option Units or any of the underlying securities
contained in the Option Units under such circumstances that a public
distribution (within the meaning of the Act) of any such securities will be
involved then the Company will promptly, but no later than two weeks after
receipt of such notice, file a post-effective amendment to the current
Registration Statement or a new registration statement on pursuant to the Act or
such other form as the holder requests pursuant to the Act, to the end that the
Option, the Option Units and/or any of the securities underlying the Option
Units may be publicly sold under the Act as promptly as practicable thereafter
and the Company will use its best efforts to cause such registration to become
and remain effective (including the taking of such steps as are necessary to
obtain the removal of any stop order); provided, that such holder shall furnish
the Company with appropriate information in connection therewith as the Company
may reasonably request in writing. The Majority Holder may, at its option,
request the filing of a post-effective amendment to the current Registration
Statement or a new registration statement under the Act on one occasion during
the four year period beginning one year from the effective date of the
Registration Statement. The Majority Holder may, at its option request the
registration of the Option and/or any of the securities underlying the Option in
a registration statement made by the Company as contemplated by Section 6(a) or
in connection with a request made pursuant to this Section 6(b) prior to
acquisition of the Option Units issuable upon exercise of the Option and even
though the Majority Holder has not given notice of exercise of the Option. The
Majority Holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the Option,
the Option Units as a unit, or separately as to the Class A Common Stock and/or
Warrants included in the Option Units and/or the Common Stock issuable upon the
exercise of the Warrants, and such registration
-5-
<PAGE> 6
rights may be exercised by the Majority Holder prior to or subsequent to the
exercise of the Option.
Within ten days after receiving any such notice pursuant to
this Section 6(b), the Company shall give notice to the other holders of the
Options, advising that the Company is proceeding with such post-effective
amendment or registration statement and offering to include therein the
securities underlying the Options of the other holders, provided that they shall
furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. In the event the registration statement is not
filed within the period specified herein, and in the event the registration
statement is not declared effective under the Act prior to , 2002, then, at the
holders' request, the Company shall purchase the Options from the holder for a
per option price equal to the difference between (i) the Fair Market Value of
the Class A Common Stock on the date of notice multiplied by the number of
shares of Class A Common Stock issuable upon exercise of the Option and the
underlying Warrants and (ii) the average per share purchase price of the Option
and each share of Class A Common Stock underlying the Option. All costs and
expenses of the first such post-effective amendment or new registration
statement under this paragraph 6(b) shall be borne by the Company, except that
the holders shall bear the fees of their own counsel and any underwriting
discounts or commissions applicable to any of the securities sold by them.
The Company will maintain such registration statement or
post-effective amendment current under the Act for a period of at least six
months (and for up to an additional three months if requested by the Holder)
from the effective date thereof.
(c) Whenever pursuant to Section 6 a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company shall (i) supply prospectuses and such other documents
as the Holder may request in order to facilitate the public sale or other
disposition of the Registrable Securities, (ii) use its best efforts to register
and qualify any of the Registrable Securities for sale in such states as such
Holder designates, (iii) furnish indemnification in the manner provided in
Section 7 hereof, (iv) notify each Holder of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and, at the request of any such Holder, prepare and furnish to such
Holder a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not included an
untrue statement of a material fact or omit to state material fact required to
be stated therein or necessary to make the statements therein not misleading and
(v) do any and all other acts and things which may be necessary or desirable to
enable such Holders to consummate the public sale or other disposition of the
Registrable Securities, The Holder shall furnish appropriate information in
connection therewith and indemnification as set forth in Section 7.
-6-
<PAGE> 7
(d) The Company shall not permit the inclusion of any
securities other than the Registrable Securities to be included in any
registration statement filed pursuant to Section 6(b) hereof without the prior
written consent of the Majority Holder.
(f) The Company shall furnish to each Holder participating
in the offering and to each underwriter, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (or, if such
registration includes an underwritten public offering, an opinion dated the date
of the closing under the underwriting agreement), and (ii) if such registration
includes an underwritten public offering, a "cold comfort" letter dated the
effective date of such registration statement and dated the date of the closing
under the underwriting agreement signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(g) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonable
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to non-confidential books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
as any such Holder shall reasonably request.
7. (a) Whenever pursuant to Section 6 a registration statement
relating to the Registrable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement or any
preliminary prospectus or final
-7-
<PAGE> 8
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse the Distributing Holder and each such controlling
person and underwriter for any legal or other expenses reasonably incurred by
the Distributing Holder or such controlling person or underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder specifically for use in the preparation thereof.
(b) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each Distributing
Holder will agree, severally but not jointly, to indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder specifically for use in the preparation
thereof; except that the maximum amount which may be recovered from the
Distributing Holder pursuant to this Section 7 or otherwise shall be limited to
the amount of net proceeds received by the Distributing Holder from the sale of
the Registrable Securities.
(c) Promptly after receipt by an indemnified party under
this Section 7 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7.
(d) In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 7 for any legal or other expenses
-8-
<PAGE> 9
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
(8) In addition to the provisions of Section 1(a) of this
Option, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Options shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock
in shares of Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, the Exercise
Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of
each Option is adjusted pursuant to Subsections (a) above, (i)
the number of shares of Class A Common Stock included in an
Option Unit shall simultaneously be adjusted by multiplying
the number of shares of Class A Common Stock included in
Option Unit immediately prior to such adjustment by the
Exercise Price in effect immediately prior to such adjustment
and dividing the product so obtained by the Exercise Price, as
adjusted and (ii) the number of shares of Class A Common Stock
or other securities issuable upon exercise of the Warrants
included in the Option Units and the exercise price of such
Warrants shall be adjusted in accordance with the applicable
terms of the Warrant Agreement.
(c) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease
of at least five cents ($0.05) in such price; provided,
however, that any adjustments which by reason of this
Subsection (c) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment
required to be made hereunder. All calculations under this
Section 8 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this
Section 8 to the contrary notwithstanding, the Company shall
be entitled, but shall not be required, to make such changes
in the Exercise Price, in addition to those required by this
Section 8, as it shall determine, in its sole discretion, to
be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision,
-9-
<PAGE> 10
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants issuable
upon exercise of this Option).
(d) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly but no later than 10 days
after any request for such an adjustment by the Holder, cause
a notice setting forth the adjusted Exercise Price and
adjusted number of Option Units issuable upon exercise of each
Option and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to
the Holders, at the address set forth herein, and shall cause
a certified copy thereof to be mailed to its transfer agent,
if any. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may
be the regular accountants employed by the Company) to make
any computation required by this Section 8, and a certificate
signed by such firm shall be conclusive evidence of the
correctness of such adjustment.
(e) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder
of this Option thereafter shall become entitled to receive any
shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of
this Option shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (a) to (d), inclusive above.
(f) In case any event shall occur as to which the other
provisions of this Section 8 or Section 1(a) hereof are not
strictly applicable but as to which the failure to make any
adjustment would not fairly protect the purchase rights
represented by this Option in accordance with the essential
intent and principles hereof then, in each such case, the
Holders of Options representing the right to purchase a
majority of the Option Units may appoint a firm of independent
public accountants reasonably acceptable to the Company, which
shall give their opinion as to the adjustment, if any, on a
basis consistent with the essential intent and principles
established herein, necessary to preserve the purchase rights
represented by the Options. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of
this Option and shall make the adjustments described therein.
The fees and expenses of such independent public accountants
shall be borne by the Company.
9. This Agreement shall be governed by and in accordance with
the laws of the State of New York, without giving effect to the principles of
conflicts of law thereof.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Option to be
signed by its duly authorized officers under its corporate seal, and this Option
to be dated ____________.
On'Village Communications, Inc.
By: _____________________________________
Jack B. Tracht, President
(Corporate Seal)
Attest:
______________________________
<PAGE> 12
PURCHASE FORM
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder, Units of On'Village Communications, Inc., each
Unit consisting of one share of Class A Common Stock and one Warrant to purchase
one share of Class A Common Stock and herewith makes payment of $_________
thereof.
Dated: ___________. Instructions for Registration of Stock and Warrants
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Signature
<PAGE> 13
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing
Option, hereby elects to exchange its Option for _________ Units of , each Unit
consisting of On'Village Communications, Inc., consisting of one share of Class
A Common Stock and one Class A Warrant to purchase one share of Class A Common
Stock, pursuant to the Option Exchange provisions of the Option.
Dated: ___________, 19___
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Signature
<PAGE> 14
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto the right to purchase Units represented by the foregoing Option
to the extent of Units , and appoints _____________ attorney to transfer such
rights on the books of _____________, with full power of substitution in the
premises.
Dated: ________________
[Underwriter]
By: ______________________________________
----------------------------------------
Address
In the presence of:
<PAGE> 1
EXHIBIT 5.1
[TROY AND GOULD LETTERHEAD]
August 8, 1997
EVE4-1
On'Village Communications, Inc.
26135 Mureau Road, Suite 100
Calabasas, California 91302
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as special counsel to On'Village Communications, Inc., a
California corporation (the "Company"), in connection with the public offering
of up to 2,185,000 units (the "Units") (including 285,000 Units to cover
over-allotments, if any), each Unit consisting of one share of the Company's
Class A Common Stock (the "Common Shares") and one redeemable Warrant to
purchase one Common Share (the "Warrants"). The shares of Class A Common Stock
issuable upon exercise of the Warrants are referred to herein as the "Underlying
Shares."
The Warrants are to be in the form described in, and subject to the
terms and conditions of, the Warrant Agreement by and among the Company,
American Stock Transfer & Trust Company, as Warrant Agent, and D.H. Blair
Investment Banking Corp., a New York corporation ("Blair") (the "Warrant
Agreement"). The Units are to be sold by the Company pursuant to an Underwriting
Agreement (the "Underwriting Agreement") between the Company and Blair.
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-B under the Securities Act of 1933, as amended
(the "1933 Act").
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
such documents as we have deemed necessary or appropriate as a basis for the
opinions set forth herein, including (i) the Registration Statement of the
Company on Form SB-2 relating to the Units, filed with the Securities and
Exchange Commission (the "Commission") on March 5, 1997 (the "Registration
Statement"); (ii) the Restated Articles of Incorporation and the Amended and
Restated Bylaws of the Company, as amended to date; (iii) the form of the
<PAGE> 2
On'Village Communications, Inc.
August 8, 1997
Page 2
Underwriting Agreement; (iv) the form of Warrant Agreement, together with the
form of Warrant; (v) the form of Class A Common Stock Certificate; (vi) copies
of certain resolutions (the "Resolutions") adopted by the Board of Directors of
the Company relating to the issuance of the Units, the filing of the
Registration Statement and any amendments or supplements thereto and related
matters; and (vii) such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth below.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed by parties other than the Company, we have
assumed that such parties had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof. As to any
facts material to the opinions expressed herein which were not independently
established or verified, we have relied upon oral or written statements and
representations of officers and other representatives of the Company and others.
Members of our firm are admitted to the bar in the State of California,
and we do not express any opinion as to the laws of any other jurisdiction,
other than the laws of the United States of America to the extent referred to
specifically herein.
Based on such examination, we are of the opinion that:
1. The Units have been duly and validly authorized.
2. The Common Shares have been duly and validly authorized and, when
certificates therefor have been duly authenticated, delivered and paid for in
accordance with the Underwriting Agreement, will be duly and validly issued,
fully paid and nonassessable.
3. The Underlying Shares have been duly and validly authorized and, (a)
assuming the Underlying Shares will be duly and validly authorized as of the
date of issuance and (b) when
<PAGE> 3
On'Village Communications, Inc.
August 8, 1997
Page 3
certificates therefor have been duly authenticated, delivered and the Underlying
Shares have been paid for in accordance with the Underwriting Agreement and the
Warrant Agreement, the Underlying Shares will be duly and validly issued, fully
paid and nonassessable.
4. The Warrants have been duly and validly authorized and, when (a) the
Warrant Agreement has been duly executed and delivered (assuming due
authorization, execution and delivery thereof by the Warrant Agent and Blair)
and (b) the Warrants have been duly authenticated, delivered and paid for in
accordance with the Underwriting Agreement and the Warrant Agreement, the
Warrants will be valid and binding obligations of the Company enforceable
against the Company, except that such enforcement may be subject to or limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity). For
purposes of the foregoing opinion, we have assumed that New York law is the same
as California law.
We consent to the use of our name under the caption "Legal Matters" in
the Registration Statement, and to the filing of this opinion as an exhibit to
the Registration Statement. By giving you this opinion and consent, we do not
admit that we are experts with respect to any part of the Registration Statement
within the meaning of the term "expert" as used in Section 11 of the 1933 Act,
or the rules and regulations promulgated thereunder, nor do we admit that we are
in the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ TROY & GOULD
------------------------
TROY & GOULD
Professional Corporation
<PAGE> 1
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
Exhibit 10.7
[NETSCAPE LOGO]
NETSCAPE COMMUNICATIONS CORPORATION
U.S. ENGLISH-LANGUAGE NET SEARCH PROGRAM
DISTINGUISHED PROVIDER SERVICES AGREEMENT
OBJECTIVE: To direct users of a Netscape client software Internet browser
product (including the Netscape Navigator 2.x and subsequent versions of
Netscape client software) ("Browser") to U.S. English-language Internet search
and directory services.
TERMS AND CONDITIONS:
1. DISTINGUISHED PROVIDER. The entity ("Distinguished Provider") named
on the signature page to this agreement ("Agreement") provides a featured
search and directory service for the U.S. English-language HTML page accessible
by the public via the Internet at the Universal Resource Locator ("URL")
http://home-netscape.com/home/internet-search, or such other URL as Netscape
may designate from time to time in writing (the "Page"). The Page is part of
the collection of U.S. English-language HTML documents accessible by the public
via the Internet at the URL http://home.netscape.com and/or at such other URL
or URL's as Netscape may designate ("Netscape's U.S. English-language Web
Site"). The Page may also be accessed by users of the Netscape-distributed
English-language version of the Browser by pressing or "clicking" on the Net
Search Button, or such other methods as Netscape may specify from time to time.
Notwithstanding the foregoing, Netscape reserves the right to determine other
means whereby users may access pages which provide Internet search and
directory services on Netscape's U.S. English-language Web Site including, but
not limited to, through the use of mirror sites and pointers based on a user's
IP address, and which pages are separate and distinct from the Page described
in this Agreement.
2. DISTINGUISHED PERIOD. Netscape will maintain the Distinguished
Listing (as defined below) on the Page for the following period ("Distinguished
Period"):
From: May 1, 1997
Until: April 30, 1998
The parties may, upon mutual written agreement no less than thirty (30) days
prior to the end of the Distinguished Period, extend the term of this Agreement
for an additional twelve (12) month period upon terms and conditions agreed to
by the parties; provided, however, nothing contained herein shall obligate
either party to agree to extend the term of this Agreement.
3. EXPOSURE ON PAGE.
a. Netscape will list Distinguished Provider's name in the
Distinguished Provider portion of the Page ("Distinguished Listing") (below the
logos of any Premier Provider participating in Netscape's Net Search Program).
Distinguished Provider shall retain all right, title and interest in and to the
Distinguished Listing. The specifications of the Distinguished Listing and its
placement on the Page are set forth on Exhibit A hereto. Netscape may, upon
notice to Distinguished Provider, (i) change the position of the Distinguished
Listing on the Page, (ii) revise Exhibit A, or (iii) redesign or reconfigure
Netscape's U.S. English-language Web Site, the Page and/or the manner in which
an end user interacts with any of the pages of Netscape's
<PAGE> 2
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
U.S. English-language Web Site, and Distinguished Provider shall promptly
(and in any event, within no more than one (1) week following receipt of the
notice) supply Netscape with a revised Distinguished Listing which conforms to
the specifications of the revised Exhibit A.
b. Netscape will produce the Page, as set forth on Exhibit A
which Exhibit Netscape may revise from time to time, such that when an end user
presses or "clicks" on the Distinguished Listing, the end user's Browser will
access ("Distinguished Link") Distinguished Provider's applicable HTML page
located at the applicable URL (as supplied by Distinguished Provider) for such
page on Distinguished Provider's Web site ("Distinguished URL"). Distinguished
Provider hereby grants Netscape a royalty-free worldwide license to use,
display, perform, reproduce and distribute the Distinguished Listing.
Distinguished Link and Distinguished URL and such other licenses with respect to
the Distinguished Listing, Distinguished Link and Distinguished URL necessary to
fulfill the intention of this Agreement.
c. Netscape will use reasonable commercial efforts to promptly
remedy any material misplacement of the Distinguished Listing on the Page or
any material malfunctioning of the Distinguished Link under the control of
Netscape, provided Distinguished Provider will fully cooperate with Netscape to
remedy any such material malfunctioning or misplacement, and provided further
that Netscape shall not incur liability for any failure to remedy such material
malfunctioning or misplacement if such remedy is not within the reasonable
control of Netscape.
4. Compensation.
a. For the benefits provided to Distinguished Provider during
the Distinguished Period, Distinguished Provider shall pay Netscape a total of
Three Hundred Sixty Thousand Dollars ($360,000) (the "Payment") as follows:
(1) Thirty Thousand Dollars ($30,000) within thirty
(30) calendar days after full execution of this Agreement;
(2) Thirty Thousand Dollars ($30,000) within thirty
(30) calendar days after the first day of each month during the Distinguished
Period.
b. Any portion of the Payment which has not been paid to
Netscape within the applicable time set forth above shall bear interest at the
lesser of (i) one percent (1%) per month, or (ii) the maximum amount allowed by
law.
5. Additional Distinguished Provider Benefits.
a. Every six (6) months during the Distinguished Period,
Netscape will provide Distinguished Provider [**] on Netscape's U.S.
English-language Web Site, as such services are described on Netscape's current
Rate Card as of the date of this Agreement, (or such advertisement's
equivalent, in Netscape's reasonable discretion) during the Distinguished
Period. The advertising shall begin on a date and at a location designated by
Netscape and end no later than the end of the Distinguished Period; provided
Distinguished Provider supplies Netscape with the graphic files and other
materials and information within the timeframes and as set forth in the
specifications of the applicable Netscape advertising program and as reasonably
requested by Netscape to produce the advertisement. Distinguished Provider
shall enter into Netscape's standard form of advertising agreement, a copy of
which is attached hereto as Exhibit D:
2
<PAGE> 3
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
b. During the Distinguished Period, Distinguished Provider may
purchase additional advertising on Netscape's U.S. English-language Web Site for
advertising that will run during the Distinguished Period for the service of
Distinguished Provider at a discount of[**] off Netscape's then standard rates
for such advertising.
c. Netscape will use reasonable efforts to advise Distinguished
Provider of new Netscape advertising campaigns prior to announcing such new
campaigns on Netscape's U.S. English-language Web site; provided, however,
Netscape shall not incur liability for failure so to advise Distinguished
Provider.
6. DISTINGUISHED PROVIDER OBLIGATIONS. In addition to the other
obligations set forth herein, Distinguished Provider will:
a. Display the "Netscape Now" button prominently above the fold
of either (i) Distinguished Provider's home page on Distinguished Provider's Web
site, or (ii) on all pages linked to the Distinguished URL, and use best efforts
to include the following statement (or a statement designated by Netscape and
generally used by Netscape as a successor to the following statement or in
connection with any successor program to Netscape's Netscape Now program) next
to the Netscape Now button: "This site is best viewed with Netscape Navigator
3.0. Download Netscape Now!" (or such higher non-beta version as is then
available). Distinguished Provider will produce the tape such that when an end
user presses or clicks on the Netscape Now button (or such other button used in
connection with any successor program to the Netscape Now program), the end
user's Internet client software will access the applicable HTML page located at
a URL supplied by Netscape. [**] Distinguished Provider shall use reasonable
commercial efforts promptly to remedy any misplacement of the Netscape Now
button on its home page or other pages or any malfunctioning of the button,
provided Netscape will fully cooperate with Distinguished Provider to remedy any
such misplacement or malfunctioning, and provided further that Distinguished
Provider shall not incur liability for any failure to remedy such misplacement
or malfunctioning if such remedy is not within the reasonable control of
Distinguished Provider. In the event that Netscape replaces the Netscape Now
program with a successor program, Netscape shall advise Distinguished Provider
and Distinguished Provider shall produce the page to conform to such successor
program, provided Distinguished Provider's obligations under such successor
program shall not be materially increased. Netscape hereby grants Distinguished
Provider a nonexclusive, nontransferable, nonassignable, nonsublicensable
license to perform and display the Netscape Now button directly in connection
with fulfilling the foregoing obligation. Distinguished Provider's use of the
Netscape Now button shall be in accordance with Netscape's reasonable policies
regarding advertising and trademark usage as established from time to time by
Netscape, including the guidelines of the Netscape Now Program published on
Netscape's U.S. English-language Web Site. Distinguished Provider acknowledges
that the Netscape Now button is a proprietary logo of Netscape and contains
Netscape's trademarks. In the event that Netscape determines that Distinguished
Provider's use of the Netscape Now button is inconsistent with Netscape's
quality standards, then Netscape shall have the right to suspend immediately
such use of the Netscape Now button. Distinguished Provider understands and
agrees that the use of the Netscape Now button in connection with this Agreement
shall not create any right, title or interest in or to the use of the Netscape
Now button or associated trademarks and that all such use and goodwill
associated with the Netscape Now button and associated trademarks will inure to
the benefit of Netscape. Distinguished Provider agrees not to register or use
any trademark that is similar to the Netscape Now button.
3
<PAGE> 4
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
Distinguished Provider further agrees that it will not use the Netscape Now
button in a misleading manner or otherwise in a manner that could tend to
reflect adversely on Netscape or its products;
b. Use [**]
c. [**] for display with those Internet software clients capable of
displaying [**] on (i) the [**], provided that Distinguished Provider shall use
reasonable commercial efforts to implement [**] in a location and in a fashion
as Netscape may agree, and (ii) [**] (or on an HTML page located further down
the directory tree from the page located at the Distinguished URL; provided
Distinguished Provider will use reasonable efforts to implement [**] as high in
such directory tree structure as possible), and, where appropriate, on all other
HTML pages of Distinguished Provider's Web site; provided Distinguished Provider
shall not be required [**] on pages of any secondary Web site of Distinguished
Provider that Distinguished Provider is required to construct to satisfy
Distinguished Provider's obligations under any third party contract existing as
of the date of this Agreement. Netscape shall use reasonable commercial efforts
to help Distinguished Provider implement changes in order to comply with new
[**].
d. Include on the page served to an end user in conjunction with the
results of the end user's search query a "mail to" link which users of
Distinguished Provider's service can use to direct questions or help requests to
Distinguished Provider. Distinguished Provider will use reasonable efforts to
reply promptly, but in any event within one (1) week, to any such question or
help request; and
e. Not provide or implement any means or functionally which would (i)
[**] the Browser standard user interface or configuration, (ii) [**] of the
Browser or any other Internet browser software, or (iii) modify the [**] served
from Netscape's U.S. English-language Web Site.
7. USAGE REPORTS. Distinguished Provider will provide Netscape, via
email to the email address set forth below, with usage reports ("Usage Reports")
containing the information and in the format set forth in Exhibit B hereto. The
Usage Reports shall be delivered [**] during the Distinguished Period. The
parties may, by mutual written agreement, alter the content and format of the
Usage Reports.
8. TERMINATION. Either party may terminate this Agreement if the other
party materially breaches its obligations hereunder and such breach remains
uncured for fifteen (15) days following notice to the breaching party of the
breach or as otherwise provided in Section 9. Either party may terminate this
Agreement for convenience upon ninety (90) days prior written notice to the
other party. Upon any termination or expiration of this Agreement, Netscape
shall immediately cease providing to Distinguished Provider the benefits
described herein, including, without limitation, the benefits described in
Sections 3 and 5 hereof.
9. RIGHT TO REFUSE. Netscape will have the right to review the
contents and format of the HTML page located at the Distinguished URL and the
distinguished Listing. If Netscape, in its
4
<PAGE> 5
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
sole discretion, at any time determines that the HTML page located at the
Distinguished URL or the Distinguished Listing contains any material, or
presents any material in a manner, that Netscape deems inappropriate for any
reason, Netscape will inform Distinguished Provider of the reason Netscape has
made such determination and may (i) refuse to include the Distinguished Listing
in the Page, and/or (ii) immediately terminate this Agreement if Distinguished
Provider has not revised to Netscape's reasonable satisfaction the HTML page
located at the Distinguished URL or the Distinguished Listing within one (1)
business day of written notice from Netscape. If Netscape, in its sole
discretion, at any time determines that the Distinguished Provider's Web site
contains any material, or presents any material in a manner, that Netscape
deems inappropriate for any reason, Netscape may immediately terminate this
Agreement upon notice to Distinguished Provider. Netscape reserves the right to
refuse to include in the Page any Distinguished Listing that does not
completely conform to the specifications set forth in Exhibit A.
10. RESPONSIBILITY FOR DISTINGUISHED LISTING. Distinguished Provider is
solely responsible for any legal liability arising out of or relating to the
Distinguished Listing and/or [**]. Distinguished Provider represents and
warrants that it holds the necessary rights to permit the use of the
Distinguished Listing, Distinguished URL and Distinguished Link by Netscape for
the purpose of this Agreement; and that the permitted use, reproduction,
distribution, or transmission of the Distinguished Listing and any material to
which users can link through the Distinguished Listing will not violate any
criminal laws or any rights of any third parties, including, but not limited to,
infringement or misappropriation of any copyright, patent, trademark, trade
secret, music, image, or other proprietary or property right, false advertising,
unfair competition, defamation, invasion of privacy or rights of celebrity,
violation of any antidiscrimination law or regulation, or any other right of any
person or entity. Distinguished Provider agrees to indemnify Netscape and to
hold Netscape harmless from any and all liability, loss, damages, claims, or
causes of action, including reasonable legal fees and expenses that may be
incurred by Netscape, arising out of or related to Distinguished Provider's
breach of any of the foregoing representations and warranties.
11. LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO
THE OTHER FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER BASED
ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, AND WHETHER
OR NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE, THE
LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER (EXCEPT FOR
DAMAGES OR ALLEGED DAMAGES ARISING UNDER SECTION 10) WHETHER IN CONTRACT OR
TORT OR ANY OTHER LEGAL THEORY IS LIMITED TO AND SHALL NOT EXCEED [**]
12. ASSIGNMENT. Distinguished Provider may not assign this Agreement by
operation of law or otherwise, in whole or in part, without Netscape's written
consent. Any attempt to assign this Agreement without such consent will be null
and void.
13. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of California without regard to its
conflicts of laws principles.
14. NOTICE. All notices required or permitted hereunder shall be given
in writing addressed to the respective parties as set forth below and shall
either be (i) personally delivered, (ii) transmitted by postage prepaid
certified mail, return receipt requested, or (iii) transmitted by
nationally-recognized private express courier, and shall be deemed to have been
given on the
5
<PAGE> 6
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
date of receipt if delivered personally, or two (2) days after deposit in mail
or express courier. Either party may change its address for purposes hereof by
written notice to the other in accordance with the provisions of this
Subsection. The addresses for the parties are as follows:
Distinguished Provider: Netscape:
ON'Village Communications, Inc. Netscape Communications Corporation
848 N. La Cienega, #206 501 East Middlefield Road, MV-002
Los Angeles, CA 90069 Mountain View, CA 94043
Fax: (310) 659-4717 Fax: (415) 528-4123
Attn: Jack Tracht, CEO Attn: General Counsel
15. Confidentiality. All disclosures of proprietary and/or
confidential information in connection with this Agreement shall be governed by
the terms of the Mutual Confidential Disclosure Agreement either previously
entered into by the parties, or entered into by the parties concurrently with
this Agreement, a copy of which is attached hereto as Exhibit C. The
information contained in the Usage Reports provided hereunder shall be deemed
the Proprietary Information of both parties. Either party may use such
Proprietary Information internally, but shall not disclose such Proprietary
Information to any third party. Notwithstanding the foregoing, (a) information
contained in the Usage Reports which is available to Netscape through other
sources shall not be Distinguished Provider Proprietary Information; and (b)
Netscape may aggregate the information in the Usage Reports with information
from other sources, and the aggregated information shall not be Distinguished
Provider Proprietary Information.
16. No Agency. The parties hereto are independent contractors and
shall have no power or authority to bind the other party or to assume or create
any obligation or responsibility, express or implied, on behalf of the other
party or in the other party's name. This Agreement shall not be construed to
create or imply any partnership, agency, joint venture,or any other form of
legal association between the parties.
17. Entire Agreement. This Agreement together with Exhibits A
through D hereto are the complete and exclusive agreement between the parties
with respect to the subject matter hereof, superseding any prior agreements and
communications (both written and oral) regarding such subject matter. This
Agreement may only be modified, or any rights under it waived, by a written
document executed by both parties.
The parties have duly executed this Agreement as of the later of the two (2)
dates set forth below.
Distinguished Provider: Netscape:
ON'VILLAGE COMMUNICATIONS, INC. NETSCAPE COMMUNICATIONS CORPORATION
By: /s/ JACK TRACHT By: /s/ JENNIFER BAILEY
---------------------------- -------------------------------
Print Name: Jack Tracht Print Name: Jennifer Bailey
-------------------- -----------------------
Title: CEO Title: VP of Electronic Mktg.
------------------------- -----------------------------
Date: 5-22-97 Date: 5/5/97
-------------------------- ------------------------------
6
<PAGE> 7
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
Distinguished Provider Address: Netscape Address:
848 N. La Cienega, #206 501 East Middlefield Road
Los Angeles, CA 90069 Mountain View, CA 94043
Attention: Jack Tracht Attention: General Counsel
Facsimile: (310) 659-4717 Facsimile: (415) 528-4123
Email: [email protected] Email: [email protected]
7
<PAGE> 8
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
EXHIBIT A
SPECIFICATIONS OF THE PAGE
ON'Village 942397
Net Search Program -- Distinguished Provider Rev.042397
CONFIDENTIAL and PROPRIETARY [STANDARD]
<PAGE> 9
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
[NETSCAPE LOGO]
NETSCAPE NET SEARCH
[PICTURE]
<TABLE>
<CAPTION>
Customize this page
EXCITE INFOSEEK LYCOS YAHOO CUSTOMIZE to work for you. First
choose one of the
following search
services to appear on
"BEST ALL-AROUND SEARCH ENGINE" Washington Post the fifth tab:
[INFOSEEK LOGO] Seek AOL NetFind
HOTBOT
Infoseek International: UK - Japan - Italy - France - Quickseek 3.0
WebCrawler
SITE SAMPLE Got Yahoo! - News Headlines -Sports News/Scores -
<S> <C> <C> <C> <C> Then select one of
Buy a Car Entertainment Games Shopping Headlines the five search
Buy a Home Finance Internet Software Business News services from the
Companies Find E-mail Taxes Stock Quotes Sports News display tabs to open
Computers Find a Job Travel Street Maps Personalize automatically every
time you visit.
[BIG YELLOW LOGO] Yellow Pages Search
</TABLE>
I DON'T SHOW MY YAHOO! TO JUST ANYONE.
Click here to take a peek.
MORE SEARCH SERVICES
The following search services use different methods to help you find what
you're looking for.
Check them out.
<TABLE>
<CAPTION>
SEARCH ENGINES WEB GUIDES WHITE & YELLOW TOPIC SPECIFIC
pages
<S> <C> <C> <C>
Alta Vista Excite BigBook 100hot Web Sites
AOL NetFind Infoseek Bigfoot Albert
HOTBOT LookSmart Four11 Electric Library
WebCrawler Lycos GTE Superpages Newsgroups
Yahoo! ON'VILLAGE
Who Where?
</TABLE>
Guide to Internet __| International Search __|
<PAGE> 10
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
EXHIBIT B
USAGE REPORTS
Sample report provided by Distinguished Provider to Netscape each month.
- --------------------------------------------------------------------------------
[**]
ON'Village 942397
Net Search Program -- Distinguished Provider Rev. 042397
CONFIDENTIAL and PROPRIETARY [STANDARD]
<PAGE> 11
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
EXHIBIT C
MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT
WHEREAS, Netscape Communications Corporation ("Netscape") has developed
unique and proprietary computer programs; and
WHEREAS, E. Ventures Inc. D/B/A On'Village Communications ("Company")
and Netscape are entering into a business relationship.
NOW, THEREFORE:
Each party (the "Receiving Party") understands that the other party (the
"Disclosing Party") has disclosed or may disclose information (including,
without limitation, computer programs, code, algorithms, names and expertise of
employees and consultants, know-how, formulas, processes, ideas, inventions
(whether patentable or not), schematics and other technical, business, financial
and product development plans, forecasts, strategies and information), which to
the extent previously, presently, or subsequently disclosed to the Receiving
Party is hereinafter referred to as "Proprietary Information" of the Disclosing
Party whether disclosed orally, in writing, or otherwise. All Proprietary
Information disclosed in tangible form by the Disclosing Party shall be marked
"confidential" or "proprietary", and all Proprietary Information disclosed
orally or otherwise in intangible form by the Disclosing Party shall be
designated as confidential or proprietary at the time of disclosure and shall be
reduced to writing and delivered to the Receiving Party within thirty (30) days
following the date of disclosure.
In consideration of the parties' discussions and any access the
Receiving Party may have to Proprietary Information of the Disclosing Party, the
Receiving Party hereby agrees as follows:
1. The Receiving Party agrees (i) to hold the Disclosing
Party's Proprietary Information in confidence and to take all reasonably
necessary precautions to protect such Proprietary Information (including,
without limitation, all precautions the Receiving Party employs with respect to
its own confidential materials), (ii) not to divulge any such Proprietary
Information or any information derived therefrom to any third person, (iii) not
to make any use whatsoever at any time to such Proprietary Information except as
provided in the Net Search and Net Directory Program (Distinguished Provider)
Agreement ("Distinguished Agreement") between Netscape and Company dated as of
November 4, 1996 to which this Agreement is attached as an Exhibit, (iv) not to
remove or export any such Proprietary Information from the country of the
Receiving Party, and (v) not to copy or reverse engineer, reverse compile or
attempt to derive the composition or underlying information of any such
Proprietary Information. The Receiving Party shall limit the use of and access
to the Disclosing Party's Proprietary Information to those of the Receiving
Party's employees who need to know such Proprietary Information for the purpose
of such internal evaluation and shall cause such employees to comply with the
obligations set forth herein. The Receiving Party shall treat the Proprietary
Information with at least the same degree of care and protection as it would use
with respect to its own proprietary information. The foregoing obligations shall
survive for a period of three (3) years from the date of disclosure of the
Proprietary Information. Without granting any right or license, the Disclosing
Party agrees that the foregoing shall not apply with respect to information that
(i) is in the public domain and is available at the time of disclosure or which
thereafter enters the public domain and is available, through no improper action
or inaction by the Receiving Party or any affiliate, agent or employee, or (ii)
was in the Receiving Party's possession or known by it prior to receipt from the
Disclosing Party, or (iii) was rightfully disclosed to the Receiving Party by
another person without restriction, or (iv) is independently developed by the
Receiving Party without access to such Proprietary Information, or (v) is
required to be disclosed pursuant to any statutory regulatory authority,
provided the Disclosing Party is given prompt notice of such
Net Search Program - Distinguished Provider [100296/esw]
CONFIDENTIAL and PROPRIETARY Rev. 030596
[STANDARD]
<PAGE> 12
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
requirement and the scope of such disclosure is limited to the extent possible,
or is required to be disclosed by a court order, provided the Disclosing Party
is given prompt notice of such order and provided the opportunity to contest it.
2. Immediately upon a request by the Disclosing Party at any time,
the Receiving Party will turn over to the Disclosing Party all Proprietary
Information of the Disclosing Party and all documents or media containing any
such Proprietary Information and any and all copies or extracts thereof. The
Receiving Party understands that nothing herein requires the disclosure of any
Proprietary Information of the Disclosing Party, which shall be disclosed, if
at all, as required under the Distinguished Agreement or at the option of the
Disclosing Party.
3. Except to the extent required by law, as set forth in this
Agreement or as otherwise mutually agreed to by the parties, neither party
shall disclose the existence or subject matter of the negotiations or business
relationship contemplated by this Agreement, or the content and terms of the
Distinguished Agreement.
4. The Receiving Party acknowledges and agrees that due to the
unique nature of the Disclosing Party's Proprietary Information, there can be
no adequate remedy at law for any breach of its obligations hereunder, that any
such breach may allow the Receiving Party or third parties to unfairly compete
with the Disclosing Party resulting in irreparable harm to the Disclosing
Party, and therefore, that upon any such breach or any threat thereof, the
Disclosing Party shall be entitled to seek appropriate equitable relief in
addition to whatever remedies it might have at law. The Receiving Party will
notify the Disclosing Party in writing immediately upon the occurrence of any
such unauthorized release or other breach. In the event that any of the
provisions of this Agreement shall be held by a court or other tribunal of
competent jurisdiction to be unenforceable, the remaining portions hereof shall
remain in full force and effect.
5. Neither party acquires any intellectual property rights under
this Agreement or any disclosure hereunder, except the limited right to use
such Proprietary Information in accordance with this Agreement. No warranties
of any kind are given with respect to the Proprietary Information disclosed
under this Agreement or any use thereof, except as may be otherwise agreed to
in writing.
6. This Agreement together with the Distinguished Agreement
supersede all prior discussions and writings with respect to the subject matter
hereof and thereof, and constitute the entire agreement between the parties
with respect to the subject matter hereof and thereof. No waiver or
modification of this Agreement will be binding upon either party unless made in
writing and signed by a duly authorized representative of such party and no
failure or delay in enforcing any right will be deemed a waiver.
Company: Netscape:
E. VENTURES, INC. NETSCAPE COMMUNICATIONS
D/DBA COMMUNICATIONS ONVILLAGE CORPORATION
By: /s/ Jeff Walden By:
--------------------------- ---------------------------
Print Name: JEFF WALDEN Print Name:
------------------- -------------------
Title: SUP Title:
------------------------ ------------------------
Date: 11/4/96 Date:
------------------------- -------------------------
2
[100296/esw]
Net Search Program - Distinguished Provider Rev. 030596
CONFIDENTIAL and PROPRIETARY [STANDARD]
<PAGE> 13
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
(b) Indemnification. Sponsor shall indemnify and hold Netscape, its
officers agents, directors, employees and distributors harmless from and
against all actions, claims, damages, costs and expenses (including attorney's
fees) arising out of or with respect to: (i) any breach of the foregoing
warranties; or (ii) any other third party claim in connection with Sponsor's
Advertisements.
5. SPONSORSHIP PAYMENTS.
Sponsor shall pay Netscape according to the prices and terms listed in the
Rate Card.
6. CONFIDENTIALITY.
(a) Defined. "Confidential Information" will mean: (i) Advertisements,
prior to publication, (ii) the Usage Statistics, which shall be considered
Netscape's Confidential Information, and (iii) any information designated in
writing by the disclosing party as "confidential" or "proprietary."
(b) Obligations. During the term of this Agreement and for a period of
three years thereafter, neither party will use or disclose any Confidential
Information of the other party except as specifically contemplated herein. The
foregoing retrictions will not apply to information that (i) has been
independently developed by the receiving party, (ii) has become publicly
known through no wrongful act of the receiving party, (iii) has been rightfully
received from a third party authorized to make such disclosure, (iv) has been
approved for release by the disclosing party in writing, or (v) is required to
be disclosed by a competent legal tribunal.
7. LIMITATION ON DAMAGES.
(a) Limitation. IN NO EVENT WILL NETSCAPE BE LIABLE TO SPONSOR FOR ANY
LOST PROFITS, LOST DATA, COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES,
OR ANY FORM OF SPECIAL, INCIDENTAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES
OF ANY KIND (WHETHER OR NOT FORESEEABLE), WHETHER BASED ON BREACH OF CONTRACT,
TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY OR OTHERWISE, EVEN IF NETSCAPE
IS INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES. NETSCAPE'S TOTAL
LIABILITY UNDER THIS AGREEMENT IS LIMITED TO THE PAYMENTS RECEIVED BY NETSCAPE
FROM SPONSOR HEREUNDER.
(b) Failure of Essential Purpose. The parties have agreed that the
limitations and exclusions of liability specified in this Agreement will survive
and apply even if any limited remedy specified in this Agreement is found to
have failed of its essential purpose.
(c) Basis of the Bargain. Sponsor acknowledges that Netscape has set
its rates and entered into this Agreement in reliance upon the limitations of
liability and the disclaimers of warranties and damages set forth herein, and
that the same form an essential basis of the bargain between the parties.
8. TERM AND TERMINATION.
(a) Term. The term of this Agreement commences on the Effective Date
and, unless earlier terminated in accordance with this Section 8, will continue
in effect for the period specified in the Advertising Program. This Agreement
may be renewed for additional periods upon the written agreement of the parties
at least ninety (90) days prior to the expiration date; provided, however, that
the advertising rates set for this Agreement in the Rate Card hereto shall not
apply to any renewal period and must be separately agreed to by both of the
parties.
6
Form of Sponsorship Agreement [080296/esw]
CONFIDENTIAL [STANDARD]
<PAGE> 14
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
EXHIBIT D
Form of Sponsorship Agreement
Cover Sheet and Insertion Order for Advertising Program
- --------------------------------------------------------------------------------
Legal name of Sponsor __________________ Sponsor's Agency ______________________
Address of Principal Place of Business Agency Name ___________________________
________________________________________ Agency Address ________________________
City __________ State _____ Zip_____ City _____________ State _____ Zip_____
Phone ___________ Fax __________________ Phone ______________ Fax_______________
E-mail ___________________ E-mail _____________________
If Sponsor is not a corporation, please (Please use Business Contact's
specify form of organization ___________ information for this portion of the
Place of organization __________________ document.)
- --------------------------------------------------------------------------------
SUBJECT TO NETSCAPE'S ACCEPTANCE, THIS NETSCAPE COMMUNICATIONS CORPORATION
SPONSORSHIP AGREEMENT, OF WHICH THIS PAGE IS A COVER SHEET, ALLOWS YOU TO
PURCHASE ADVERTISING SERVICES FROM NETSCAPE IN THE FORM AND AT THE PRICING SET
FORTH IN THE RATE CARD AND ADVERTISING PROGRAM, AS DEFINED HEREIN. YOU MUST
PROVIDE TO NETSCAPE ADVERTISEMENT CONTENT AND OTHER INFORMATION WHICH CONFORMS
TO THE SPECIFICATIONS OF THE RATE CARD. CAREFULLY REVIEW THE REST OF THIS
AGREEMENT FOR OTHER IMPORTANT TERMS. FAILURE TO COMPLY WITH THIS AGREEMENT MAY
RESULT IN TERMINATION.
SCHEDULING PRICING
- ---------- -------
Ad Package: __________________________ Net Amount Before Discounts: ____________
Start Date: __________________________ Discounts (Check all that apply):
End Date: ____________________________ Netscape Now (10%)
[ ]
Check One: Frequency (10%)
[ ]
Paid [ ] Barter [ ] Makegood [ ] Other (specify type, % _______________)
[ ]
Net Amount Due: _______________________
BILLING
- -------
Check One: Bill to (Sponsor or Agency): __________
PO # included (write here _______) [ ] Acct. Payable Name: ___________________
PO Exemption Form attached [ ] Acct. Payable Phone: __________________
Payment ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
Jan$ Feb$ Mar$ Apr$ May$ Jun$ Jul$ Aug$ Sep$ Oct$ Nov$ Dec$
PRODUCTION
- ----------
URL linked to: http:// _______________ (Is it tested?) Y N
Banner: New or Existing (Is it tested?) Y N
Delivered by: Agency or Advertiser Production Name: ____________________
GIF delivered by (what method): ______ Production Phone: ____________________
Notes:
SPONSOR: _____________________________ NETSCAPE COMMUNICATIONS CORPORATION
By: __________________________________ By: ___________________________________
Name: ________________________________ Name: _________________________________
Title: _______________________________ Title: ________________________________
Date: ________________________________ Date of Acceptance: ___________________
Sponsor Contact: _____________________
Phone: _______________________________
Fax: ______________ E-mail: __________
3
Form of Sponsorship Agreement [080766/esw]
[STANDARD]
<PAGE> 15
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
NETSCAPE COMMUNICATIONS CORPORATION
SPONSORSHIP AGREEMENT (Version 3)
This Sponsorship Agreement ("Agreement") is entered into by and between
Netscape Communications Corporation, a Delaware corporation ("Netscape"), with
principal offices at 501 East Middlefield Road, Mountain View, California 94043
and the organization ("Sponsor") listed and identified on the cover sheet to
this Agreement ("Cover Sheet") as of the date of acceptance by Netscape
("Effective Date") listed on the Cover Sheet.
WHEREAS, Netscape is engaged in the business of providing Internet products and
services, including advertising services; and
WHEREAS, Sponsor desires to purchase advertising services from Netscape as
specified in this Agreement.
NOW, THEREFORE, the parties agree to the following terms and conditions:
1. Definitions.
(a) "ADVERTISEMENT" means the graphic (GIF) file, or file of such other
format as Netscape may designate from time to time, supplied by Sponsor to be
published by Netscape on Netscape's U.S. English-language Web Site and which
may contain a link to Sponsor's web site or to a web site specified by Sponsor.
(b) "ADVERTISING PROGRAM" means a Sponsor's particular selection and
purchase of advertising space and services for publication of its
Advertisements on Netscape's U.S. English-language Web Site, a copy of which
Advertising Program is included on the Cover Sheet.
(c) "NETSCAPE'S U.S. ENGLISH-LANGUAGE WEB SITE" means a collection of U.S.
English-language HTML documents accessible by the public via the Internet at
the Universal Resource Locator ("URL") http://www.netscape.com, or such other
URL as may be designated from time to time in writing by Netscape.
(d) "RATE CARD" means the information regarding Netscape advertising
services, rates, and technical requirements for Sponsor Submissions for
publication on Netscape's U.S. English-language Web Site, a copy of which Rate
Card is attached hereto.
(e) "SPONSOR SUBMISSION" means all information and items necessary for
Netscape's publication of Sponsor's Advertisements, including initial
Advertising Program information, Advertisements, changes and updates to
Advertisements, and replacement or new Advertisements.
(f) "USAGE STATISTICS" means a set of numbers compiled by Netscape
regarding Netscape User access to a Sponsor's Advertisement and reported on a
periodic basis to Sponsor, for Sponsor's internal business purposes.
(g) "USER" means any individual or client who accesses Netscape's U.S.
English-language Web Site.
2. NETSCAPE SERVICES.
(a) Advertising Services. Netscape will publish Sponsor's
Advertisements on Netscape's U.S. English-language Web Site according to
the level of service selected from the Rate Card and as specified in the
Advertising Program. Sponsor shall retain all right, title and interest in and
to its Advertisements (including the copyright ownership thereof), and Sponsor
4
<PAGE> 16
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
hereby grants Netscape a royalty-free worldwide license, without payment or
other charge therefor, to use, display, perform, reproduce and distribute the
Advertisements, and such other licenses with respect to the Advertisements
necessary to fulfill the intention of this Agreement.
(b) Reports. Netscape will deliver Usage Statistics to Sponsor on a
monthly basis with respect to each of Sponsor's Advertisements.
(c) No Warranty. NETSCAPE WILL PROVIDE REPORTS (INCLUDING USAGE
STATISTICS) ONLY AS A COURTESY TO SPONSOR. NETSCAPE MAKES NO WARRANTY, EXPRESS
OR IMPLIED, AS TO ANY MATTER, INCLUDING, WITHOUT LIMITATION, ADVERTISING AND
OTHER SERVICES AND ANY REPORTS PROVIDED HEREUNDER OR THEIR ACCURACY, AND
EXPRESSLY DISCLAIMS THE WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY, AND
FITNESS FOR ANY PARTICULAR PURPOSE.
3. SPONSOR SUBMISSIONS.
(a) Submission Deadline. Netscape must receive all Sponsor Submissions
at lease five (5) business days prior to the scheduled date of publication for
each relevant Advertisement ("Submission Deadline").
(b) Late Sponsor Submissions. In the event that Netscape does not
receive a Sponsor Submission prior to the applicable Submission deadline,
Netscape may publish in substitution any prior Advertisement submitted by
Sponsor until such time as Netscape can reasonably begin publication of the
Advertisement requested in the Sponsor Submission. If no such prior
Advertisement is available, Netscape may publish in substitution any material
it deems appropriate, in its sole discretion, until such time as Netscape can
reasonable begin publication of the Advertisement requested in the Sponsor
Submission.
(c) Changes and Cancellations. All changes to and/or cancellations of
Sponsor Submissions must be made in writing with an e-mail copy sent to
[email protected], and receive by Netscape prior to the Submission Deadline.
(d) Rejections. Netscape may, in its complete discretion, refuse at any
time for any reason to accept any sponsor Submission and/or to publish any
Advertisement.
4. SPONSOR WARRANTY AND INDEMNIFICATION.
(a) Sponsor Warranty. Sponsor represents and warrants to Netscape:
i. No Infringement. Sponsor's Advertisements do not now, and will
not, violate any criminal laws or any rights of any third
parties, including, but not limited to, infringement or
misappropriation of any copyright, patent, trademark, trade
secret, music, image, or other proprietary or property right,
false advertising, unfair competition, defamation, invasion of
privacy or rights of celebrity, violation of any
antidiscrimination law or regulation, or any other right of any
person or entity.
ii. No Objectionable Content. Sponsor's Advertisements do not now,
and will not, include any material that is: unlawful, harmful,
fraudulent, threatening, abusive, harassing, defamatory, vulgar,
obscene, profane, hateful, racially, ethnically or otherwise
objectionable, including, without limitation, any material that
encourages conduct that would constitute a criminal offense,
give rise to civil liability, or otherwise violate any
applicable local, state, national or international law.
5
Form of Sponsorship Agreement [080296/esw]
CONFIDENTIAL [STANDARD]
<PAGE> 17
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
(b) Termination. In the event of a breach by Sponsor of any of its
obligations hereunder, Netscape may terminate this Agreement immediately upon
written notice to Sponsor. Either party may terminate this Agreement for
convenience, with or without cause, upon thirty (30) days written notice to the
other party.
(c) Effect of Termination.
i. Payment Obligations. If this Agreement is terminated by Sponsor, or
is terminated by Netscape because of a breach by Sponsor, Sponsor
shall remain liable for the value of the payments which are due or,
but for the breach, would otherwise become due and payable under
the terms of this Agreement.
ii. Survival. The following provisions will survive the expiration or
termination of this Agreement for any reason: Section 1
(Definitions), Section 2(c) (No Warranty), Section 4(b)
(Indemnification), Section 6 (Confidentiality), Section 7
(Limitation on Damages), Section 8(c) (Effect of Termination), and
Section 9 (General).
iii. Return of Materials. Upon expiration or termination of this
Agreement for any reason, Sponsor will promptly and at the
direction of Netscape either destroy, or return to Netscape, and
will not take or use, all items of any nature that belong to
Netscape or its Sponsors or other customers and all records (in any
form, format, or medium) containing or relating to Confidential
Information.
9. GENERAL.
(a) Assignment. Sponsor may not assign this Agreement in whole or in
part, by operation of law or otherwise, without Netscape's written consent,
and any attempted assignment of this Agreement without such consent will be null
and void.
(b) Governing Law. The validity, construction and performance of this
Agreement, and the legal relations between the parties to this Agreement, will
be governed by and construed in accordance with the laws of the State of
California, excluding that body of law applicable to conflicts of law. The
Superior Court of Santa Clara County and/or the United States District Court
for the Northern District of California shall have exclusive jurisdiction and
venue over all controversies in connection herewith, and each party hereby
consents to such exclusive and personal jurisdiction.
(c) Force Majeure. Except for the obligation to pay money, neither party
will be liable to the other party for any failure or delay in performance
caused by reasons beyond such party's reasonable control, and such failure or
delay will not constitute a breach of this Agreement.
(d) Notices. Any notices under this Agreement will be sent by confirmed
facsimile, nationally-recognized express delivery service, or certified or
registered mail, return receipt requested, to the address specified below or
such other address as the party specifies in writing. Notice by confirmed
facsimile or express delivery service will be deemed received and effective
upon delivery. Notice by certified or registered mail will be deemed received
and effective five (5) days after dispatch.
(e) Waiver. The waiver of any breach or default of this Agreement will
not constitute a waiver of any subsequent breach or default, and will not act
to amend or negate the rights of the waiving party.
7
Form of Sponsorship Agreement [080296/esw]
CONFIDENTIAL [STANDARD]
<PAGE> 18
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
(f) Severability. If one or more of the provisions contained in this
Agreement is determined to be invalid, illegal or unenforceable in any respect
under any applicable statute or rule of law, then such provision will be
considered inoperable to the extent of such invalidity, illegality or
unenforceability, and the remainder of this Agreement will continue in full
force and effect. The parties hereto agree to replace any such invalid, illegal
or unenforceable provision with a new provision that has the most nearly
similar permissible economic and legal effect.
(g) Entire Agreement. This Agreement, including the Rate Card and
Advertising Program, is the complete and exclusive agreement between the
parties with respect to the subject matter hereof, superseding and replacing
any and all prior agreements, communications, and understandings (both written
and verbal) regarding such subject matter. This Agreement may only be
modified, or any rights under it waived, by a written document executed by
both parties.
10. AUTHORIZED SIGNATURES.
In order to bind the parties to this Agreement, their duly authorized
representatives have executed the Cover Sheet to this Agreement.
8
Form of Sponsorship Agreement [080296/esw]
CONFIDENTIAL [STANDARD]
<PAGE> 1
EXHIBIT 10.11
AMENDMENT TO THE
1997 STOCK OPTION PLAN OF
ON'VILLAGE COMMUNICATIONS, INC.
The 1997 Stock Option Plan of On'Village Communications, Inc.
(the "1997 Stock Option Plan") is hereby amended as follows:
1. Section 3.1 of the Plan is hereby amended to read in its
entirety as follows:
3. STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS
3.1 Common Stock. Subject to
adjustment as provided in section 9 hereof, the
stock to be offered and issued under the Plan
shall be shares of common stock, which may be
either authorized and unissued stock or
treasury shares. The cumulative aggregate
number of shares of common stock to be offered
and issued under the Plan shall not exceed
300,000. No eligible person shall be granted
Options during any twelve-month period covering
more than 300,000 shares.
2. Section 4.1 of the Plan is hereby amended to read in its
entirety as follows:
4. ADMINISTRATION
4.1 Administration. The Plan shall be
administered by the Board or by a committee
(the "Committee") to which administration of
the Plan, or of part of the Plan, is delegated
by the Board. The Board shall appoint and
remove members of the Committee in its
discretion in accordance with Applicable Laws.
If necessary in order to comply with Rule 16b-
3 under the Exchange Act and Section 162(m) of
the Code, the Committee shall, in the Board's
discretion, be comprised solely of
"non-employee directors" within the meaning of
said Rule 16b-3 and "outside directors" within
the meaning of Section 162(m) of the Code. The
foregoing notwithstanding, the Administrator
may delegate nondiscretionary administrative
duties to such employees of the Company as it
deems proper and the Board, in its absolute
discretion, may at any time and from time to
time exercise any and all rights and duties of
the Administrator under the Plan.
<PAGE> 1
EXHIBIT 10.12
AMENDED AGREEMENT
THIS AGREEMENT is made as of this 21st day of March, 1997, by
and between ON'VILLAGE COMMUNICATIONS, INC., a California corporation (formerly
named E. VENTURES, INC.), having its principal place of business at 848 North
La Cienega Boulevard, Suite 206, Los Angeles, California 90069 (hereinafter
"On'Village"), and NETWORK PUBLISHING, INC., a Utah corporation, having its
principal place of business at One East Center Street, Provo, Utah 84601
(hereinafter "NPI").
WHEREAS, On'Village (as assignee of its organizers) and NPI
entered into a letter of agreement dated as of October 24,
1995 (hereinafter "Letter Agreement"); and
WHEREAS, On'Village and NPI desire to restructure their
relationship and to amend the Letter Agreement as hereinafter
provided;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereby agree as follows:
1. Effect of Letter Agreement. The Letter Agreement is superseded by
this Agreement, and shall be of no further force or effect. From and after the
date of this Agreement, the rights and obligations of the parties to each other
shall be as set forth in this Agreement, without regard to the Letter
Agreement.
2. Employment of Kent Hinkson.
(a) The parties acknowledge that Kent Hinkson has prior to the
date of this Agreement been employed solely by NPI and, in such capacity, has
been primarily responsible for development of the "Software" (as hereinafter
defined). The parties further acknowledge that NPI has unpaid contingent
compensation obligations to Kent Hinkson based in part upon the future revenue
which would have been earned by NPI and payable by On'Village pursuant to the
Letter Agreement.
(b) The parties agree that, from and after the date of this
Agreement, Kent Hinkson shall be employed solely by On'Village, pursuant to the
terms of a separate agreement between On'Village and NPI to be executed
concurrently herewith. The parties further agree that On'Village is assuming
certain compensation obligations of NPI to Kent Hinkson, provided, however,
that the
-1-
<PAGE> 2
compensation payable to Kent Hinkson shall be only as set forth in the new
agreement between On'Village and Kent Hinkson and such assumption by On'Village
is strictly limited to the amounts provided for therein. NPI may as necessary
enter into its own agreement(s) with Kent Hinkson consistent with the terms of
this Agreement.
3. Software.
(a) Pursuant to the Letter Agreement, NPI has developed certain
software used by On'Village in its search engine and otherwise in connection
with its Internet site, including software which has been completed and is in
present use and software which is incomplete and/or under continuing
development, all of which is herein referred to as the "Software". Upon
execution of this Agreement, all right, title, copyright and interest in the
Software is assigned and transferred to On'Village, for its exclusive use
hereafter.
(b) From and after the date of this Agreement, On'Village shall
undertake sole responsibility for development of all software required in
connection with its Internet site and the operation and maintenance thereof;
provided, however, the parties acknowledge and agree that NPI may from time to
time assist in the development of such software incidental to providing the
services to On'Village as provided in this Agreement or a separate Service
Agreement, and NPI acknowledges and agrees that any such assistance and any
software or enhancements which may arise out of such assistance shall
immediately become and remain the sole property of On'Village.
4. Equipment.
(a) NPI has purchased server hardware, which is presently in use
at NPI's facility for the On'Village website, which equipment is described in
Schedule "A" attached to this Agreement (the "NPI Hardware").
(b) Pursuant to a separate Service Agreement of even date
herewith, NPI shall continue to make the NPI Hardware available for use by
On'Village. In the event of the termination of the Service Agreement,
On'Village shall have the option, exercisable at its option by written notice
to NPI given not later than sixty (60) days after the effective date of such
termination, to purchase from NPI the NPI Hardware. The purchase price shall
be equal to the fair market value of the NPI Hardware as of the termination
date, and shall be paid by On'Village to NPI in full on the purchase date.
(c) On'Village has also purchased certain hardware equipment which
has been attached to or otherwise is used in conjunction with the NPI Hardware,
which equipment is described in Schedule "B" to this Agreement (the "OV
- 2 -
<PAGE> 3
Hardware"). In lieu of any and all royalty payments accrued in conjunction with
Letter Agreement, NPI will take possession of the OV Hardware.
(d) Pursuant to a separate Service Agreement of even date
herewith, NPI shall continue to make the OV Hardware available for use by
On'Village. In the event of the termination of the Service Agreement,
On'Village shall have the option, exercisable at its option by written notice
to NPI given not later than sixty (60) days after the effective date of such
termination, to purchase from NPI the OV Hardware. The purchase price shall be
equal to the fair market value of the OV Hardware as of the termination date,
and shall be paid by On'Village to NPI in full on the purchase date.
(e) The parties acknowledge that additional computer hardware
equipment is now required to properly operate and maintain the site, and that
additional equipment may be required from to time hereafter (the "New OV
Equipment"). It is understood and agreed that On'Village shall be responsible
at its sole cost and expense to acquire and to provide all such additional
equipment as may be required in its discretion, and that NPI shall have no
obligation to provide such additional equipment after the date of this
Agreement. Any and all New OV Equipment shall be and remain the property of
On'Village (or any lessors of such equipment for the benefit of such lessors
and On'Village as provided in agreements between them), and NPI shall have no
interest therein. NPI agrees to execute such documents from time to time as
may be reasonably required to evidence On'Village's ownership and/or the
interests of On'Village's lessors or lenders related to the New OV Equipment,
and On'Village may place such markings on such equipment as it deems necessary
to evidence such interests.
(f) Pursuant to the Service Agreement of even date herewith NPI
agrees to setup and install the New OV Equipment at no charge.
6. Compensation to NPI. As compensation for its services to date
and for ongoing technological consultation, On'Village shall pay to
NPI one percent (1%) of On'Village's net advertising revenues derived
in the operation of the On'Village website. For purposes hereof, "net
advertising revenues" shall be determined in accordance with generally
accepted accounting principles as applied to On'Village by its
independent certified public accountants in preparing financial
statements for On'Village from time to time. Such compensation shall
be computed and paid quarterly by the 25th day of the month
immediately following each calendar quarter. "Net advertising
revenues" is defined as gross advertising revenues from the ON VILLAGE
Internet Yellow Pages project revenue sources less discounts and bad
debts, and includes revenue specifically for ON VILLAGE Internet
Yellow Pages project including revenues from Quickstart Ads (Basic
template "page behinds") and corresponding add on
- 3 -
<PAGE> 4
products, display ads, banner ads, text links, positioning of links
and, any products that ON VILLAGE adds in the future which are
specific to the ON VILLAGE Internet Yellow Pages. Excluded from "net
advertising revenues" are new revenue centers which ON VILLAGE
develops that are not specific to the ON VILLAGE Internet Yellow Pages
project. ON Village shall account to NPI quarterly for its "net
advertising revenue." NPI may upon 30 days written notice review the
books and records, for the purpose of verifying "net advertising
revenue" at NPI's expense.
7. Use of Compuserve Name. NPI has advised On'Village that it is
probable that it will terminate its affiliation with Compuserve in the near
future. In the event such affiliation is terminated, within sixty (60) days
after written notice of such termination given by NPI to On'Village, On'Village
agrees to cease any further use of the Compuserve name or or in connection with
its website and the conduct of On'Village's business related thereto.
8. General Provisions.
(a) Successors. This Agreement shall be binding upon and shall
inure to the benefit of the parties respective successors and assigns.
(b) Assignment. Neither party shall assign this Agreement
without the prior written consent of the other party, except that On'Village
may assign this Agreement in connection with the sale of all or substantially
all of its assets related to the website, subject to the assignee's agreement
to assume the obligations to NPI hereunder.
(c) Governing Law. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of California.
(d) Notices. All notices, approvals, consents, requests, demands
or other communication to be given to either party shall be in writing, by
certified mail, return receipt requested, or by other means where receipt is
acknowledged, and shall be effective on the date of receipt thereof. If
undeliverable, or if receipt is not acknowledged, such communication shall be
effective on the date mailed or sent. Such communication shall be addressed to
On'Village and NPI at their respective addresses set forth in the preamble
above, or at any other address that each party shall provide to the other in
writing.
(e) Waiver or Modification. No waiver or modification of any of
the terms or provisions of this Agreement shall be valid unless contained in a
single written document signed by both parties. No course of conduct or
dealing between the parties shall act as a waiver of any provision of this
Agreement.
- 4 -
<PAGE> 5
(f) Integration. This Agreement contains the entire
understanding of the parties, and there are no representations, warranties,
promises or undertakings other than those contained herein. This Agreement
supersedes and cancels all previous agreements between the parties hereto.
(g) Attorneys Fees. In the event any legal action becomes
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled, in addition to its court costs or arbitration fees, to
such reasonable attorneys' fees as shall be fixed by a court of competent
jurisdiction or by an arbitrator(s).
(h) The parties represent and warrant that they have made no
agreements that are inconsistent with this Agreement or that would prevent them
from entering into this Agreement. The parties further represent and warrant
that entering into this Agreement does not violate any agreements, rights or
obligations existing between them and any other entity.
IN WITNESS WHEREOF, the parties have executed this Agreement
by and through their respective duly authorized officers, as of the date first
above written.
ON'VILLAGE COMMUNICATIONS, INC.
By /s/ JACK TRACHT
-------------------------------------
Typed Name: Jack Tracht
Title: CEO
NETWORK PUBLISHING, INC.
By /s/ RICHARD MAW
------------------------------------
Typed Name: Richard Maw
Title: President
- 5 -
<PAGE> 1
EXHIBIT 10.13
NETWORK PUBLISHING, INC.
- --------------------------------------------------------------------------------
SERVICE AGREEMENT
Agreement entered into this 21st day of March, 1997, by and between
NETWORK PUBLISHING, INC., hereinafter "NPI," and ON'VILLAGE COMMUNICATIONS,
INC., hereinafter "COMPANY."
RECITALS
WHEREAS, NPI is in the business of consulting, development, design,
converting, linking and managing (hosting) information electronically published
on the electronic medium known as the Internet, together with other related and
unrelated worldwide and regional electronic informative networks; and,
WHEREAS, COMPANY desires to publish certain information described on
that electronic medium known as the Internet, together with other related and
unrelated worldwide and regional networks, and to receive related consulting
and hosting services.
WHEREAS, NPI is willing to provide COMPANY the services described in
Exhibit "A," pursuant to the following terms and conditions:
NOW THEREFORE, in consideration of these premises and those other
terms and conditions set forth hereinafter, the parties hereto agree as
follows:
1. SERVICE. NPI shall provide COMPANY the services, equipment,
time and management as specifically described on Exhibit "A," as that exhibit
may be amended and supplemented from time to time in writing, signed by both
parties, which Exhibit, together with all amendments and supplements thereto,
is and shall be attached to this agreement, and made a part hereof.
2. PAYMENT. For NPI's services provided as described above,
COMPANY shall pay NPI the amounts set forth on the terms provided in Exhibit
"A" as it may be amended and supplemented from time to time. Amounts owed
hereunder as set forth in Exhibit "A," as it may be amended or supplemented
from time to time, shall be paid within fifteen days from the date of each
monthly invoice generated and furnished COMPANY, by NPI, which invoices shall
be generated for work performed in the preceding calendar month period ending
on the last day of each calendar month. All amounts not paid within thirty
(30) calendar days of the date of the respective invoice shall accrue interest
at the rate of 18 percent per annum. All amounts not paid as provided herein
may constitute cause for termination of this contract, and entitle NPI to
disconnect COMPANY's electronic publication from the Internet, or other related
or unrelated worldwide or regional network.
3. REPORTING. NPI shall capture all accesses to COMPANY's
electronic publication and provide COMPANY with an accounting of all accesses
together with all data received as a consequence of such accesses. Such
accounting shall be provided to COMPANY at least daily.
- --------------------------------------------------------------------------------
Confidential Page 1
<PAGE> 2
Network Publishing, Inc. Service Agreement April 7, 1997
- --------------------------------------------------------------------------------
4. TERM. This Agreement shall be for the term of one (1) year
from the date of execution of this Agreement, provided the term hereof will
automatically renew for a subsequent one (1) year period for a total of up to
five years; unless and until terminated as provided in paragraph 5 below.
5. TERMINATION. The COMPANY may terminate this Agreement at any
time without cause upon thirty (30) days' written notice to NPI , provided any
amounts paid in advance by COMPANY and not incurred in the performance by NPI
shall be refunded at the effective date of such termination as more
specifically set forth in Exhibit "A" as amended and supplemented from time to
time. NPI may terminate this Agreement at any time without cause, upon One
Hundred Twenty (120) days written notice. NPI may terminate this Agreement at
any time with cause, upon Thirty (30) days written notice. "Cause," as used
above, shall be defined for the purposes of this Agreement as any failure by
COMPANY to pay amounts provided under Exhibit "A" as amended and supplemented
from time to time, and paragraph 2, or as otherwise invoiced hereafter, when
due, and/or the breach of any provision of this Agreement, together with the
exhibits, amendments and supplements hereto which breach is not cured within
Thirty (30) days after the Company receives written notice of breach from NPI.
The termination of this Agreement with cause by NPI shall not terminate the
obligation of COMPANY to pay for services rendered by NPI as of the date of
such termination. The parties acknowledge and agree that the termination of
services provided by NPI without such 30-day prior notice to the COMPANY would
cause irreparable damage to the COMPANY, and that termination of service,
except in the manner provided herein, is not an acceptable remedy for any
breach or alleged breach by the COMPANY.
6. WARRANTIES. COMPANY warrants that all information provided by
it to be electronically published or otherwise handled by NPI in the selected
electronic medium shall be original, and free from material which may encroach
or infringe on another's protected information, photographs, video and audio
works or be defamatory or scandalous. COMPANY shall indemnify and hold
harmless NPI from all claims of third persons arising as a result of NPI's
performance under this Agreement, including by way of example and not
limitation, third-party claims of copyright, trademark or patent infringement,
plagiary, false or misleading information, defamatory or scandalous
information, or any other claim arising from the electronic publication in the
selected medium.
7. NPI WARRANTIES. NPI warrants that it will work diligently and
perform with reasonable caution to provide services to reasonably ensure that
the COMPANY's web site is available to users at all times and be accessible to
the selected medium to the extent such medium is operable or controllable by
NPI. NPI shall not be liable for downtime, stoppages, deletions, or
freeze-outs resulting from elements beyond the control of NPI, acts of god,
acts of war, or force majeure. NPI makes no warranties as to the
protectibility of the electronically published information, the availability in
the selected medium of the use and publication of such information, that such
information is not defamatory, scandalous, proprietary, or free from
duplication on the medium or the absence of other similar information on the
selected medium.
8. OWNERSHIP/USE OF MATERIALS/SOFTWARE/PROGRAMMING. Any and all
content, visuals, logos, or other ideas for COMPANYS' Internet site contributed
by NPI or by the COMPANY shall be and remain in possession of and be treated as
the sole and exclusive property of the COMPANY.
- --------------------------------------------------------------------------------
Confidential Page 2
<PAGE> 3
Network Publishing, Inc. Service Agreement April 7, 1997
- --------------------------------------------------------------------------------
9. INTEGRATION. This Agreement together with the "Amended
Agreement" of even date herewith and all exhibits, amendments and supplements,
represents the complete and entire agreement between the parties hereto. This
Agreement and the "Amended Agreement" of even date herewith either embodies or
supersedes all prior, contemporaneous or subsequent oral agreements,
representations, understandings, and all written notations, memoranda, or
correspondence of any party hereto, their agents, employees or other related
persons, related to the work contemplated in this Agreement.
10. CONSTRUCTION AND JURISDICTION. This Agreement shall be
construed and enforced pursuant to the laws of the State of Utah, U.S.A. By
affixing their signatures to this Agreement, the parties hereby submit
themselves to the Third District Court, Salt Lake County, State of Utah, or the
Federal District Court, Central Division, State of Utah, for the judicial
resolution of any disputes arising under the terms, interpretation or
performance of this Agreement.
11. ATTORNEY'S FEES. In the event either party is required to
retain counsel to enforce the provisions of this Agreement or to bring legal
action to enforce the provisions of this Agreement or remedy any breaches of
this Agreement, the prevailing party in such action shall be entitled to its
costs and attorney's fees incurred in such action or procedure, whether or not
an action is ultimately filed in a court of proper agreed jurisdiction.
12. NON-DISCLOSURE. NPI acknowledges that all information,
software, reports, pricing, image and other related materials provided to NPI
are confidential and shall not be disclosed or revealed to any third party. If
the program is terminated by either party and NPI has been paid for all
services provided for in this Agreement, NPI will return all confidential
information to Company.
WHEREFORE, the parties have affixed their signatures to this Agreement
the date first above stated.
ON'VILLAGE COMMUNICATIONS, INC. NETWORK PUBLISHING, INC.
By:____________________________________ By:__________________________________
Name:__________________________________ Name:________________________________
Title:_________________________________ Title:_______________________________
Date:__________________________________ Date:________________________________
- --------------------------------------------------------------------------------
Confidential Page 3
<PAGE> 4
Network Publishing, Inc. Service Agreement April 7, 1997
- --------------------------------------------------------------------------------
EXHIBIT A
Project Scope of Work
- --------------------------------------------------------------------------------
Project name: On'Village Hosting
Primary contact: Jack Tracht
"Start date": May 1, 1997 or Sooner (based on arrival at NPI of The
"New OV Equipment")
- --------------------------------------------------------------------------------
PROJECT OVERVIEW
Network Publishing Inc. shall provide to On'Village hosting and maintenance
services for its Internet website.
I. "The Installation"-NPI will be responsible for the setup and installation
of The "New OV Equipment" to be provided by On'Village (as defined in the
"Amended Agreement") The setup and installation will make ready the COMPANY's
website for Hosting and Internet Access Usage by NPI as defined below.
Pursuant to the"Amended Agreement" between the COMPANY AND NPI dated of even
date herewith, NPI will not charge the COMPANY for these services.
II. "Previous to "the Installation-" "the NPI Hardware"and the "OV Hardware" as
separately defined in the "Amended Agreement" shall continue to be used by
On'Village.
III. Deposit- On the "Start date"of this Agreement, On'Village will make
payment to NPI in the form of a security deposit of $2000 which will be
applied to the services performed in the last month of the Service Agreement.
BASIC SERVICES
HOSTING AND INTERNET ACCESS USAGE
Hosting and Maintenance
1. On'Village servers will be hosted in Network Publishing's server
room which is locked and protected by an electronic alarm system.
2. Access to On'Village's servers will be made available to Kent
Hinkson or other mutually approved On'Village representative
during business hours (7:00am to 6:00pm) with a Network
Publishing employee.
3. On'Village servers will be monitored 24 hours per day and rebooted
when necessary.
4. On'Village HTTP servers will be backed up daily. Database servers
will also be backed up daily, in an online ("hot") mode. Each
Friday's backups will be removed to an off site location as a
recovery insurance against catastrophe at the computer site.
5. On'Village servers will have remote access by authorized
On'Village programmers and administrators.
6. NPI will provide up to 10 hours monthly of updates and/or
enhancements to On'Village Website including server software
updates, hardware maintenance, programming and database
- --------------------------------------------------------------------------------
Confidential Page 4
<PAGE> 5
Network Publishing, Inc. Service Agreement April 7, 1997
- --------------------------------------------------------------------------------
analysis.
B. Internet Access Usage
1. On'Village servers will be connected to Internet through Network
Publishing's network which consists of redundant T1 connections.
BASIC MONTHLY SERVICE CHARGES
A. Hosting and Maintenance-$1000.00 per month
B. Internet Access Usage-$1000.00 per month minimum. The minimum
rate includes up to 30,000 "Megabytes Transmitted" per month.
Once the "Megabytes transmitted" exceeds the 30,000 minimum,
On'Village will be billed for additional usage at the rate of
$4.00 per 100 "Megabytes transmitted" for all additional monthly
usage.
CHARGES FOR ADDITIONAL SERVICES
Additional Updates/Enhancements for services requested by On'Village
over and above the 10 hours monthly as provided for in the "Basic
Services" will be billed at the following rates:
1. Server software updates and hardware maintenance to be billed at
$125.00 per hour.
2. HTML markup services billed at $75.00 per hour.
3. Customer programming and database analysis billed at $125.00
per hour
SIGNATURES
On'Village Communications, Inc. Network Publishing, Inc.
By:________________________________ By:______________________________
Title:_____________________________ Title:___________________________
Date:______________________________ Date:____________________________
- --------------------------------------------------------------------------------
Confidential Page 5
<PAGE> 6
Schedule "A"
The "NPI Hardware"
The "NPI Hardware" includes all hardware which is presently in use at NPI's
facility for the On'Village website including, but not limited to the Compaq
Server known as "Willey" and it's integrated components.
ON'VILLAGE COMMUNICATIONS, INC.
By ____________________________________
Typed Name: Jack Tracht
Title: CEO
NETWORK PUBLISHING, INC.
By ____________________________________
Typed Name: Richard Maw
Title: President
<PAGE> 7
Schedule "B"
The "OVHardware"
The "OV Hardware" includes all hardware which is presently in use (and used in
conjunction with the "NPI Hardware") at NPI's facility for the On'Village
website which was purchased by On'Village for the amount of Ten thousand twenty
four dollars ($10,024.00) on or about 5-17-96 by On'Village.
ON'VILLAGE COMMUNICATIONS, INC.
By ____________________________________
Typed Name: Jack Tracht
Title: CEO
NETWORK PUBLISHING, INC.
By ____________________________________
Typed Name: Richard Maw
Title: President
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of April 9,
1997 by and between ON'VILLAGE COMMUNICATIONS, INC., a California corporation
(the "Company"), and KENT HINKSON (the "Employee"), with reference to the
following facts:
A. Employee has previously been employed by Network Publishing,
Inc. ("NPI") and in such capacity has performed services for the
Company pursuant to arrangements between the Company and NPI.
B. Effective as of the date of this Agreement and pursuant to
an understanding among the Company, NPI and Employee, Employee
has terminated his employment with NPI and is entering into
employment by the Company pursuant to the terms and conditions
of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
1. Term. The Company hereby employs Employee, and Employee hereby
accepts employment, on the terms and conditions of this Agreement. The term of
Employee's employment shall commence on the date of this Agreement, and shall
continue until terminated as provided in this Agreement.
2. Duties and Place of Employment.
(a) Duties. Employee agrees to serve the Company in the
position of Director of Technology. Employee's duties shall include those of
similar employees for a company similar to the Company and such other
reasonable duties as are specified by the officers or Board of Directors of the
Company from time to time. During the term of this Agreement, Employee will
devote substantially full time to, and use his best efforts to advance the
business and welfare of the Company.
(b) Place of Employment. Employee shall perform his
services hereunder at Orem, Utah, other suitable locations or at NPI or Provo,
Utah, provided Employee shall be available from time to time for short-term
visits to the Company's headquarters in California or such other place as it
may be located during the term of this Agreement. Employee will be available
upon reasonable request to travel for Company business when requested.
1. Salary and Benefits.
(a) Salary. For the first 12 months of this Agreement,
Company shall pay Employee a salary at the annual rate of $70,000.00 per year,
payable biweekly and subject to payroll deductions as may be necessary or
customary in respect of the Company's salaried employees in general. For each
successive 12-month period of this
- 1 -
<PAGE> 2
Agreement, Employee's salary shall be increased as deemed appropriate by the
Board of Directors of the Company, but in no event shall such increases be less
than increases in the cost of living for such period, as reasonably determined
by the Board of Directors.
(b) Vacations. Employees shall be entitled to 3 weeks paid
vacation during each 12-months of the term of this Agreement. Any unused
pro-rata portion of his annual paid vacation shall be paid to Employee upon
termination of his employment for any reason. Employee shall not be entitled to
any carryover of unused vacation from year to year.
(c) Annual Bonus, Incentive, Savings and Retirement Plans.
Employee shall be entitled to bonuses after the 13th month of employment as
deemed appropriate by the Board of Directors in its discretion. Employee shall
also be entitled to participate in all annual incentive plans, practices,
policies and programs applicable generally to other Director Level employees of
the Company.
(d) Welfare Benefit Plans. Employee shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company to the extent
applicable generally to other Director Level employees of the Company.
(e) Stock Option Grants. Employee shall be entitled to Stock
Option Grants as outlined in a separate Stock Option Grant Agreement.
(f) Expenses. Employee shall be entitled to receive prompt
reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures as in effect generally
with respect to other Director Level employees of the Company.
(g) Fringe Benefits. Employee shall be entitled to fringe
benefits in accordance with the plans, practices, programs and policies as in
effect generally with respect to other Director Level employees of the Company.
(h) Incentive Compensation. During the term of this
Agreement, and in certain events for the specified period after termination as
specifically provided elsewhere in this Agreement, Employee shall be paid
additional compensation (herein the "Incentive Compensation"), equal to one
percent (1%) of the Company's "Net Revenues" (as hereinafter defined). The
Incentive Compensation shall be calculated for each calendar quarter (or portion
thereof), and shall be paid to Employee within thirty (30) days after the end of
each calendar quarter. For purposes hereof, "Net Revenues" shall be determined
in accordance with generally accepted accounting principles as applied to the
Company by its independent certified public accountants in preparing financial
statements for the Company from time to time. "Net Revenues" is defined as gross
revenues from the Company sales less discounts and bad debts, and excludes other
income such as interest earned or any other extraordinary income.
4. Death or Disability of Employee. If employee dies or becomes
disabled prior to the expiration of this Agreement, Employee's employment under
this Agreement shall
-2-
<PAGE> 3
automatically terminate upon death or disability, as the case may be.
"Disability" shall mean any physical or mental illness that renders the
Employee unable to perform his agreed-upon services under this Agreement for
120 consecutive days or an aggregate of 180 days, whether or not consecutive,
during any consecutive 12-month period. In the event of Employee's death or
disability, the amounts due him pursuant to this Agreement through the date of
his death or disability, as the case may be, shall be paid to him, in the case
of his disability, or, in the case of his death, to whomever he has previously
designated or, in the event no such designation is made, to his estate, or to
the beneficiaries of his estate.
5. Termination for Cause. By majority vote of the Board and with
ten days' prior written notice, Employee's employment under this Agreement may
be terminated by Company for "good cause." The term "good cause" is defined as
any one or more of the following occurrences:
(a) Employee's continuing repeated willful failure or
refusal to perform his duties as required by this Agreement or other material
breach of this Agreement, provided, that termination of Employee's employment
pursuant to this subparagraph (a) shall not constitute valid termination for
cause unless Employee shall have first received written notice from the Board
of Directors of Company stating with specificity the nature of such failure or
refusal and affording Employee at least 30 days to correct the act or omission
complained of;
(b) Gross negligence, material violation by Employee of any
duty of loyalty to Company or any other material misconduct on the part of
Employee, provided that termination of Employee's employment pursuant to this
subparagraph (b) shall not constitute valid termination for cause unless
Employee shall have first received written notice from the Board of Directors
of Company stating with specificity the nature of such failure or refusal and
affording Employee at least 30 days to fully correct the act or omission
complained of and to indemnify the Company for any damage caused to it by such
act or omission.
(c) Employee's conviction by, or entry of a plea of guilty
or nolo contendere in, a court of competent and final jurisdiction for any
crime involving moral turpitude or punishable by imprisonment in the
jurisdiction involved; or
(d) Employee's commission of an act of fraud, whether prior
to or subsequent to the date hereof, upon the Company.
In the event of termination for "good cause," Employee's salary
hereunder, the Incentive Compensation, and unexercised stock options shall
terminate as of the last day of the month in which proper notice of his
termination was given to Employee.
6. Other Termination.
(a) Termination by Company. The Company may terminate this
Agreement at any time without cause by giving Employee notice of termination not
less than 30 days prior to the effective date of termination. In the event of
termination by the
- 3 -
<PAGE> 4
Company without cause, Employee shall be paid his salary and shall receive any
benefits to which he is otherwise entitled hereunder through the date of
termination, and shall continue to receive the incentive Compensation for a
period of three (3) years from the date of termination.
(b) Termination by Employee. Employee may terminate this
Agreement at any time without cause by giving Company
notice of termination not less than 120 days prior to
the date of termination (except in case of death or
serious disability). In the event of termination by
Employee, Employee shall be paid his salary and shall
receive any benefits to which he is otherwise entitled
hereunder through the date of termination, and shall
continue to receive the incentive Compensation: (i) for
a period of one year following the date of termination
if the termination occurs during the first one-year term
of this Agreement, (ii) for a period of two years
following the date of termination if termination occurs
during the second one-year term of this Agreement, and
(iii) for a period of three years following the date of
termination if termination occurs at any time after the
second anniversary of the term of this Agreement.
(c) Post-Employment Consultation. Upon Termination by
Employee, Employee shall be available to the Company,
upon reasonable notice, not to exceed 20 hours per month
for consultation regarding the Company's technological
activities. The compensation shall be $100 per hour. The
post-employment consultation period will end
simultaneously with the end of the Incentive
Compensation.
7. Confidential Information. Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Employee
during his employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Employee or his representatives in violation of this Agreement). After
termination of the Employee's employment with the Company, he shall not,
without the prior written consent of the Company, or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it
in writing. Employee acknowledges that such actions could cause irreparable
harm to the Company and that the Company may obtain an injunction or other
equitable relief to enforce this provision. Furthermore, upon termination of
this Agreement, Employee will promptly deliver to the Company all books,
memoranda, records and written data in original form of every kind relating to
the business and affairs of the Company that may then be in his personal
possession.
8. Non-Compete. Employee hereby agrees that for a period commencing on
the date hereof and ending one year following the termination or expiration of
Employee's employment with the Company (the "Restricted Period"), except on
behalf of the Company and its affiliates in accordance with this Agreement,
Employee shall not, directly or indirectly, as employee, agent, consultant,
stockholder, director, partner or in any other individual or representative
capacity, own, operate, manage, control, engage in, invest in
- 4 -
<PAGE> 5
or participate in any manner in, act as a consultant or advisor to, render
services for (alone or in association with any person, firm, corporation or
entity), or otherwise assist any person or entity that engages in or owns,
invests in, operates, manages or controls any venture or enterprise that
directly or indirectly competes with the business of the Company as then
conducted (the "Business") provided, however, that nothing contained herein
shall be construed to prevent Employee from investing in the stock of any
competing corporation listed on a national securities exchange or traded in the
over-the-counter market, but only if Employee is not involved in the business
of said corporation and if Employee and Employee's affiliates collectively do
not own more than an aggregate of 5% of the stock of such corporation. Nothing
in the foregoing is intended to preclude Employee from becoming involved in
Internet or on-line services or businesses that do not compete with the
business of the Company as then conducted.
9. Non-Solicitation. Without limiting the generality of the
provisions of Section 8 above, Employee hereby agrees that during the
Restricted Period, except on behalf of the Company and its affiliates in
accordance with this Agreement, Employee will not interfere with or disrupt or
attempt to disrupt the Company's business relationship with its customers or
suppliers or solicit any of the employees of the Company to leave the employment
of the Company.
10. Inventions. All processes, technologies and inventions relating
to the Business (collectively, "Inventions"), including new contributions,
improvement, ideas, discoveries, trademarks and trade names, conceived,
developed, invented, made or found by Employee, alone or with others, during
his employment by the Company, whether or not patentable and whether or not
conceived, developed, invented, made or found on the Company's time or with the
use of the Company's facilities or materials, shall be the property of the
Company and shall be promptly and fully disclosed by Employee to the Company.
Employee shall perform all necessary acts (including, without limitation,
executing and delivering any confirmatory assignments, documents or instruments
requested by the Company) to vest title to any such inventions in the Company
and to enable the Company, at its expense, to secure and maintain domestic
and/or foreign patents or any other rights for such inventions.
11. Arbitration of Disputes. Either party to this Agreement may
require the arbitration of any dispute arising under or in connection with any
matter related to this Agreement or any related agreement. Such party may
initiate or require the other party to submit to arbitration. If legal action
has already commenced, the party seeking arbitration must so notify the other
party in writing of such demand within twenty (20) days after the first service
of process on such party. The arbitration shall be in conformity with and
subject to the applicable rules and procedures of the American Arbitration
Association or, at the election of the demanding party, and other form of
"alternative dispute resolution" procedure generally recognized in the State of
California; e.g., a reference pursuant to California Code of Civil Procedure
("Code") Section 638 and/or reliance upon Section 1280 et. seq. of the Code.
Any arbitration shall incorporate Section 1283.05 of the Code with respect to
discovery matters. All parties agree to be (1) subject to the jurisdiction and
venue of the arbitration in the county in which the principal office of the
Company is located or any other county in the State of California that may be
mutually agreeable to the parties, (2) bound by the decision of the arbitrator
as the final decision with respect to the dispute
-5-
<PAGE> 6
and (3) subject to the jurisdiction of the Superior Court of the State of
California for the purpose of confirmation and enforcement of any award.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE FOREGOING ARBITRATION OF
DISPUTES PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW
AND YOU ARE GIVING UP ANY RIGHTS YOU MAY POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP
YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE
SPECIFICALLY INCLUDED IN THE ARBITRATION OF DISPUTES PROVISION. IF YOU REFUSE
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION YOU MAY BE COMPELLED
TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE.
YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. YOU HAVE READ AND
UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE
MATTERS INCLUDED IN THE ARBITRATION OF DISPUTES PROVISION TO NEUTRAL
ARBITRATION.
EMPLOYEE: THE COMPANY:
ON'VILLAGE COMMUNICATIONS, INC.
By KENT HINKSON By JACK TRACHT
- --------------------------- ---------------------------
Kent Hinkson Jack Tracht
Chief Executive Officer
12. Miscellaneous.
12.1 Modification and Waiver of Breach. No waiver or
modification of this Agreement shall be binding unless it is in writing signed
by the parties hereto. No waiver of a breach hereof shall be deemed to
constitute a waiver of a future breach, whether of a similar or dissimilar
nature.
12.2 Notices. All notices and other communications required
or permitted under this Agreement shall be in writing, served personally on, or
mailed by certified or registered United States mail to, the party to be
charged with receipt thereof. Notices and other communications served by mail
shall be deemed given hereunder 72 hours after deposit of such notice or
communication in the United States Post Office as certified or registered mail
with postage prepaid and duly addressed to whom such notice or communication is
to be given, in the case of (a) Company, 848 North La Cienega Boulevard, Suite
206, Los Angeles, California 90069, Attention: President, or (b) Employee, to
the address set forth below his name on the signature page hereof. Any such
party may change said party's address for purposes of this Section by giving to
the party
-6-
<PAGE> 7
intended to be bound thereby, in the manner provided herein, a written notice
of such change.
12.3 Counterparts. This instrument may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
12.4 Construction of Agreement. This Agreement shall be construed in
accordance with, and governed by, the internal laws of the State of California.
12.5 Legal Fees. If any legal action, arbitration or other proceeding
is brought for the enforcement of this Agreement, or because of any alleged
dispute, breach, default or misrepresentation in connection with this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs it incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
12.6 Savings Clause. If any provision of this Agreement or the
application thereof is held invalid, the invalidity shall not affect other
provisions or applications of the Agreement which can be given effect without
the invalid provisions or applications and to this end the provisions of this
Agreement are declared to be severable.
12.7 Complete Agreement. This instrument constitutes and contains the
entire agreement and understanding concerning the Employee's employment and the
other subject matters addressed herein between the parties, and supersedes and
replaces all prior negotiations and all agreements proposed or otherwise,
whether written or oral, concerning the subject matters hereof. This is an
integrated document.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above written.
EMPLOYEE: THE COMPANY:
ON'VILLAGE COMMUNICATIONS, INC.
/s/ KENT HINKSON By /s/ JACK TRACHT
- -------------------------------- -----------------------------
Kent Hinkson Jack Tracht
Chief Executive Officer
Address:
1095 South 890 East
- --------------------------------
Orem, Utah 84091
- --------------------------------
- 7 -
<PAGE> 1
EXHIBIT 10.15
STANDARD OFFICE LEASE
FOR
CALABASAS COMMERCE CENTER - BUILDING NO. 3
BY AND BETWEEN
ARDEN REALTY LIMITED PARTNERSHIP,
A MARYLAND LIMITED PARTNERSHIP,
AS LANDLORD,
AND
ON'VILLAGE COMMUNICATIONS, INC.
A CALIFORNIA CORPORATION,
AS TENANT
SUITE 100
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGES
<S> <C> <C>
ARTICLE 1 BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 RENTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Basic Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Increase in Direct Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Determination of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 4 SECURITY DEPOSIT/LETTER OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 5 HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 6 PERSONAL PROPERTY TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 7 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 8 CONDITION OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 9 REPAIRS AND ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 10 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 11 PROJECT SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 12 RIGHTS OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 13 INDEMNITY; EXEMPTION OF LANDLORD FROM LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Exemption of Landlord from Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 14 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Tenant's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Form of Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Landlord's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 15 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 16 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 17 SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 18 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 19 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 20 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 21 TRANSFER OF LANDLORD'S INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 22 BROKER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 23 PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
-i-
Initials: _____
_____
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 24 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 25 ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 26 LIABILITY OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 27 INABILITY TO PERFORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 28 HAZARDOUS WASTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 29 SURRENDER OF PREMISES; REMOVAL OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 30 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Severability; Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Attorneys' Fees; Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(d) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(e) Reserved Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(f) No Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(g) Use of Project Name; Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(h) Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(i) Quiet Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(j) Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(k) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(l) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(m) Persistent Delinquencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(n) Right of Landlord to Perform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(o) Access, Changes in Project, Facilities, Name . . . . . . . . . . . . . . . . . . . . . . . 25
(p) Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(q) Identification of Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(r) Exhibits and Addendum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 31 OPTION TO RENEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Option Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Option Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Exercise of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(d) Determination of Market Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 32 SIGNAGE/DIRECTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Addendum [ ] Yes X No
Exhibit "A" Premises
Exhibit "B" Rules and Regulations
Exhibit "C" Notice of Lease Term Dates and Tenant's Proportionate Share
Exhibit "D" Tenant Work Letter
Exhibit "E" Letter of Credit
Exhibit "F" Nondisturbance and Attornment Agreement (City of Calabasas)
</TABLE>
-ii-
Initials: _____
_____
<PAGE> 4
INDEX OF DEFINED TERMS
----------------------
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- ------------- ----
<S> <C>
Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Applicant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit E
Approved Working Drawings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Architect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Base Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Basic Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit E
Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Direct Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Estimate Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Estimated Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
First Month's Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Force Majeure Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Interest Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lease Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Letter of Credit Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Market Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Option Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Option Rent Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Option Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Original Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Outside Agreement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Outside Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Outside Date Termination Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Over-Allowance Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Parking Passes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Partnership Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Permitted Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Review Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Square Footage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Stated Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Tax Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Tenant's Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Tenant's Signage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Tenant Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Tenant Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Tenant's Proportionate Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Transfer Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Transferee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Working Drawings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
</TABLE>
-iii-
Initials: _____
_____
<PAGE> 5
STANDARD OFFICE LEASE
This Standard Office Lease ("LEASE") is made and entered into as of
this 7th day of April, 1997, by and between ARDEN REALTY LIMITED PARTNERSHIP, a
Maryland limited partnership ("LANDLORD"), and ON'VILLAGE COMMUNICATIONS, INC.,
a California corporation ("TENANT").
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the premises described as Suite No. 100, as designated on the plan
attached hereto and incorporated herein as Exhibit "A" ("PREMISES"), of the
project ("PROJECT") now known as Calabasas Commerce Center whose address is
26135 Mureau Road, Calabasas, CA 91302 (Building No. 3) for the Term and upon
the terms and conditions hereinafter set forth, and Landlord and Tenant hereby
agree as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
<TABLE>
<S> <C> <C>
A. TERM: Five (5) years.
COMMENCEMENT DATE: The earlier of (i) the date Tenant first commences to
conduct business in the Premises, or (ii) the date of
Substantial Completion of Tenant Improvements in the
Premises. Upon Tenant's occupancy of the Premises,
Landlord and Tenant agree to execute and deliver a
Commencement Letter in a form substantially similar to
that attached hereto as Exhibit "C". The anticipated
Commencement Date is June 1, 1997.
EXPIRATION DATE: The last day of the month which is sixty (60) months
after the month in which the Commencement Date falls,
unless extended or earlier terminated pursuant to this
Lease.
B. SQUARE FOOTAGE: Approximately 6,316 rentable square feet.
C. BASIC RENTAL:
</TABLE>
<TABLE>
<CAPTION>
Annual Monthly Monthly Basic Rental
Lease Year Basic Rental Basic Rental Per Rentable Square Foot
---------- ------------ ------------ ------------------------
<S> <C> <C> <C>
1 $106,108.80* $ 8,842.40* $1.75*
2-5 $132,636.00 $11,053.00 $1.75
</TABLE>
*Based on 5,052.8 rentable square feet, however, Landlord and Tenant
acknowledge that Tenant shall be entitled to utilize the entire
Premises throughout the Lease Term.
<TABLE>
<S> <C> <C>
D. BASE YEAR: 1997
E. TENANT'S PROPORTIONATE SHARE: 34.38%
F. SECURITY DEPOSIT / LETTER OF CREDIT: Upon Tenant's execution of this Lease, Tenant shall
deliver to Landlord a Letter of Credit in favor of
Landlord in the amount of $78,000.00 as security for
Tenant's Lease obligations, pursuant to Article 4 hereof.
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
G. PERMITTED USE: General office use
H. BROKERS: Grubb & Ellis and Julien J. Studley, Inc.
I. PARKING PASSES: Tenant shall have the use of three point seven (3.7)
unreserved parking passes for each 1,000 rentable square
feet contained in the Premises, which equals twenty-three
(23) passes, at the rate provided in Article 23 hereof.
J. FIRST MONTH'S RENT: The first full month's rent of $8,842.40 shall be due and
payable by Tenant to Landlord upon Tenant's execution of
this Lease.
</TABLE>
ARTICLE 2
TERM
The Term of this Lease shall commence on the Commencement Date as set
forth in Article 1.A. of the Basic Lease Provisions and shall end on the
Expiration Date set forth in Article 1.A. of the Basic Lease Provisions. For
purposes of this Lease, the term "LEASE YEAR" shall mean each consecutive
twelve (12) month period during the Lease Term, with the first Lease Year
commencing on the Commencement Date; however, (a) if the Commencement Date
falls on a day other than the first day of a calendar month, the first Lease
Year shall end on the last day of the eleventh (11th) month after the
Commencement Date and the second (2nd) and each succeeding Lease Year shall
commence on the first day of the next calendar month, and (b) the last Lease
Year shall end on the Expiration Date. If Landlord is unable to deliver
possession of the Premises to Tenant on or before the anticipated Commencement
Date, Landlord shall not be subject to any liability for its failure to do so,
and such failure shall not affect the validity of this Lease nor the
obligations of Tenant hereunder.
ARTICLE 3
RENTAL
(a) Basic Rental. Tenant agrees to pay to Landlord during the
Term hereof, at Landlord's office or to such other person or at such other
place as directed from time to time by written notice to Tenant from Landlord,
the initial monthly and annual sums as set forth in Article 1.C of the Basic
Lease Provisions, payable in advance on the first day of each calendar month,
without demand, setoff or deduction, and in the event this Lease commences or
the date of expiration of this Lease occurs other than on the first day or last
day of a calendar month, the rent for such month shall be prorated.
Notwithstanding the foregoing, the first full month's rent shall be paid to
Landlord in accordance with Article 1.J. of the Basic Lease Provisions.
(b) Increase in Direct Costs. The term "BASE YEAR" means the
calendar year set forth in Article 1.D. of the Basic Lease Provisions. If, in
any calendar year during the Term of this Lease, the "Direct Costs" (as
hereinafter defined) paid or incurred by Landlord shall be higher than the
Direct Costs for the Base Year, Tenant shall pay an additional sum for such and
each subsequent calendar year equal to the product of the amount set forth in
Article 1.E. of the Basic Lease Provisions multiplied by such increased amount
of "Direct Costs." In the event either the Premises and/or the Project is
expanded or reduced, then Tenant's Proportionate Share shall be appropriately
adjusted, and as to the calendar year in which such change occurs, Tenant's
Proportionate Share for such year shall be determined on the basis of the
number of days during that particular calendar year that such Tenant's
Proportionate Share was in effect. In the event this Lease shall terminate on
any date other than the last day of a calendar year, the additional sum payable
hereunder by Tenant during the calendar year in which this Lease terminates
shall be prorated on the basis of the relationship which the number of days
which have elapsed from the commencement of said calendar year to and including
said date on which this Lease terminates bears to three hundred sixty (360).
Any and all amounts due and payable by Tenant
-2-
Initials: _____
_____
<PAGE> 7
pursuant to Article 3(b),(c) and (d) hereof shall be deemed "ADDITIONAL RENT"
and Landlord shall be entitled to exercise the same rights and remedies upon
default in these payments as Landlord is entitled to exercise with respect to
defaults in monthly Basic Rental payments.
(c) Definitions. As used herein the term "DIRECT COSTS" shall
mean the sum of the following:
(i) "TAX COSTS", which shall mean any and all real estate
taxes and other similar charges on real property or improvements, assessments,
water and sewer charges, and all other charges assessed, reassessed or levied
upon the Project and appurtenances thereto and the parking or other facilities
thereof, or the real property thereunder (collectively the "REAL PROPERTY") or
attributable thereto or on the rents, issues, profits or income received or
derived therefrom which are assessed, reassessed or levied by the United
States, the State of California or any local government authority or agency or
any political subdivision thereof, and shall include Landlord's reasonable
legal fees, costs and disbursements incurred in connection with proceedings for
reduction of Tax Costs or any part thereof; provided, however, if at any time
after the date of this Lease the methods of taxation now prevailing shall be
altered so that in lieu of or as a supplement to or a substitute for the whole
or any part of any Tax Costs, there shall be assessed, reassessed or levied (a)
a tax, assessment, reassessment, levy, imposition or charge wholly or partially
as a net income, capital or franchise levy or otherwise on the rents, issues,
profits or income derived therefrom, or (b) a tax, assessment, reassessment,
levy (including but not limited to any municipal, state or federal levy),
imposition or charge measured by or based in whole or in part upon the Real
Property and imposed upon Landlord, or (c) a license fee measured by the rent
payable under this Lease, then all such taxes, assessments, reassessments or
levies or the part thereof so measured or based, shall be deemed to be included
in the term "Direct Costs." In no event shall Tax Costs included in Direct
Costs for any year subsequent to the Base Year be less than the amount of Tax
Costs included in Direct Costs for the Base Year. In addition, when
calculating Tax Costs for the Base Year, special assessments shall only be
deemed included in Tax Costs for the Base Year to the extent that such special
assessments are included in Tax Costs for the applicable subsequent calendar
year during the Term.
(ii) "OPERATING COSTS", which shall mean all costs and
expenses incurred by Landlord in connection with the maintenance, operation,
replacement, ownership and repair of the Project, the equipment, the
intrabuilding network cable, adjacent walks, malls and landscaped and common
areas and the parking structure, areas and facilities of the Project,
including, but not limited to, salaries, wages, medical, surgical and general
welfare benefits and pension payments, payroll taxes, fringe benefits,
employment taxes, workers' compensation, uniforms and dry cleaning thereof for
all persons who perform duties connected with the operation, maintenance and
repair of the Project, its equipment, the intrabuilding network cable and the
adjacent walks and landscaped areas, including janitorial, gardening, security,
parking, operating engineer, elevator, painting, plumbing, electrical,
carpentry, heating, ventilation, air conditioning, window washing, hired
services, a reasonable allowance for depreciation of the cost of acquiring or
the rental expense of personal property used in the maintenance, operation and
repair of the Project, accountant's fees incurred in the preparation of rent
adjustment statements, legal fees, real estate tax consulting fees, personal
property taxes on property used in the maintenance and operation of the
Project, capital expenditures incurred to effect economies of operation and
capital expenditures required by government regulations, laws, or ordinances
including, but not limited to the American with Disabilities Act; the cost of
all charges for electricity, gas, water and other utilities furnished to the
Project, including any taxes thereon; the cost of all charges for fire and
extended coverage, liability and all other insurance for the Project carried by
Landlord; the cost of all building and cleaning supplies and materials; the
cost of all charges for cleaning, maintenance and service contracts and other
services with independent contractors and administration fees; a property
management fee (which fee may be imputed if Landlord has internalized
management or otherwise acts as its own property manager) and license, permit
and inspection fees relating to the Project. In the event, during any calendar
year, the Project is less than ninety-five percent (95%) occupied at all times,
Operating Costs shall be adjusted to reflect the Operating Costs of the Project
as though ninety-five percent (95%) were occupied at all times, and the
increase or decrease in the sums owed hereunder shall be based upon such
Operating Costs as so adjusted. Notwithstanding anything to the contrary set
forth in this
-3-
Initials: _____
_____
<PAGE> 8
Article 3, when calculating Operating Costs for the Base Year, Operating Costs
shall exclude (a) market-wide labor-rate increases due to extraordinary
circumstances including, but not limited to, boycotts and strikes, (b) utility
rate increases due to extraordinary circumstances including, but not limited
to, conservation surcharges, boycotts, embargoes or other shortages, and (c)
amortization of any capital items including, but not limited to, capital
improvements, capital repairs and capital replacements (including such
amortized costs where the actual improvement, repair or replacement was made in
prior years).
Notwithstanding anything above to the contrary, Operating
Costs shall not include (1) the cost of providing any service directly to and
paid directly by any tenant (outside of such tenant's Direct Cost payments);
(2) the cost of any items for which Landlord is reimbursed by insurance
proceeds, condemnation awards, a tenant of the Project, or otherwise to the
extent so reimbursed; (3) any real estate brokerage commissions or other costs
incurred in procuring tenants, or any fee in lieu of commission; (4)
depreciation, amortization of principal and interest on mortgages or ground
lease payments (if any); (5) costs of items considered capital repairs,
replacements, improvements and equipment under generally accepted accounting
principles consistently applied except as expressly included in Operating Costs
pursuant to the definition above; (6) costs incurred by Landlord due to the
violation by Landlord or any tenant of the terms and conditions of any lease of
space in the Project or any law, code, regulation, ordinance or the like; (7)
Landlord's general corporate overhead and general and administrative expenses;
(8) any compensation paid to clerks, attendants or other persons in commercial
concessions operated by Landlord (other than in the parking facility for the
Project); (9) costs incurred in connection with upgrading the Project to comply
with disability, life, seismic, fire and safety codes, ordinances, statutes, or
other laws in effect prior to the Commencement Date, including, without
limitation, the ADA, including penalties or damages incurred due to such
non-compliance; and (10) costs incurred to (i) comply with laws relating to the
removal of any "Hazardous Material," as that term is defined in Article 28 of
this Lease, which was in existence on the Project prior to the Commencement
Date, and was of such a nature that a federal, state or municipal governmental
authority, if it had then had knowledge of the presence of such Hazardous
Material, in the state, and under the conditions that it then existed on the
Project, would have then required the removal of such Hazardous Material or
other remedial or containment action with respect thereto, and (ii) to remove,
remedy, contain, or treat any Hazardous Material, which Hazardous Material is
brought onto the Project after the date hereof by Landlord or any other tenant
of the Project and is of such a nature, at that time, that a federal, state or
municipal governmental authority, if it had then had knowledge of the presence
of such Hazardous Material, in the state, and under the conditions, that it
then exists on the Project, would have then required the removal of such
Hazardous Material or other remedial or containment action with respect
thereto.
(d) Determination of Payment.
(i) If for any calendar year ending or commencing within
the Term, Tenant's Proportionate Share of Direct Costs for such calendar year
exceeds Tenant's Proportionate Share of Direct Costs for the Base Year, then
Tenant shall pay to Landlord, in the manner set forth in Sections 3(d)(ii) and
(iii), below, and as additional rent, an amount equal to the excess (the
"EXCESS").
(ii) Landlord shall give Tenant a yearly expense estimate
statement (the "ESTIMATE STATEMENT") which shall set forth Landlord's
reasonable estimate (the "ESTIMATE") of what the total amount of Direct Costs
for the then-current calendar year shall be and the estimated Excess (the
"ESTIMATED EXCESS") as calculated by comparing Tenant's Proportionate Share of
Direct Costs for such calendar year, which shall be based upon the Estimate, to
Tenant's Proportionate Share of Direct Costs for the Base Year. The failure of
Landlord to timely furnish the Estimate Statement for any calendar year shall
not preclude Landlord from enforcing its rights to collect any Estimated Excess
under this Article 3. If pursuant to the Estimate Statement an Estimated
Excess is calculated for the then-current calendar year, Tenant shall pay, with
its next installment of Monthly Basic Rental due, a fraction of the Estimated
Excess for the then-current calendar year (reduced by any amounts paid pursuant
to the last sentence of this Section 3(d)(ii)). Such fraction shall have as
its numerator the number of months which have elapsed in such current calendar
year to the month of such payment, both months inclusive, and shall have twelve
(12) as its denominator. Until a new Estimate Statement is furnished, Tenant
-4-
Initials: _____
_____
<PAGE> 9
shall pay monthly, with the Monthly Basic Rental installments, an amount equal
to one-twelfth (1/12th) of the total Estimated Excess set forth in the previous
Estimate Statement delivered by Landlord to Tenant.
(iii) In addition, Landlord shall endeavor to give to
Tenant on or before the first day of April following the end of each calendar
year, a statement (the "STATEMENT") which shall state the Direct Costs incurred
or accrued for such preceding calendar year, and which shall indicate the
amount, if any, of the Excess. Upon receipt of the Statement for each calendar
year during the Term, if amounts paid by Tenant as Estimated Excess are less
than the actual Excess as specified on the Statement, Tenant shall pay, with
its next installment of Monthly Basic Rental due, the full amount of the Excess
for such calendar year, less the amounts, if any, paid during such calendar
year as Estimated Excess. If, however, the Statement indicates that amounts
paid by Tenant as Estimated Excess are greater than the actual Excess as
specified on the Statement, such overpayment shall be credited against Tenant's
next installments of Estimated Excess. The failure of Landlord to timely
furnish the Statement for any calendar year shall not prejudice Landlord from
enforcing its rights under this Article 3. Even though the Term has expired
and Tenant has vacated the Premises, when the final determination is made of
Tenant's Proportionate Share of the Direct Costs for the calendar year in which
this Lease terminates, if an Excess is present, Tenant shall immediately pay to
Landlord an amount as calculated pursuant to the provisions of this Article
3(d). The provisions of this Section 3(d)(iii) shall survive the expiration or
earlier termination of the Term.
(iv) Within one hundred twenty (120) days after receipt of
a Statement by Tenant ("REVIEW PERIOD"), if Tenant disputes the amount set
forth in the Statement, Tenant's employees or an independent certified public
accountant (which accountant is a member of a reputable accounting firm not
compensated on a contingency basis), designated by Tenant, may, after
reasonable notice to Landlord and at reasonable times, inspect Landlord's
records at Landlord's offices, provided that Tenant is not then in default
after expiration of all applicable cure periods and provided further that
Tenant and such accountant or representative shall, and each of them shall use
their commercially reasonable efforts to cause their respective agents and
employees to, maintain all information contained in Landlord's records in
strict confidence. Notwithstanding the foregoing, Tenant shall only have the
right to review Landlord's records one (1) time during any twelve (12) month
period. Tenant's failure to dispute the amounts set forth in any Statement
within the Review Period shall be deemed to be Tenant's approval of such
Statement and Tenant, thereafter, waives the right or ability to dispute the
amounts set forth in such Statement. If after such inspection, but within
thirty (30) days after the Review Period, Tenant notifies Landlord in writing
that Tenant still disputes such amounts, a certification as to the proper
amount shall be made, at Tenant's expense, by an independent certified public
accountant selected by Landlord and who is a member of a nationally or
regionally recognized accounting firm. Landlord shall cooperate in good faith
with Tenant and the accountant to show Tenant and the accountant the
information upon which the certification is to be based. However, if such
certification by the accountant proves that the Direct Costs set forth in the
Statement were overstated by more than five percent (5%), then the cost of the
accountant and the cost of such certification shall be paid for by Landlord.
Promptly following the parties receipt of such certification, the parties shall
make such appropriate payments or reimbursements, as the case may be, to each
other, as are determined to be owing pursuant to such certification.
(v) If the Project is a part of a multi-building
development, those Direct Costs attributable to such development as a whole
(and not attributable solely to any individual building therein) shall be
allocated by Landlord to the Project and to the other buildings within such
development on an equitable basis.
ARTICLE 4
SECURITY DEPOSIT/LETTER OF CREDIT
Concurrently with Tenant's execution of this Lease, Tenant shall
deliver to Landlord an unconditional, irrevocable and renewable letter of
credit ("LETTER OF CREDIT") in favor of Landlord in a form substantially
similar to Exhibit "E" attached hereto, and issued by a bank located in Los
Angeles County, California, reasonably satisfactory to Landlord, in the
principal
-5-
Initials: _____
_____
<PAGE> 10
amount ("STATED AMOUNT") specified below, as security for the faithful
performance and observance by Tenant of the terms, provisions and conditions of
this Lease. Tenant shall pay all expenses, points and/or fees incurred by
Tenant in obtaining the Letter of Credit. The Stated Amount shall be Seventy
Eight Thousand Dollars ($78,000.00) and the Letter of Credit shall remain in
effect until the date ("LETTER OF CREDIT EXPIRATION DATE") which is the last
day of the month that is twenty-four (24) months after the month in which the
Lease Commencement Date falls. The Letter of Credit shall state that an
authorized officer or other representative of Landlord may make demand on
Landlord's behalf for the principal amount of the Letter of Credit, or any
portion thereof, and that the issuing bank must immediately honor such demand,
without qualification or satisfaction of any conditions, except the proper
identification of the party making such demand. In addition, the Letter of
Credit shall indicate that it is transferable in its entirety by Landlord as
beneficiary and that upon receiving written notice of transfer, and upon
presentation to the issuer of the original Letter of Credit, the issuer will
reissue the Letter of Credit naming such transferee as the beneficiary. If the
term of the Letter of Credit held by Landlord will expire prior to the Letter
of Credit Expiration Date and it is not extended, or a new Letter of Credit for
an extended period of time is not substituted, within thirty (30) days prior to
the expiration of the Letter of Credit, then Landlord shall be entitled to make
demand for the principal amount of said Letter of Credit and, thereafter, to
hold such funds in accordance with this Article 4. The Letter of Credit shall
be held by Landlord as security for the faithful performance by Tenant of all
of the terms, covenants and conditions of this Lease. If Tenant commits a
default with respect to any provision of this Lease or if the term of the
Letter of Credit held by Landlord expires prior to the Letter of Credit
Expiration Date, and the term of the Letter of Credit is not extended at least
thirty (30) days prior to the expiration of the Letter of Credit, Landlord may
(but shall not be required to) draw upon the entire principal amount of the
Letter of Credit, and Landlord may then use, apply or retain all or any part of
the proceeds for the payment of any sum which is in default, or for the payment
of any other amount which Landlord may spend or become obligated to spend by
reason of Tenant's default or to compensate Landlord for any loss or damage
which Landlord may suffer by reason of Tenant's default. If any portion of the
Letter of Credit proceeds are so used or applied, Tenant shall, within ten (10)
days after demand therefor, post an additional Letter of Credit in an amount to
cause the aggregate amount of the unused proceeds and such new Letter of Credit
to equal the principal amount required in this Article 4 above. Landlord shall
not be required to keep any proceeds from the Letter of Credit separate from
its general funds. Should Landlord sell its interest in the Premises during
the Lease Term and if Landlord deposits with the purchaser thereof the Letter
of Credit or any proceeds of the Letter of Credit, thereupon Landlord shall be
discharged from any further liability with respect to the Letter of Credit and
said proceeds. Notwithstanding anything to the contrary contained herein, if at
any time before the Letter of Credit Expiration Date, Tenant completes an
initial public offering of Tenant's securities, then Landlord shall, promptly
after Landlord's receipt of reasonable documentation that Tenant has completed
such initial public offering and a certification from Tenant's chief financial
officer that Tenant has completed such initial public offering and provided
that an uncured event of default does not then exist, return the Letter of
Credit (or any remaining proceeds thereof) to Tenant, and deliver to the
issuing bank such documents as may be required to terminate the issuing bank's
liability under the Letter of Credit.
ARTICLE 5
HOLDING OVER
Should Tenant, without Landlord's written consent, hold over after
termination of this Lease, Tenant shall become a tenant from month to month,
only upon each and all of the terms herein provided as may be applicable to a
month to month tenancy and any such holding over shall not constitute an
extension of this Lease. During such holding over, Tenant shall pay in
advance, monthly, rent at one hundred fifty percent (150%) of the rate in
effect for the last month of the Term of this Lease, in addition to, and not in
lieu of, all other payments required to be made by Tenant hereunder including
but not limited to Tenant's Proportionate Share of any increase in Direct
Costs. Nothing contained in this Article 5 shall be construed as consent by
Landlord to any holding over of the Premises by Tenant, and Landlord expressly
reserves the right to require Tenant to surrender possession of the Premises to
Landlord as provided in this
-6-
Initials: _____
_____
<PAGE> 11
Lease upon the expiration or earlier termination of the Term. If Tenant fails
to surrender the Premises upon the expiration or termination of this Lease,
Tenant agrees to indemnify, defend and hold Landlord harmless from all costs,
loss, expense or liability, including without limitation, claims made by any
succeeding tenant and real estate brokers claims and attorney's fees.
ARTICLE 6
PERSONAL PROPERTY TAXES
Tenant shall pay, prior to delinquency, all taxes assessed against or
levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant located in the Premises. In the event any or all of
Tenant's trade fixtures, furnishings, equipment and other personal property
shall be assessed and taxed with property of Landlord, or if the cost or value
of any leasehold improvements in the Premises exceeds the cost or value of a
Project-standard buildout as determined by Landlord and, as a result, real
property taxes for the Project are increased, Tenant shall pay to Landlord its
share of such taxes within ten (10) days after delivery to Tenant by Landlord
of a statement in writing setting forth the amount of such taxes applicable to
Tenant's property or above-standard improvements. Tenant shall assume and pay
to Landlord at the time of paying Basic Rental any excise, sales, use, rent,
occupancy, garage, parking, gross receipts or other taxes (other than net
income taxes) which may be imposed on or on account of letting of the Premises
or the payment of Basic Rental or any other sums due or payable hereunder, and
which Landlord may be required to pay or collect under any law now in effect or
hereafter enacted. Tenant shall pay directly to the party or entity entitled
thereto all business license fees, gross receipts taxes and similar taxes and
impositions which may from time to time be assessed against or levied upon
Tenant, as and when the same become due and before delinquency.
Notwithstanding anything to the contrary contained herein, any sums payable by
Tenant under this Article 6 shall not be included in the computation of "Tax
Costs."
ARTICLE 7
USE
Tenant shall use and occupy the Premises only for the use set forth in
Article 1.G. of the Basic Lease Provisions and shall not use or occupy the
premises or permit the same to be used or occupied for any other purpose
without the prior written consent of Landlord, which consent may be given or
withheld in Landlord's sole and absolute discretion, and Tenant agrees that it
will use the Premises in such a manner so as not to interfere with or infringe
the rights of other tenants in the Project. Tenant shall, at its sole cost and
expense, promptly comply with all laws, statutes, ordinances and governmental
regulations or requirements now in force or which may hereafter be in force
relating to or affecting (i) the condition, use or occupancy of the Premises or
the Project excluding structural changes to the Project not related to Tenant's
particular use of the Premises and excluding the Tenant Improvements to be
constructed by Landlord pursuant to the Tenant Work Letter, and (ii)
improvements installed or constructed in the Premises by or for the benefit of
Tenant. Tenant shall not do or permit to be done anything which would
invalidate or increase the cost of any fire and extended coverage insurance
policy covering the Project and/or the property located therein and Tenant
shall comply with all rules, orders, regulations and requirements of any
organization which sets out standards, requirements or recommendations commonly
referred to by major fire insurance underwriters. Tenant shall promptly upon
demand reimburse Landlord for any additional premium charges for any such
insurance policy assessed or increased by reason of Tenant's failure to comply
with the provisions of this Article.
ARTICLE 8
CONDITION OF PREMISES
The Premises shall be initially improved as provided in, and subject
to, the Tenant Work Letter attached hereto as Exhibit "D" and made a part
hereof. The taking of possession of the Premises by Tenant shall conclusively
establish that the Premises and the Project were at such
-7-
Initials: _____
_____
<PAGE> 12
time in satisfactory condition. Tenant hereby waives Sections 1941 and 1942 of
the Civil Code of California or any successor provision of law.
Landlord reserves the right from time to time, but subject to payment
by and/or reimbursement from Tenant as otherwise provided herein: (i) to
install, use, maintain, repair, replace and relocate for service to the
Premises and/or other parts of the Project pipes, ducts, conduits, wires,
appurtenant fixtures, and mechanical systems, wherever located in the Premises
or the Project, (ii) to alter, close or relocate any facility in the Premises
or the Common Areas or otherwise conduct any of the above activities for the
purpose of complying with a general plan for fire/life safety for the Project
or otherwise and (iii) to comply with any federal, state or local law, rule or
order with respect thereto or the regulation thereof not currently in effect.
Landlord shall use commercially reasonable efforts to perform any such work
with the least inconvenience to Tenant as possible, but in no event shall
Tenant be permitted to withhold or reduce Basic Rental or other charges due
hereunder as a result of same or otherwise make claim against Landlord for
interruption or interference with Tenant's business and/or operations.
ARTICLE 9
REPAIRS AND ALTERATIONS
Landlord shall maintain the structural portions of the Project
including the foundation, floor/ceiling slabs, roof, curtain wall, exterior
glass, columns, beams, shafts, stairs, stairwells, elevator cabs and common
areas and shall also maintain and repair the basic mechanical, electrical,
lifesafety, plumbing, sprinkler systems and heating, ventilating and
air-conditioning systems (provided, however, that Landlord's obligation with
respect to any such systems shall be to repair and maintain those portions of
the systems located in the core of the Project or in other areas outside of the
Premises, but Tenant shall be responsible to repair and maintain any
distribution of such systems throughout the Premises). Except as expressly
provided as Landlord's obligation in this Article 9, Tenant shall keep the
Premises in good condition and repair. All damage or injury to the Premises or
the Project caused by the act or negligence of Tenant, its employees, agents or
visitors, guests, invitees or licensees or by the use of the Premises shall be
promptly repaired by Tenant, at its sole cost and expense, to the satisfaction
of Landlord; provided, however, that for damage to the Project as a result of
casualty, Landlord shall have the right (but not the obligation) to select the
contractor and oversee all such repairs. Landlord may make any repairs which
are not promptly made by Tenant after Tenant's receipt of written notice and
the reasonable opportunity of Tenant to make said repair within five (5)
business days from receipt of said written notice, and charge Tenant for the
cost thereof, which cost shall be paid by Tenant within ten (10) days from
invoice from Landlord. Tenant shall be responsible for the design and function
of all non-standard improvements of the Premises, whether or not installed by
Landlord at Tenant's request. Tenant waives all rights to make repairs at the
expense of Landlord, or to deduct the cost thereof from the rent. Tenant shall
make no alterations, changes or additions in or to the Premises without
Landlord's prior written consent, and then only by contractors or mechanics
approved by Landlord in writing and upon the approval by Landlord in writing of
fully detailed and dimensioned plans and specifications pertaining to the work
in question, to be prepared and submitted by Tenant at its sole cost and
expense. Notwithstanding anything to the contrary contained herein, Landlord
agrees that Tenant shall be permitted to, at Tenant's sole cost and expense and
subject to the provisions of this Article 9, install a security system for the
Premises, provided, however, that (i) Tenant shall obtain Landlord's prior
approval of any plans and specifications for such security system; (ii) Tenant
shall be responsible, at its sole cost and expense, for all repair and
maintenance of such security system; and (iii) such security system shall be
compatible with the Project's systems and equipment. Tenant shall at its sole
cost and expense obtain all necessary approvals and permits pertaining to any
work approved by Landlord. If Landlord, in approving any work, specifies a
commencement date therefor, Tenant shall not commence any work prior to such
date. Tenant hereby indemnifies and agrees to hold Landlord free and harmless
from all liens and claims of lien, and all other liability, claims and demands
arising out of any work done or material supplied to the Premises by or at the
request of Tenant. If permitted alterations, changes, or additions are made,
they shall be made at Tenant's sole cost and expense and shall be and become
the property of Landlord, except that Landlord may, by written notice to Tenant
given at least thirty (30) days
-8-
Initials: _____
_____
<PAGE> 13
prior to the end of the Term, require Tenant at Tenant's expense to remove all
partitions, counters, railings and the like installed by Tenant, and to repair
any damages to the Premises caused by such removal. Any and all costs
attributable to or related to the applicable building codes of the city in
which the Project is located (or any other authority having jurisdiction over
the Project) arising from Tenants plans, specifications, improvements,
alterations or otherwise shall be paid by Tenant at its sole cost and expense.
With regard to repairs, alterations or any other work arising from or related
to this Article 9, Landlord shall be entitled to receive an
administrative/supervision fee (which fee shall vary depending upon whether or
not Tenant orders the work directly from Landlord) sufficient to compensate
Landlord for all overhead, general conditions, fees and other costs and
expenses arising from Landlord's involvement with such work, but which fee
shall not in any event exceed five percent (5%) of the cost of such work. The
construction of initial improvements to the Premises shall be governed by the
terms of the Tenant Work Letter and not the terms of this Article 9.
ARTICLE 10
LIENS
Tenant shall keep the Premises and the Project free from any
mechanics' liens, vendors liens or any other liens arising out of any work
performed, materials furnished or obligations incurred by Tenant, and agrees to
defend, indemnify and hold harmless Landlord from and against any such lien or
claim or action thereon, together with costs of suit and reasonable attorneys'
fees incurred by Landlord in connection with any such claim or action. Before
commencing any work of alteration, addition or improvement to the Premises,
Tenant shall give Landlord at least ten (10) business days' written notice of
the proposed commencement of such work (to afford Landlord an opportunity to
post appropriate notices of non-responsibility). In the event that there shall
be recorded against the Premises or the Project or the property of which the
Premises is a part any claim or lien arising out of any such work performed,
materials furnished or obligations incurred by Tenant and such claim or lien
shall not be removed or discharged within ten (10) days of filing, Landlord
shall have the right but not the obligation to pay and discharge said lien
without regard to whether such lien shall be lawful or correct or to require
that Tenant deposit with Landlord in cash, lawful money of the United States,
one hundred fifty percent (150%) of the amount of such claim, which sum may be
retained by Landlord until such claim shall have been removed of record or
until judgment shall have been rendered on such claim and such judgment shall
have become final, at which time Landlord shall have the right to apply such
deposit in discharge of the judgment on said claim and any costs, including
attorneys' fees incurred by Landlord, and shall remit the balance thereof to
Tenant.
ARTICLE 11
PROJECT SERVICES
(a) Landlord agrees to furnish to the Premises, at a cost to be
included in Operating Costs, from 8:00 a.m. to 6:00 p.m. Mondays through
Fridays and 9:00 a.m. to 1:00 p.m. on Saturdays, excepting local and national
holidays, air conditioning and heat all in such reasonable quantities as in the
judgment of Landlord is reasonably necessary for the comfortable occupancy of
the Premises. In addition, Landlord shall provide electric current for normal
lighting and normal office machines, elevator service and water on the same
floor as the Premises for lavatory and drinking purposes in such reasonable
quantities as in the judgment of Landlord is reasonably necessary for general
office use. Janitorial and maintenance services shall be furnished five (5)
days per week, excepting local and national holidays. Tenant shall comply with
all rules and regulations which Landlord may reasonably establish for the
proper functioning and protection of the common area air conditioning, heating,
elevator, electrical intrabuilding network cable and plumbing systems.
Landlord shall not be liable for, and there shall be no rent abatement as a
result of, any stoppage, reduction or interruption of any such services caused
by governmental rules, regulations or ordinances, riot, strike, labor disputes,
breakdowns, accidents, necessary repairs or other cause. Except as
specifically provided in this Article 11, Tenant agrees to pay for all
utilities and other services utilized by Tenant and additional building
services furnished to Tenant not uniformly furnished to all tenants of the
Project at the rate generally charged by Landlord to tenants of the Project.
-9-
Initials: _____
_____
<PAGE> 14
(b) Tenant will not, without the prior written consent of
Landlord, use any apparatus or device in the Premises which will in any way
increase the amount of electricity or water usually furnished or supplied for
use of the Premises as general office space; nor connect any apparatus, machine
or device with water pipes or electric current (except through existing
electrical outlets in the Premises), for the purpose of using electric current
or water.
(c) If Tenant shall require electric current in excess of that
which Landlord is obligated to furnish under Article 11(b) above, Tenant shall
first obtain the written consent of Landlord, which Landlord may refuse in its
sole and absolute discretion, to the use thereof and Landlord may cause an
electric current meter or submeter to be installed in the Premises to measure
the amount of such excess electric current consumed by Tenant in the Premises.
The cost of any such meter and of installation, maintenance and repair thereof
shall be paid for by Tenant and Tenant agrees to pay to Landlord, promptly upon
demand therefor by Landlord, for all such excess electric current consumed by
any such use as shown by said meter at the rates charged for such service by
the city in which the Project is located or the local public utility, as the
case may be, furnishing the same, plus any additional expense incurred by
Landlord in keeping account of the electric current so consumed.
(d) If any lights, machines or equipment (including but not
limited to computers) are used by Tenant in the Premises which materially
affect the temperature otherwise maintained by the air conditioning system, or
generate substantially more heat in the Premises than would be generated by the
building standard lights and usual office equipment, Landlord shall have the
right to install any machinery and equipment which Landlord reasonably deems
necessary to restore temperature balance, including but not limited to
modifications to the standard air conditioning equipment, and the cost thereof,
including the cost of installation and any additional cost of operation and
maintenance occasioned thereby, shall be paid by Tenant to Landlord upon demand
by Landlord. Landlord shall not be liable under any circumstances for loss of
or injury to property, however occurring, through or in connection with or
incidental to failure to furnish any of the foregoing.
(e) If Tenant requires heating, ventilation and/or air
conditioning during times other than the times provided in Article 11(a) above,
Tenant shall give Landlord such advance notice as Landlord shall reasonably
require and shall pay Landlord's direct costs, as reasonably determined by
Landlord, for such after-hours use.
(f) Landlord may impose a reasonable charge for any utilities or
services (other than electric current and heating, ventilation and/or air
conditioning which shall be governed by Articles 11(c) and (e) above) utilized
by Tenant in excess of the amount or type that Landlord reasonably determines
is typical for general office use.
ARTICLE 12
RIGHTS OF LANDLORD
Landlord and its agents shall have the right, upon reasonable advance
notice (except in the case of emergency or regularly scheduled maintenance), to
enter the Premises at all reasonable times for the purpose of cleaning the
Premises, examining or inspecting the same, serving or posting and keeping
posted thereon notices as provided by law, or which Landlord deems necessary
for the protection of Landlord or the Property, showing the same to prospective
tenants or purchasers of the Project, in the case of an emergency, and for
making such alterations, repairs, improvements or additions to the Premises or
to the Project as Landlord may deem necessary or desirable. If Tenant shall
not be personally present to open and permit an entry into the Premises at any
time when such an entry by Landlord is necessary or permitted hereunder,
Landlord may enter by means of a master key or may enter forcibly, only in the
case of an emergency, without liability to Tenant and without affecting this
Lease.
-10-
Initials: _____
_____
<PAGE> 15
ARTICLE 13
INDEMNITY; EXEMPTION OF LANDLORD FROM LIABILITY
(a) Indemnity. Tenant shall indemnify, defend and hold Landlord
harmless from any and all claims arising from Tenant's use of the Premises or
the Project including Tenant's Signage rights set forth in Article 32 or from
the conduct of its business or from any activity, work or thing which may be
permitted or suffered by Tenant in or about the Premises or the Project and
shall further indemnify, defend and hold Landlord harmless from and against any
and all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under this Lease or arising from
any negligence of Tenant or any of its agents, contractors, employees or
invitees, patrons, customers or members in or about the Project and from any
and all costs, attorneys' fees, expenses and liabilities incurred in the
defense of any claim or any action or proceeding brought thereon, including
negotiations in connection therewith. Tenant hereby assumes all risk of damage
to property or injury to persons in or about the Premises from any cause, and
Tenant hereby waives all claims in respect thereof against Landlord, excepting
where the damage is caused solely by the gross negligence or willful misconduct
of Landlord.
(b) Exemption of Landlord from Liability. Landlord shall not be
liable for injury to Tenant's business, or loss of income therefrom, or for
damage that may be sustained by the person, goods, wares, merchandise or
property of Tenant, its employees, invitees, customers, agents, or contractors,
or any other person in, on or about the Premises directly or indirectly caused
by or resulting from fire, steam, electricity, gas, water, or rain which may
leak or flow from or into any part of the Premises, or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, light fixtures, or mechanical or
electrical systems or from intrabuilding network cable, whether such damage or
injury results from conditions arising upon the Premises or upon other portions
of the Project or from other sources or places and regardless of whether the
cause of such damage or injury or the means or repairing the same is
inaccessible to Tenant, except in connection with damage or injury resulting
from the gross negligence or willful misconduct of Landlord, or its authorized
agents. Landlord shall not be liable to Tenant for any damages arising from
any act or neglect of any other tenant of the building.
Tenant acknowledges that Landlord's election to provide mechanical
surveillance or to post security personnel in the Project is solely within
Landlord's discretion; Landlord shall have no liability in connection with the
decision whether or not to provide such services and Tenant hereby waives all
claims based thereon. Landlord shall not be liable for losses due to theft,
vandalism, or like causes. Tenant shall defend, indemnify, and hold Landlord
harmless from any such claims made by any employee, licensee, invitee,
contractor, agent or, other person whose presence in, on or about the Premises
or the Project is attendant to the business of Tenant.
ARTICLE 14
INSURANCE
(a) Tenant's Insurance. Tenant, shall at all times during the
Term of this Lease, and at its own cost and expense, procure and continue in
force the following insurance coverage: (i) Commercial General Liability
Insurance with a combined single limit for bodily injury and property damages
of not less than One Million Dollars ($1,000,000) per occurrence and Two
Million Dollars ($2,000,000) in the annual aggregate, including products
liability coverage if applicable, covering the insuring provisions of this
Lease and the performance of Tenant of the indemnity and exemption of Landlord
from liability agreements set forth in Article 13 hereof; (ii) a policy of
standard fire, extended coverage and special extended coverage insurance (all
risks), including a vandalism and malicious mischief endorsement, sprinkler
leakage coverage and earthquake sprinkler leakage where sprinklers are provided
in an amount equal to the full replacement value new without deduction for
depreciation of all (A) Tenant Improvements, alterations, fixtures and other
improvements in the Premises and (B) trade fixtures, furniture, equipment and
other personal property installed by or at the expense of Tenant; (iii)
Worker's Compensation coverage as required by law; and (iv) business
interruption, loss of income and
-11-
Initials: _____
_____
<PAGE> 16
extra expense insurance covering failure of Tenant's telecommunications
equipment and covering all other perils, failures or interruptions. Tenant
shall carry and maintain during the entire Lease Term (including any option
periods, if applicable), at Tenant's sole cost and expense, increased amounts
of the insurance required to be carried by Tenant pursuant to this Article 14
and such other reasonable types of insurance coverage and in such reasonable
amounts covering the Premises and Tenant's operations therein, as may be
reasonably required by Landlord. Notwithstanding anything to the contrary
contained herein, Tenant shall be entitled to self-insure the coverage
described in Section 14(a)(iv) above, in which case a deemed waiver of
subrogation shall apply so that Landlord shall be in the same position it would
have been in had Tenant actually purchased such insurance from a third party.
(b) Form of Policies. The aforementioned minimum limits of
policies and Tenant's procurement and maintenance thereof shall in no event
limit the liability of Tenant hereunder. The Commercial General Liability
Insurance policy shall name Landlord, Landlord's property manager, Landlord's
lender(s) and such other persons or firms as Landlord specifies from time to
time, as additional insureds' with an appropriate endorsement to the policy(s).
All such insurance policies carried by Tenant shall be with companies having a
rating of not less than A-VIII in Best's Insurance Guide. Tenant shall furnish
to Landlord, from the insurance companies, or cause the insurance companies to
furnish, certificates of coverage. No such policy shall be cancelable or
subject to reduction of coverage or other modification or cancellation except
after thirty (30) days prior written notice to Landlord by the insurer. All
such policies shall be endorsed to agree that Tenant's policy is primary and
that any insurance covered by Landlord is excess and not contributing with any
Tenant insurance requirement hereunder. Tenant shall, at least twenty (20)
days prior to the expiration of such policies, furnish Landlord with renewals
or binders. Tenant agrees that if Tenant does not take out and maintain such
insurance or furnish Landlord with renewals or binders, Landlord may (but shall
not be required to) procure said insurance on Tenant's behalf and charge Tenant
the cost thereof, which amount shall be payable by Tenant upon demand with
interest from the date such sums are extended. Tenant shall have the right to
provide such insurance coverage pursuant to blanket policies obtained by
Tenant, provided such blanket policies expressly afford coverage to the
Premises and to Tenant as required by this Lease.
(c) Landlord's Insurance. Landlord shall, as a cost to be
included in Operating Costs, procure and maintain at all times during the Term
of this Lease, a policy or policies of insurance covering loss or damage to the
Project in the amount of the full replacement costs without deduction for
depreciation thereof (exclusive of Tenant's trade fixtures, inventory, personal
property and equipment), providing protection against all perils included
within the classification of fire and extended coverage, vandalism coverage and
malicious mischief, sprinkler leakage, water damage, and special extended
coverage on building. Additionally, Landlord may (but shall not be required
to) carry: (i) Bodily Injury and Property Damage Liability Insurance and/or
Excess Liability Coverage Insurance; and (ii) Earthquake and/or Flood Damage
Insurance; and (iii) Rental Income Insurance at its election or if required by
its lender from time to time during the Term hereof, in such amounts and with
such limits as Landlord or its lender may deem appropriate. The costs of such
insurance shall be included in Operating Costs.
(d) Waiver of Subrogation. Landlord and Tenant each agree to have
their respective insurers issuing the insurance described in Sections
14(a)(ii), 14(a)(iv) and the first sentence of Section 14(c) waive any rights
of subrogation that such companies may have against the other party. Tenant
hereby waives any right that Tenant may have against Landlord and Landlord
hereby waives any right that Landlord may have against Tenant as a result of
any loss or damage to the extent such loss or damage is insurable under such
policies.
(e) Compliance with Law. Tenant agrees that it will not, at any
time, during the Term of this Lease, carry any stock of goods or do anything in
or about the Premises that will in any way tend to increase the insurance rates
upon the Project. Tenant agrees to pay Landlord forthwith upon demand the
amount of any increase in premiums for insurance against loss by fire that may
be charged during the Term of this Lease on the amount of insurance to be
carried by Landlord on the Project resulting from the foregoing, or from Tenant
doing any act in or about said Premises that does so increase the insurance
rates, whether or not Landlord shall have consented to such act on the part of
Tenant. If Tenant installs upon the Premises any electrical
-12-
Initials: _____
_____
<PAGE> 17
equipment which constitutes an overload of electrical lines of the Premises,
Tenant shall at its own cost and expense in accordance with all other Lease
provisions, and subject to the provisions of Article 9, 10 and 11, hereof, make
whatever changes are necessary to comply with requirements of the insurance
underwriters and any governmental authority having jurisdiction thereover, but
nothing herein contained shall be deemed to constitute Landlord's consent to
such overloading. Tenant shall, at its own expense, comply with all
requirements of the insurance authority having jurisdiction over the Project
necessary for the maintenance of reasonable fire and extended coverage
insurance for the Premises, including without limitation thereto, the
installation of fire extinguishers or an automatic dry chemical extinguishing
system.
ARTICLE 15
ASSIGNMENT AND SUBLETTING
Tenant shall have no power to, during the initial Lease Term or Option
Term (if applicable), either voluntarily, involuntarily, by operation of law or
otherwise, sell, assign, transfer or hypothecate this Lease, or sublet the
Premises or any part thereof, or permit the Premises or any part thereof to be
used or occupied by anyone other than Tenant or Tenant's employees without the
prior written consent of Landlord which shall not be unreasonably withheld or
delayed. Tenant may transfer its interest pursuant to this Lease only upon the
following express conditions, which conditions are agreed by Landlord and
Tenant to be reasonable:
(a) That the proposed transferee shall be subject to the prior
written consent of Landlord, which consent will not be unreasonably withheld or
delayed but, without limiting the generality of the foregoing, it shall be
reasonable for Landlord to deny such consent if:
(i) The use to be made of the Premises by the proposed
transferee is (a) not generally consistent with the character and nature of all
other tenancies in the Project, or (b) a use which conflicts with any so-called
"exclusive" then in favor of, or for any use which is the same as that stated
in any percentage rent lease to, another tenant of the Project or any other
buildings which are in the same complex as the Project, or (c) a use which
would be prohibited by any other portion of this Lease (including but not
limited to any Rules and Regulations then in effect); or
(ii) The financial responsibility of the proposed
transferee is not reasonably satisfactory to Landlord or in any event not at
least equal to those which were possessed by Tenant as of the date of execution
of this Lease;
(b) Whether or not Landlord consents to any such transfer, Tenant
shall pay to Landlord Landlord's then standard processing fee and reasonable
attorneys' fees incurred in connection with the proposed transfer up to the
aggregate sum of $1,000.00;
(c) That the proposed transferee shall execute an agreement
pursuant to which it shall agree to perform faithfully and be bound by all of
the terms, covenants, conditions, provisions and agreements of this Lease
applicable to that portion of the Premises so transferred; and
(d) That an executed duplicate original of said assignment and
assumption agreement or other transfer on a form reasonably approved by
Landlord, shall be delivered to Landlord within five (5) days after the
execution thereof, and that such transfer shall not be binding upon Landlord
until the delivery thereof to Landlord and the execution and delivery of
Landlord's consent thereto. It shall be a condition to Landlord's consent to
any subleasing, assignment or other transfer of part or all of Tenant's
interest in the Premises (hereinafter referred to as a "TRANSFER") that (i)
upon Landlord's consent to any Transfer, Tenant shall pay and continue to pay
fifty percent (50%) of any "Transfer Premium" (defined below), received by
Tenant from the transferee; (ii) any sublessee of part or all of Tenant's
interest in the Premises shall agree that in the event Landlord gives such
sublessee notice that Tenant is in default under this Lease, such sublessee
shall thereafter make all sublease or other payments directly to Landlord,
which will be received by Landlord without any liability whether to honor the
sublease or otherwise (except to credit such payments against sums due under
this Lease), and any sublessee shall agree to attorn
-13-
Initials: _____
_____
<PAGE> 18
to Landlord or its successors and assigns at their request should this Lease be
terminated for any reason, except that in no event shall Landlord or its
successors or assigns be obligated to accept such attornment; (iii) any such
Transfer and consent shall be effected on forms supplied by Landlord and/or its
legal counsel; (iv) Landlord may require that Tenant not then be in default
hereunder in any respect; and (v) Tenant or the proposed subtenant or assignee
(collectively, "TRANSFEREE") shall agree to pay Landlord, upon demand, as
additional rent, a sum equal to the additional costs, if any, incurred by
Landlord for maintenance and repair as a result of any change in the nature of
occupancy caused by such subletting or assignment. "TRANSFER PREMIUM" shall
mean all rent, additional rent or other consideration payable by a Transferee
in connection with a Transfer in excess of (i) the rent and Additional Rent
payable by Tenant under this Lease during the term of the Transfer, and (ii)
any improvement allowance or other economic concession (such as but not limited
to space plans, moving expenses, etc.) paid by Tenant to the sublessee or
assignee, marketing costs, brokers' commissions, attorneys' fees, and lease
takeover payments paid by Tenant in connection with the sublease or assignment
and the unamortized cost of any initial or subsequent improvements constructed
by Tenant at Tenant's expense, and if such Transfer is less than all of the
Premises, the Transfer Premium shall be calculated on a rentable square foot
basis. "Transfer Premium" shall also include, but not be limited to, key
money, bonus money or other cash consideration paid by a transferee to Tenant
in connection with such Transfer, and any payment in excess of fair market
value for services rendered by Tenant to the Transferee and any payment in
excess of fair market value for assets, fixtures, inventory, equipment, or
furniture transferred by Tenant to the Transferee in connection with such
Transfer. Any sale assignment, hypothecation, transfer or subletting of this
Lease which is not in compliance with the provisions of this Article 15 shall
be void and shall, at the option of Landlord, terminate this Lease. In no
event shall the consent by Landlord to an assignment or subletting be construed
as relieving Tenant, any assignee, or sublessee from obtaining the express
written consent of Landlord to any further assignment or subletting, or as
releasing Tenant from any liability or obligation hereunder whether or not then
accrued and Tenant shall continue to be fully liable therefor. No collection
or acceptance of rent by Landlord from any person other than Tenant shall be
deemed a waiver of any provision of this Article 15 or the acceptance of any
assignee or subtenant hereunder, or a release of Tenant (or of any successor of
Tenant or any subtenant). Notwithstanding anything to the contrary in this
Lease, if Tenant or any proposed Transferee claims that Landlord has
unreasonably withheld or delayed its consent under this Article 15 or otherwise
has breached or acted unreasonably under this Article 15, their sole remedies
shall be a declaratory judgment and an injunction for the relief sought without
any monetary damages, and Tenant hereby waives all other remedies, including,
without limitation, any right at law or equity to terminate this Lease, on its
own behalf and, to the extent permitted under all applicable laws, on behalf of
the proposed Transferee.
Notwithstanding anything to the contrary contained in this Article 15,
Landlord shall have the option, by giving written notice to Tenant within
thirty (30) days after Landlord's receipt of a request for consent to a
proposed Transfer, to terminate this Lease as to the portion of the Premises
that is the subject of the Transfer. If this Lease is so terminated with
respect to less than the entire Premises, the Basic Rental and Tenant's
Proportionate Share shall be prorated based on the number of rentable square
feet retained by Tenant as compared to the total number of rentable square feet
contained in the original Premises, and this Lease as so amended shall continue
thereafter in full force and effect, and upon the request of either party, the
parties shall execute written confirmation of the same.
ARTICLE 16
DAMAGE OR DESCTRUCTION
If the Project is damaged by fire or other insured casualty and the
insurance proceeds have been made available therefor by the holder or holders
of any mortgages or deeds of trust covering the Premises or the Project, the
damage shall be repaired by Landlord to the extent such insurance proceeds are
available therefor and provided such repairs can, in Landlord's sole opinion,
be completed within one hundred eighty (180) days after the necessity for
repairs as a result of such damage becomes known to Landlord without the
payment of overtime or other premiums, and until such repairs are completed
rent shall be abated in proportion to the part of
-14-
Initials: _____
_____
<PAGE> 19
the Premises which is unusable by Tenant in the conduct of its business (but
there shall be no abatement of rent by reason of any portion of the Premises
being unusable for a period equal to one (1) day or less). However, if the
damage is due to the fault or neglect of Tenant, its employees, agents,
contractors, guests, invitees and the like, there shall be no abatement of
rent. Upon the occurrence of any damage to the Premises, Tenant shall assign
to Landlord (or to any party designated by Landlord) all insurance proceeds
payable to Tenant under Section 14(a)(ii)(A) above; provided, however, that if
the cost of repair of improvements within the Premises by Landlord exceeds the
amount of insurance proceeds received by Landlord from Tenant's insurance
carrier, as so assigned by Tenant, such excess costs shall be paid by Tenant to
Landlord prior to Landlord's repair of such damage. If repairs cannot, in
Landlord's opinion, be completed within one hundred eighty (180) days after the
necessity for repairs as a result of such damage becomes known to Landlord
without the payment of overtime or other premiums, Landlord may, at its option,
either (i) make them in a reasonable time and in such event this Lease shall
continue in effect and the rent shall be abated, if at all, in the manner
provided in this Article 16, or (ii) elect not to effect such repairs and
instead terminate this Lease, by notifying Tenant in writing of such
termination within sixty (60) days after Landlord learns of the necessity for
repairs as a result of damage, such notice to include a termination date giving
Tenant thirty (30) days to vacate the Premises. In addition, Landlord may
elect to terminate this Lease if the Project shall be damaged by fire or other
casualty or cause, whether or not the Premises are affected, and the damage is
not fully covered, except for deductible amounts, by Landlord's insurance
policies. Finally, if the Premises or the Project is damaged to any
substantial extent during the last twelve (12) months of the Term, then
notwithstanding anything contained in this Article 16 to the contrary, Landlord
shall have the option to terminate this Lease by giving written notice to
Tenant of the exercise of such option within sixty (60) days after Landlord
learns of the necessity for repairs as the result of such damage. A total
destruction of the Project shall automatically terminate this Lease. Except as
provided in this Article 16, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business or property arising from such damage or destruction or the making of
any repairs, alterations or improvements in or to any portion of the Project or
the Premises or in or to fixtures, appurtenances and equipment therein. Tenant
understands that Landlord will not carry insurance of any kind on Tenant's
furniture, furnishings, trade fixtures or equipment, and that Landlord shall
not be obligated to repair any damage thereto or replace the same. Except for
proceeds relating to Tenant's furniture, furnishings, trade fixtures and
equipment, Tenant acknowledges that Tenant shall have no right to any proceeds
of insurance relating to property damage. With respect to any damage which
Landlord is obligated to repair or elects to repair, Tenant, as a material
inducement to Landlord entering into this Lease, irrevocably waives and
releases its rights under the provisions of Sections 1932 and 1933 of the
California Civil Code.
ARTICLE 17
SUBORDINATION
This Lease is subject and subordinate to all ground or underlying
leases, mortgages and deeds of trust which affect the property or the Project,
including all renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, if the lessor under any such lease or
the holder or holders of any such mortgage or deed of trust shall advise
Landlord that they desire or require this Lease to be prior and superior
thereto, upon written request of Landlord to Tenant, Tenant agrees to promptly
execute, acknowledge and deliver any and all documents or instruments which
Landlord or such lessor, holder or holders deem necessary or desirable for
purposes thereof. Landlord shall have the right to cause this Lease to be and
become and remain subject and subordinate to any and all ground or underlying
leases, mortgages or deeds of trust which may hereafter be executed covering
the Premises, the Project or the property or any renewals, modifications,
consolidations, replacements or extensions thereof, for the full amount of all
advances made or to be made thereunder and without regard to the time or
character of such advances, together with interest thereon and subject to all
the terms and provisions thereof; provided, however, that Landlord obtains from
the lender or other party in question a written undertaking in favor of Tenant
to the effect that such lender or other party will not disturb Tenant's right
of possession under this Lease if Tenant is not then or thereafter in
-15-
Initials: _____
_____
<PAGE> 20
breach of any covenant or provision of this Lease. Tenant agrees, within ten
(10) days after Landlord's written request therefor, to execute, acknowledge
and deliver upon request any and all documents or instruments requested by
Landlord or necessary or proper to assure the subordination of this Lease to
any such mortgages, deed of trust, or leasehold estates. Tenant agrees that in
the event any proceedings are brought for the foreclosure of any mortgage or
deed of trust or any deed in lieu thereof, to attorn to the purchaser or any
successors thereto upon any such foreclosure sale or deed in lieu thereof as so
requested to do so by such purchaser and to recognize such purchaser as the
lessor under this Lease; Tenant shall, within five (5) days after request
execute such further instruments or assurances as such purchaser may reasonably
deem necessary to evidence or confirm such attornment. Tenant agrees to
provide copies of any notices of Landlord's default under this Lease to any
mortgagee or deed of trust beneficiary whose address has been provided to
Tenant and Tenant shall provide such mortgagee or deed of trust beneficiary a
commercially reasonable time after receipt of such notice within which to cure
any such default. Tenant waives the provisions of any current or future
statute, rule or law which may give or purport to give Tenant any right or
election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.
ARTICLE 18
EMINENT DOMAIN
If the whole of the Premises or the Project or so much thereof as to
render the balance unusable by Tenant shall be taken under power of eminent
domain, or is sold, transferred or conveyed in lieu thereof, this Lease shall
automatically terminate as of the date of such condemnation, or as of the date
possession is taken by the condemning authority, at Landlord's option. No
award for any partial or entire taking shall be apportioned, and Tenant hereby
assigns to Landlord any award which may be made in such taking or condemnation,
together with any and all rights of Tenant now or hereafter arising in or to
the same or any part thereof; provided, however, that nothing contained herein
shall be deemed to give Landlord any interest in or to require Tenant to assign
to Landlord any award made to Tenant for the taking of personal property and
trade fixtures belonging to Tenant and removable by Tenant at the expiration of
the Term hereof as provided hereunder or for the interruption of, or damage to,
Tenant's business. In the event of a partial taking described in this Article
18, or a sale, transfer or conveyance in lieu thereof, which does not result in
a termination of this Lease, the rent shall be apportioned according to the
ratio that the part of the Premises remaining useable by Tenant bears to the
total area of the Premises. Tenant hereby waives any and all rights it might
otherwise have pursuant to Section 1265.130 of the California Code of Civil
Procedure. Landlord and Tenant hereby agree to use commercially reasonable
efforts to cause to be signed the Nondisturbance and Attornment Agreement by
and between Landlord, Tenant and the City of Calabasas, in a form substantially
similar to Exhibit "F" attached hereto.
ARTICLE 19
DEFAULT
Each of the following acts or omissions of Tenant or of any guarantor
of Tenant's performance hereunder, or occurrences, shall constitute an "EVENT
OF DEFAULT":
(a) Failure or refusal to pay Basic Rental, Additional Rent or any
other amount to be paid by Tenant to Landlord hereunder within five (5)
calendar days after notice that the same is due or payable hereunder; said five
(5) day period shall be in lieu of, and not in addition to, the notice
requirements of Section 1161 of the California Code of Civil Procedure or any
similar or successor law;
(b) Except as set forth in items (a) above and (c) through and
including (g) below, failure to perform or observe any other covenant or
condition of this Lease to be performed or observed within thirty (30) days
following written notice to Tenant of such failure. Such thirty (30) day
notice shall be in lieu of, and not in addition to, any required under Section
1161 of the California Code of Civil Procedure or any similar or successor law;
-16-
Initials: _____
_____
<PAGE> 21
(c) Abandonment or vacating or failure to accept tender of
possession of the Premises or any significant portion thereof, provided,
however, that if Basic Rental, Additional Rent or any other amount to be paid
by Tenant to Landlord hereunder is paid and not outstanding and Tenant is not
otherwise in default under this Lease, such abandonment or vacating or failure
to accept tender of possession of the Premises or any significant portion
thereof shall not constitute an Event of Default under this Section 19(c);
(d) The taking in execution or by similar process or law (other
than by eminent domain) of the estate hereby created;
(e) The filing by Tenant or any guarantor hereunder in any court
pursuant to any statute of a petition in bankruptcy or insolvency or for
reorganization or arrangement for the appointment of a receiver of all or a
portion of Tenant's property; the filing against Tenant or any guarantor
hereunder of any such petition, or the commencement of a proceeding for the
appointment of a trustee, receiver or liquidator for Tenant, or for any
guarantor hereunder, or of any of the property of either, or a proceeding by
any governmental authority for the dissolution or liquidation of Tenant or any
guarantor hereunder, if such proceeding shall not be dismissed or trusteeship
discontinued within thirty (30) days after commencement of such proceeding or
the appointment of such trustee or receiver; or the making by Tenant or any
guarantor hereunder of an assignment for the benefit of creditors. Tenant
hereby stipulates to the lifting of the automatic stay in effect and relief
from such stay for Landlord in the event Tenant files a petition under the
United States Bankruptcy laws, for the purpose of Landlord pursuing its rights
and remedies against Tenant and/or a guarantor of this Lease;
(f) Tenant's failure to cause to be released any mechanics liens
filed against the Premises or the Project within twenty (20) days after the
date the same shall have been filed or recorded; or
(g) Tenant's failure to observe or perform according to the
provisions of Articles 17 or 25 within five (5) business days after notice from
Landlord.
All defaults by Tenant of any covenant or condition of this Lease
shall be deemed by the parties hereto to be material.
ARTICLE 20
REMEDIES
(a) Upon the occurrence of an Event of Default under this Lease as
provided in Article 19 hereof, Landlord may exercise all of its remedies as may
be permitted by law, including but not limited to the remedy provided by
Section 1951.4 of the California Civil Code, and including without limitation,
terminating this Lease, reentering the Premises and removing all persons and
property therefrom, which property may be stored by Landlord at a warehouse or
elsewhere at the risk, expense and for the account of Tenant. If Landlord
elects to terminate this Lease, Landlord shall be entitled to recover from
Tenant the aggregate of all amounts permitted by law, including but not limited
to (i) the worth at the time of the amount of any unpaid rent which had been
earned at the time of such termination; plus (ii) the worth at the time of
award of the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus (iii) the worth at the
time of award of the amount by which the unpaid rent for the balance of the
Lease Term after the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, specifically
including but not limited to, brokerage commissions and advertising expenses
incurred, expenses of remodeling the Premises or any portion thereof for a new
tenant, whether for the same or a different use, and any special concessions
made to obtain a new tenant; and (v) at Landlord's election, such other amounts
in addition to or in lieu of the foregoing as may be permitted from time to
time by applicable law. The term "rent" as used in this Article 20(a) shall be
deemed to be and to mean all sums of every nature required to be paid
-17-
Initials: _____
_____
<PAGE> 22
by Tenant pursuant to the terms of this Lease, whether to Landlord or to
others. As used in items (i) and (ii), above, the "worth at the time of award"
shall be computed by allowing interest at the rate set forth in item (e),
below, but in no case greater than the maximum amount of such interest
permitted by law. As used in item (iii), above, the "worth at the time of
award" shall be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
(b) Nothing in this Article 20 shall be deemed to affect
Landlord's right to indemnification for liability or liabilities arising prior
to the termination of this Lease for personal injuries or property damage under
the indemnification clause or clauses contained in this Lease.
(c) Notwithstanding anything to the contrary set forth herein,
Landlord's re-entry to perform acts of maintenance or preservation of or in
connection with efforts to relet the Premises or any portion thereof, or the
appointment of a receiver upon Landlord's initiative to protect Landlord's
interest under this Lease shall not terminate Tenant's right to possession of
the Premises or any portion thereof and, until Landlord does elect to terminate
this Lease, this Lease shall continue in full force and effect and Landlord may
enforce all of Landlord's rights and remedies hereunder including, without
limitation, the remedy described in California Civil Code Section 1951.4
(lessor may continue lease in effect after lessee's breach and abandonment and
recover rent as it becomes due, if Lessee has the right to sublet or assign,
subject only to reasonable limitations). Accordingly, if Landlord does not
elect to terminate this Lease on account of any default by Tenant, Landlord
may, from time to time, without terminating this Lease, enforce all of its
rights and remedies under this Lease, including the right to recover all rent
as it becomes due.
(d) All rights, powers and remedies of Landlord hereunder and
under any other agreement now or hereafter in force between Landlord and Tenant
shall be cumulative and not alternative and shall be in addition to all rights,
powers and remedies given to Landlord by law, and the exercise of one or more
rights or remedies shall not impair Landlord's right to exercise any other
right or remedy.
(e) Any amount due from Tenant to Landlord hereunder which is not
paid when due shall bear interest at the lower of twelve percent (12%) per
annum or the maximum lawful rate of interest from the due date until paid,
unless otherwise specifically provided herein, but the payment of such interest
shall not excuse or cure any default by Tenant under this Lease. In addition
to such interest: (a) if Basic Rental is not paid within ten (10) days after
the same is due, a late charge equal to five percent (5%) of the amount overdue
or $100, whichever is greater, shall be assessed and shall accrue for each
calendar month or part thereof until such rental, including the late charge, is
paid in full, which late charge Tenant hereby agrees is a reasonable estimate
of the damages Landlord shall suffer as a result of Tenant's late payment and
(b) an additional charge of $25 shall be assessed for any check given to
Landlord by or on behalf of Tenant which is not honored by the drawee thereof;
which damages include Landlord's additional administrative and other costs
associated with such late payment and unsatisfied checks and the parties agree
that it would be impracticable or extremely difficult to fix Landlord's actual
damage in such event. Such charges for interest and late payments and
unsatisfied checks are separate and cumulative and are in addition to and shall
not diminish or represent a substitute for any or all of Landlord's rights or
remedies under any other provision of this Lease.
ARTICLE 21
TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer or termination of Landlord's interest in
the Premises or the Project by sale, assignment, transfer, foreclosure,
deed-in-lieu of foreclosure or otherwise whether voluntary or involuntary,
Landlord shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord from and after the date of such transfer or
termination, including furthermore without limitation, the obligation of
Landlord under Article 4 and California Civil Code 1950.7 above to return the
security deposit, provided said security
-18-
Initials: _____
_____
<PAGE> 23
deposit is transferred to said transferee. Tenant agrees to attorn to the
transferee upon any such transfer and to recognize such transferee as the
lessor under this Lease and Tenant shall, within five (5) days after request,
execute such further instruments or assurances as such transferee may
reasonably deem necessary to evidence or confirm such attornment.
ARTICLE 22
BROKER
In connection with this Lease, Tenant warrants and represents that it
has had dealings only with firm(s) set forth in Article 1.H. of the Basic Lease
Provisions and that it knows of no other person or entity who is or might be
entitled to a commission, finder's fee or other like payment in connection
herewith and does hereby indemnify and agree to hold Landlord, its agents,
members, partners, representatives, officers, affiliates, shareholders,
employees, successors and assigns harmless from and against any and all loss,
liability and expenses that Landlord may incur should such warranty and
representation prove incorrect, inaccurate or false.
ARTICLE 23
PARKING
Tenant shall rent from Landlord, commencing on the Commencement Date,
the number of unreserved parking passes set forth in Section 1(I) of the Basic
Lease Provisions, which parking passes shall pertain to the Project parking
facility. During the Initial Lease Term only, Tenant shall not be obligated to
pay to Landlord for automobile parking passes the prevailing rate charged from
time to time at the location of such parking passes. During any Option Term
(if applicable), any parking charges shall be determined as a component of
Option Rent. Tenant shall be responsible for the full amount of taxes (if any)
imposed by any governmental authority in connection with the renting of such
parking passes by Tenant or the use of the parking facility by Tenant.
Tenant's continued right to use the parking passes is conditioned upon Tenant
abiding by all rules and regulations which are prescribed from time to time for
the orderly operation and use of the parking facility where the parking passes
are located, including any sticker or other identification system established
by Landlord, Tenant's cooperation in seeing that Tenant's employees and
visitors also comply with such rules and regulations, and Tenant not being in
default under this Lease. Landlord specifically reserves the right to change
the size, configuration, design, layout and all other aspects of the Project
parking facility at any time and Tenant acknowledges and agrees that Landlord
may, without incurring any liability to Tenant and without any abatement of
rent under this Lease, from time to time, close-off or restrict access to the
Project parking facility for purposes of permitting or facilitating any such
construction, alteration or improvements. Landlord may delegate its
responsibilities hereunder to a parking operator or a lessee of the parking
facility in which case such parking operator or lessee shall have all the
rights of control attributed hereby to the Landlord. The parking passes rented
by Tenant pursuant to this Article 23 are provided to Tenant solely for use by
Tenant's own personnel and such passes may not be transferred, assigned,
subleased or otherwise alienated by Tenant without Landlord's prior approval,
which shall not be unreasonably withheld or delayed. Tenant may validate
visitor parking by such method or methods as the Landlord may establish, at the
validation rate from time to time generally applicable to visitor parking.
ARTICLE 24
WAIVER
No waiver by Landlord of any provision of this Lease shall be deemed
to be a waiver of any other provision hereof or of any subsequent breach by
Tenant of the same or any other provision. No provision of this Lease may be
waived by Landlord, except by an instrument in writing executed by Landlord.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act of Tenant, whether or
not similar to the act so consented to or approved. No act or thing done by
Landlord or Landlord's agents during the Term of this Lease shall be deemed an
acceptance of a surrender of the Premises, and no
-19-
Initials: _____
_____
<PAGE> 24
agreement to accept such surrender shall be valid unless in writing and signed
by Landlord. Any payment by Tenant or receipt by Landlord of an amount less
than the total amount then due hereunder shall be deemed to be in partial
payment only thereof and not a waiver of the balance due or an accord and
satisfaction, notwithstanding any statement or endorsement to the contrary on
any check or any other instrument delivered concurrently therewith or in
reference thereto. Accordingly, Landlord may accept any such amount and
negotiate any such check without prejudice to Landlord's right to recover all
balances due and owing and to pursue its other rights against Tenant under this
Lease, regardless of whether Landlord makes any notation on such instrument of
payment or otherwise notifies Tenant that such acceptance or negotiation is
without prejudice to Landlord's rights.
ARTICLE 25
ESTOPPEL CERTIFICATE
Tenant shall, at any time and from time to time, upon not less than
ten (10) days' prior written notice from Landlord, execute, acknowledge and
deliver to Landlord a statement in writing certifying the following
information, (but not limited to the following information in the event further
information is requested by Landlord): (i) that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such modification
and certifying that this Lease, as modified, is in full force and effect); (ii)
the dates to which the rental and other charges are paid in advance, if any;
(iii) the amount of Tenant's security deposit, if any; and (iv) acknowledging
that there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, and no events or conditions then in existence which, with
the passage of time or notice or both, would constitute a default on the part
of Landlord hereunder, or specifying such defaults, events or conditions, if
any are claimed. It is expressly understood and agreed that any such statement
may be relied upon by any prospective purchaser or encumbrancer of all or any
portion of the Real Property. Tenant's failure to deliver such statement
within such time shall constitute an admission by Tenant that all statements
contained therein are true and correct. Tenant agrees to execute all documents
required in accordance with this Article 25 within ten (10) days after delivery
of said documents.
ARTICLE 26
LIABILITY OF LANDLORD
Notwithstanding anything in this Lease to the contrary, any remedy of
Tenant for the collection of a judgment (or other judicial process) requiring
the payment of money by Landlord in the event of any default by Landlord
hereunder or any claim, cause of action or obligation, contractual, statutory
or otherwise by Tenant against Landlord concerning, arising out of or relating
to any matter relating to this Lease and all of the covenants and conditions or
any obligations, contractual, statutory, or otherwise set forth herein, shall
be limited solely and exclusively to an amount which is equal to the lesser of
(i) the interest of Landlord in and to the Project, and (ii) the interest
Landlord would have in the Project if the Project were encumbered by third
party debt in an amount equal to ninety percent (90%) of the then current value
of the Project (as such value is reasonably determined by Landlord). No other
property or assets of Landlord, or any member, officer, director, shareholder,
partner, trustee, agent, servant or employee of Landlord (the "REPRESENTATIVE")
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this Lease,
Landlord's obligations to Tenant, whether contractual, statutory or otherwise,
the relationship of Landlord and Tenant hereunder, or Tenant's use or occupancy
of the Premises. Tenant further understands that any liability, duty or
obligation of Landlord to Tenant, shall automatically cease and terminate as of
the date that Landlord or any of Landlord's Representatives no longer have any
right, title or interest in or to the Project.
-20-
Initials: _____
_____
<PAGE> 25
ARTICLE 27
INABILITY TO PERFORM
This Lease and the obligations of Tenant hereunder shall not be
affected or impaired because Landlord is unable to fulfill any of its
obligations hereunder or is delayed in doing so, if such inability or delay is
caused by reason of any prevention, delay, stoppage due to strikes, lockouts,
acts of God, or any other cause previously, or at such time, beyond the
reasonable control or anticipation of Landlord (collectively, a "FORCE
MAJEURE") and Landlord's obligations under this Lease shall be forgiven and
suspended by any such Force Majeure.
ARTICLE 28
HAZARDOUS WASTE
(a) Tenant shall not cause or permit any Hazardous Material (as
defined in Article 28(d) below) to be brought, kept or used in or about the
Project by Tenant, its agents, employee, contractors, or invitees. Tenant
indemnifies Landlord from and against any breach by Tenant of the obligations
stated in the preceding sentence, and agrees to defend and hold Landlord
harmless from and against any and all claims, judgments, damages, penalties,
fines, costs, liabilities, or losses (including, without limitation, diminution
in value of the Project, damages for the loss or restriction or use of rentable
or usable space or of any amenity of the Project, damages arising from any
adverse impact or marketing of space in the Project, and sums paid in
settlement of claims, attorneys' fees, consultant fees, and expert fees) which
arise during or after the Term of this Lease as a result of such breach. This
indemnification of Landlord by Tenant includes, without limitation, costs
incurred in connection with any investigation of site conditions or any
cleanup, remedial, removal, or restoration work required by any federal, state,
or local governmental agency or political subdivision because of Hazardous
Material present in the soil or ground water on or under the Project. Without
limiting the foregoing, if the presence of any Hazardous Material on the
Project caused or permitted by Tenant results in any contamination of the
Project and subject to the provisions of Articles 9, 10 and 11, hereof, Tenant
shall promptly take all actions at its sole expense as are necessary to return
the Project to the condition existing prior to the introduction of any such
Hazardous Material and the contractors to be used by Tenant for such work must
be approved by Landlord, which approval shall not be unreasonably withheld so
long as such actions would not potentially have any material adverse long-term
or short-term effect on the Project and so long as such actions do not
materially interfere with the use and enjoyment of the Project by the other
tenants thereof.
(b) Landlord and Tenant acknowledge that Landlord may become
legally liable for the costs of complying with Laws (as defined in Article
28(e) (below) relating to Hazardous Material which are not the responsibility
of Landlord or the responsibility of Tenant, including the following: (i)
Hazardous Material present in the soil or ground water on the Project of which
Landlord has no knowledge as of the effective date of this Lease; (ii) a change
in Laws which relate to Hazardous Material which make that Hazardous Material
which is present on the Real Property as of the effective date of his Lease,
whether known or unknown to Landlord, a violation of such new Laws; (iii)
Hazardous Material that migrates, flows, percolates, diffuses, or in any way
moves on to, or under, the Project after the effective date of this Lease; or
Hazardous Material present on or under the Project as a result of any
discharge, dumping or spilling (whether accidental or otherwise) on the Project
by other lessees of the Project or their agents, employees, contractors, or
invitees, or by others.
(c) It shall not be unreasonable for Landlord to withhold its
consent to any proposed Transfer if (i) the proposed transferee's anticipated
use of the Premises involves the generation, storage, use, treatment, or
disposal of Hazardous Material; (ii) the proposed Transferee has been required
by any prior landlord, lender, or governmental authority to take remedial
action in connection with Hazardous Material contaminating a property if the
contamination resulted from such Transferee's actions or use of the property in
question; or (iii) the proposed Transferee is subject to an enforcement order
issued by any governmental authority in connection with the use, disposal, or
storage of a Hazardous Material.
-21-
Initials: _____
_____
<PAGE> 26
(d) As used herein, the term "HAZARDOUS MATERIAL" means any
hazardous or toxic substance, material, or waste which is or becomes regulated
by any local governmental authority, the State of California or the United
States Government. The term "Hazardous Material" includes, without limitation,
any material or substance which is (i) defined as "Hazardous Waste," "Extremely
Hazardous Waste," or "Restricted Hazardous Waste" under Sections 25115, 25117
or 25122.7, or listed pursuant to Section 25140, of the California Health and
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii)
defined as a "Hazardous Substance" under Section 25316 of the California Health
and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous
Substance Account Act), (iii) defined as a "Hazardous Material," "Hazardous
Substance," or "Hazardous Waste" under Section 25501 of the California Health
and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release
Response Plans and Inventory), (iv) defined as a "Hazardous Substance" under
Section 25281 of the California Health and Safety Code, Division 20, Chapter
6.7 (Underground Storage of Hazardous Substances), (v) petroleum, (vi)
asbestos, (vii) listed under Article 9 or defined as Hazardous or extremely
hazardous pursuant to Article 11 of Title 22 of the California Administrative
Code, Division 4, Chapter 20, (viii) designated as a "Hazardous Substance"
pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C.
Section 1317), (ix) defined as a "Hazardous Waste" pursuant to Section 1004 of
the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq. (42 U.S.C. Section 6903), or (x) defined as a "Hazardous Substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C.
Section 9601).
(e) As used herein, the term "LAWS" mean any applicable federal,
state or local laws, ordinances, or regulations relating to any Hazardous
Material affecting the Project, including, without limitation, the laws,
ordinances, and regulations referred to in Article 28 (d) above.
ARTICLE 29
SURRENDER OF PREMISES; REMOVAL OF PROPERTY
(a) The voluntary or other surrender of this Lease by Tenant to
Landlord, or a mutual termination hereof, shall not work a merger, and shall at
the option of Landlord, operate as an assignment to it of any or all subleases
or subtenancies affecting the Premises.
(b) Upon the expiration of the Term of this Lease, or upon any
earlier termination of this Lease, Tenant shall quit and surrender possession
of the Premises to Landlord in as good order and condition as the same are now
and hereafter may be improved by Landlord or Tenant, reasonable wear and tear
and repairs which are Landlord's obligation excepted, and shall, without
expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, all furniture, equipment, business and trade fixtures,
free-standing cabinet work, moveable partitioning and other articles of
personal property owned by Tenant or installed or placed by Tenant at its own
expense in the Premises, and all similar articles of any other persons claiming
under Tenant unless Landlord exercises its option to have any subleases or
subtenancies assigned to it, and Tenant shall repair all damage to the Premises
resulting from the installation and removal of such items to be removed.
(c) Whenever Landlord shall reenter the Premises as provided in
Article 12 hereof, or as otherwise provided in this Lease, any property of
Tenant not removed by Tenant upon the expiration of the Term of this Lease (or
within forty-eight (48) hours after a termination by reason of Tenant's
default), as provided in this Lease, shall be considered abandoned and Landlord
may remove any or all of such items and dispose of the same in any manner or
store the same in a public warehouse or elsewhere for the account and at the
expense and risk of Tenant, and if Tenant shall fail to pay the cost of storing
any such property after it has been stored for a period of ninety (90) days or
more, Landlord may sell any or all of such property at public or private sale,
in such manner and at such times and places as Landlord, in its sole
discretion, may deem proper, without notice or to demand upon Tenant, for the
payment of all or any part of such charges or the removal of any such property,
and shall apply the proceeds of such sale: first, to the cost and expense of
such sale, including reasonable attorneys' fees for services rendered; second,
to the payment of the cost of or charges for storing any such property; third,
to the
-22-
Initials: _____
_____
<PAGE> 27
payment of any other sums of money which may then or thereafter be due to
Landlord from Tenant under any of the terms hereof; and fourth, the balance, if
any, to Tenant.
(d) All fixtures, equipment, alterations, additions, improvements
and/or appurtenances attached to or built into the Premises prior to or during
the Term, whether by Landlord or Tenant and whether at the expense of Landlord
or Tenant, or of both, shall be and remain part of the Premises and shall not
be removed by Tenant at the end of the Term unless otherwise expressly provided
for in this Lease or unless such removal is required by Landlord pursuant to
the provisions of Article 9, above. Such fixtures, equipment, alterations,
additions, improvements and/or appurtenances shall include but not be limited
to: all floor coverings, drapes, paneling, built-in cabinetry, molding, doors,
vaults (including vault doors), plumbing systems, electrical systems, lighting
systems, silencing equipment, communication systems, all fixtures and outlets
for the systems mentioned above and for all telephone, radio, telegraph and
television purposes, and any special flooring or ceiling installations.
ARTICLE 30
MISCELLANEOUS
(a) Severability; Entire Agreement. Any provision of this Lease
which shall prove to be invalid, void, or illegal shall in no way affect,
impair or invalidate any other provision hereof any such other provisions shall
remain in full force and effect. This Lease and the Exhibits and any Addendum
attached hereto constitute the entire agreement between the parties hereto with
respect to the subject matter hereof, and no prior agreement or understanding
pertaining to any such matter shall be effective for any purpose. No provision
of this Lease may be amended or supplemented except by an agreement in writing
signed by the parties hereto or their successor in interest. This Lease shall
be governed by and construed in accordance with the laws of the State of
California.
(b) Attorneys' Fees; Waiver of Jury Trial.
(i) In any action to enforce the terms of this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party a reasonable sum for
attorneys' fees in such suit and such attorneys' fees shall be deemed to have
accrued prior to the commencement of such action and shall be paid whether or
not such action is prosecuted to judgment.
(ii) Should Landlord, without fault on Landlord's part, be
made a party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any person holding under or using the Premises
by license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or any such other person or otherwise arising out of
or resulting from any act or transaction of Tenant or of any such other person,
Tenant covenants to save and hold Landlord harmless from any judgment rendered
against Landlord or the Premises or any part thereof and from all costs and
expenses, including reasonable attorneys' fees incurred by Landlord in
connection with such litigation.
(iii) When legal services are rendered by an attorney at
law who is an employee of a party, attorneys' fees incurred by that party shall
be deemed to include an amount based upon the number of hours spent by such
employee on such matters multiplied by an appropriate billing rate determined
by taking into consideration the same factors, including but not limited by,
the importance of the matter, time applied, difficulty and results, as are
considered when an attorney not in the employ of a party is engaged to render
such service.
(iv) EACH PARTY HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION SEEKING SPECIFIC PERFORMANCE OF ANY PROVISION OF THIS LEASE, FOR
DAMAGES FOR ANY BREACH UNDER THIS LEASE, OR OTHERWISE FOR ENFORCEMENT OF ANY
RIGHT OR REMEDY HEREUNDER.
(c) Time of Essence. Each of Tenant's covenants herein is a
condition and time is of the essence with respect to the performance of every
provision of this Lease.
-23-
Initials: _____
_____
<PAGE> 28
(d) Headings. The article headings contained in this Lease are
for convenience only and do not in any way limit or amplify any term or
provision hereof. The terms "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular, the neuter shall include the
masculine and feminine genders and the obligations herein imposed upon Tenant
shall be joint and several as to each of the persons, firms or corporations of
which Tenant may be composed.
(e) Reserved Area. Tenant hereby acknowledges and agrees that the
exterior walls of the Premises and the area between the finished ceiling of the
Premises and the slab of the floor of the project thereabove have not been
demised hereby and the use thereof together with the right to install,
maintain, use, repair and replace pipes, ducts, conduits and wires leading
through, under or above the Premises in locations which will not materially
interfere with Tenant's use of the Premises and serving other parts of the
Project are hereby excepted and reserved unto Landlord.
(f) No Option. The submission of this Lease by Landlord, its
agent or representative for examination or execution by Tenant does not
constitute an option or offer to lease the Premises upon the terms and
conditions contained herein or a reservation of the Premises in favor of
Tenant, it being intended hereby that this Lease shall only become effective
upon the execution hereof by Landlord and delivery of a fully executed Lease to
Tenant.
(g) Use of Project Name; Improvements. Tenant shall not be
allowed to use the name, picture or representation of the Project, or words to
that effect, in connection with any business carried on in the Premises or
otherwise (except as Tenant's address) without the prior written consent of
Landlord. In the event that Landlord undertakes any additional improvements on
the Real Property including but not limited to new construction or renovation
or additions to the existing improvements, Landlord shall not be liable to
Tenant for any noise, dust, vibration or interference with access to the
Premises or disruption in Tenant's business caused thereby.
(h) Rules and Regulations. Tenant shall observe faithfully and
comply strictly with the Rules and Regulations attached to this Lease and made
a part hereof, and such other Rules and Regulations as Landlord may from time
to time reasonably adopt for the safety, care and cleanliness of the Project,
the facilities thereof, or the preservation of good order therein. Landlord
shall not be liable to Tenant for violation of any such Rules and Regulations,
or for the breach of any covenant or condition in any lease by any other tenant
in the Project. A waiver by Landlord of any Rule or Regulation for any other
tenant shall not constitute nor be deemed a waiver of the Rule or Regulation
for this Tenant.
(i) Quiet Possession. Upon Tenant's paying the Basic Rent,
Additional Rent and other sums provided hereunder and observing and performing
all of the covenants, conditions and provisions on Tenant's part to be observed
and performed hereunder, Tenant shall have quiet possession of the Premises for
the entire Term hereof, subject to all of the provisions of this Lease.
(j) Rent. All payments required to be made hereunder to Landlord
shall be deemed to be rent, whether or not described as such.
(k) Successors and Assigns. Subject to the provisions of Article
15 hereof, all of the covenants, conditions and provisions of this Lease shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns.
(l) Notices. Any notice required or permitted to be given
hereunder shall be in writing and may be given by personal service evidenced by
a signed receipt or sent by registered or certified mail, return receipt
requested, addressed to Tenant at the Premises or to Landlord at the address of
the place from time to time established for the payment of rent and which shall
be effective upon proof of delivery. Either party may by notice to the other
specify a different address for notice purposes except that, upon Tenant's
taking possession of the Premises, the Premises shall constitute Tenant's
address for notice purposes. A copy of all notices to be given to Landlord
hereunder shall be concurrently transmitted by Tenant to such party hereafter
-24-
Initials: _____
_____
<PAGE> 29
designated by notice from Landlord to Tenant. Any notices sent by Landlord
regarding or relating to eviction procedures, including without limitation
three day notices to pay or quit, may be sent by regular mail.
(m) Persistent Delinquencies. In the event that Tenant shall be
delinquent by more than fifteen (15) days in the payment of rent on three (3)
separate occasions in any twelve (12) month period, Landlord shall have the
right to terminate this Lease by thirty (30) days written notice given by
Landlord to Tenant within thirty (30) days of the last such delinquency.
(n) Right of Landlord to Perform. All covenants and agreements to
be performed by Tenant under any of the terms of this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any abatement of rent.
If Tenant shall fail to pay any sum of money, other than rent, required to be
paid by it hereunder or shall fail to perform any other act on its part to be
performed hereunder, and such failure shall continue beyond any applicable cure
period set forth in this Lease, Landlord may, but shall not be obligated to,
without waiving or releasing Tenant from any obligations of Tenant, make any
such payment or perform any such other act on Tenant's part to be made or
performed as is in this Lease provided. All sums so paid by Landlord and all
reasonable incidental costs, together with interest thereon at the rate of ten
percent (10%) per annum from the date of such payment by Landlord, shall be
payable to Landlord on demand and Tenant covenants to pay any such sums, and
Landlord shall have (in addition to any other right or remedy of Landlord) the
same rights and remedies in the event of the nonpayment thereof by Tenant as in
the case of default by Tenant in the payment of the rent.
(o) Access, Changes in Project, Facilities, Name.
(i) Every part of the Project except the areas of the
Premises inside the interior surfaces of all walls, windows and doors bounding
the Premises (including exterior building walls, core corridor walls and doors
and any core corridor entrance), and any space in or adjacent to the Premises
used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other building facilities, and the use thereof, as well as
access thereto through the Premises for the purposes of operation, maintenance,
decoration and repair, are reserved to Landlord.
(ii) Tenant shall permit Landlord to install, use and
maintain pipes, ducts and conduits within the walls, columns and ceilings of
the Premises.
(iii) Landlord reserves the right, without incurring any
liability to Tenant therefor, to make such changes in or to the Project and the
fixtures and equipment thereof, as well as in or to the street entrances,
halls, passages, elevators, stairways and other improvements thereof, as it may
deem necessary or desirable.
(iv) Landlord may adopt any name for the Project and
Landlord reserves the right to change the name or address of the Project at any
time. In the event Landlord voluntarily changes the address of the Project,
Landlord shall reimburse Tenant for Tenant's reasonable cost of replacing
Tenant's stationery (limited to quantities reasonably estimated to be on hand
as of the date of such address change and only to the extent necessitated by
such change of address of the Project).
(p) Corporate Authority. If Tenant is a corporation, each
individual executing this Lease on behalf of said corporation represents and
warrants that he or she is duly authorized to execute and deliver this Lease on
behalf of said corporation in accordance with a duly adopted resolution of the
Board of Directors of said corporation or in accordance with the By-laws of
said corporation, and that this Lease is binding upon said corporation in
accordance with its terms. If Tenant is a corporation, said corporation and
each individual executing this Lease on behalf of said corporation covenants
that Tenant shall provide to Landlord a copy of such resolution of the Board of
Directors authorizing the execution of this Lease on behalf of such
corporation, which copy of resolution shall be duly certified by the secretary
or an assistant secretary of the corporation to be a true copy of a resolution
duly adopted by the Board of Directors of said corporation. In the event
Tenant fails to comply with the requirements set forth in this
-25-
Initials: _____
_____
<PAGE> 30
subparagraph (p), then each individual executing this Lease shall be personally
liable for all of Tenant's obligations in this Lease.
(q) Identification of Tenant.
(i) If Tenant constitutes more than one person or entity,
(A) each of them shall be jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions and
provisions of this Lease to be kept, observed and performed by Tenant, (B) the
term "Tenant" as used in this Lease shall mean and include each of them jointly
and severally, and (C) the act of or notice from, or notice or refund to, or
the signature of, any one or more of them, with respect to the tenancy of this
Lease, including, but not limited to, any renewal, extension, expiration,
termination or modification of this Lease, shall be binding upon each and all
of the persons or entities executing this Lease as Tenant with the same force
and effect as if each and all of them had so acted or so given or received such
notice or refund or so signed.
(ii) If Tenant is a partnership (or is comprised of two or
more persons, individually and as co-partners of a partnership) or if Tenant's
interest in this Lease shall be assigned to a partnership (or to two or more
persons, individually and as co-partners of a partnership) pursuant to Article
15 hereof (any such partnership and such persons hereinafter referred to in
this Article 30(q)(ii) as "PARTNERSHIP TENANT"), the following provisions of
this Lease shall apply to such Partnership Tenant:
(A) The liability of each of the parties
comprising Partnership Tenant shall be joint and several.
(B) Each of the parties comprising Partnership
Tenant hereby consents in advance to, and agrees to be bound by, any written
instrument which may hereafter be executed, changing, modifying or discharging
this Lease, in whole or in part, or surrendering all or any part of the
Premises to the Landlord, and by notices, demands, requests or other
communication which may hereafter be given, by Partnership Tenant or any of the
parties comprising Partnership Tenant.
(C) Any bills, statements, notices, demands,
requests or other communications given or rendered to Partnership Tenant or to
any of the parties comprising Partnership Tenant shall be deemed given or
rendered to Partnership Tenant and to all such parties and shall be binding
upon Partnership Tenant and all such parties.
(D) If Partnership Tenant admits new partners,
all of such new partners shall, by their admission to Partnership Tenant, be
deemed to have assumed performance of all of the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed.
(E) Partnership Tenant shall give prompt notice
to Landlord of the admission of any such new partners, and, upon demand of
Landlord, shall cause each such new partner to execute and deliver to Landlord
an agreement in form satisfactory to Landlord, wherein each such new partner
shall assume performance of all of the terms, covenants and conditions of this
Lease on Partnership Tenant's part to be observed and performed (but neither
Landlord's failure to request any such agreement nor the failure of any such
new partner to execute or deliver any such agreement to Landlord shall
terminate the provisions of clause (D) of this Article 30(q)(ii) or relieve any
such new partner of its obligations thereunder).
(r) Exhibits and Addendum. The Exhibits and Addendum, if
applicable, attached hereto are incorporated herein by this reference as if
fully set forth herein.
ARTICLE 31
OPTION TO REVIEW
(a) Option Right. Landlord hereby grants the Tenant named in this
Lease (the "ORIGINAL TENANT") one (1) option ("OPTION") to extend the Lease
Term for a period of three (3) years ("OPTION TERM"), which option shall be
exercisable only by written notice delivered by
-26-
Initials: _____
_____
<PAGE> 31
Tenant to Landlord set forth below. The rights contained in this Article 31
shall be personal to the Original Tenant and may only be exercised by the
Original Tenant (and not any assignee, sublessee or other transferee of the
Original Tenant's interest in this Lease) if the Original Tenant occupies the
entire Premises as of the date of Tenant's Acceptance (as defined in Section
31(c) below).
(b) Option Rent. The rent payable by Tenant during the Option
Term ("OPTION RENT") shall be equal to ninety-five percent (95%) of the "Market
Rent" (defined below). "MARKET RENT" shall mean the applicable Monthly Basic
Rental, including all escalations, Direct Costs, additional rent and other
charges at which tenants, as of the commencement of the Option Term, are
leasing non-sublease, non-encumbered, non-equity, space comparable in size,
location and quality to the Premises in renewal transactions for a term
comparable to the Option Term which comparable space is located in office
buildings comparable to the Project in Calabasas, California.
(c) Exercise of Options. The Option shall be exercised by Tenant
only in the following manner: (i) Tenant shall not be in default, and shall
not have been in default under this Lease more than once, on the delivery date
of the Interest Notice and Tenant's Acceptance; (ii) Tenant shall deliver
written notice ("INTEREST NOTICE") to Landlord no less than nine (9) months
prior to the expiration of the Lease Term, stating that Tenant is interested in
exercising the Option, (iii) within fifteen (15) business days of Landlord's
receipt of Tenant's written notice, Landlord shall deliver notice ("OPTION RENT
NOTICE") to Tenant setting forth the Option Rent; and (iv) if Tenant desires to
exercise such Option, Tenant shall provide Landlord written notice within five
(5) business days after receipt of the Option Rent Notice ("TENANT'S
ACCEPTANCE") and upon, and concurrent with such exercise, Tenant may, at its
option, object to the Option Rent contained in the Option Rent Notice, in which
case the parties shall follow the procedure, and the Option Rent shall be
determined, as set forth in Section 31(d) below. Tenant's failure to deliver
the Interest Notice or Tenant's Acceptance on or before the dates specified
above shall be deemed to constitute Tenant's election not to exercise the
Option.
(d) Determination of Market Rent. If Tenant timely and
appropriately objects to the Market Rent in Tenant's Acceptance, Landlord and
Tenant shall attempt to agree upon the Market Rent using their best good-faith
efforts. If Landlord and Tenant fail to reach agreement within twenty-one (21)
days following Tenant's Acceptance ("OUTSIDE AGREEMENT DATE"), then each party
shall make a separate determination of the Market Rent which shall be submitted
to each other and to arbitration in accordance with the following items (i)
through (vii):
(i) Landlord and Tenant shall each appoint, within ten
(10) days of the Outside Agreement Date, one arbitrator who shall by profession
be a current real estate broker or appraiser of commercial high-rise properties
in the immediate vicinity of the Project, and who has been active in such field
over the last five (5) years. The determination of the arbitrators shall be
limited solely to the issue of whether Landlord's or Tenant's submitted Market
Rent is the closest to the actual Market Rent as determined by the arbitrators,
taking into account the requirements of item (b), above.
(ii) The two arbitrators so appointed shall within five
(5) business days of the date of the appointment of the last appointed
arbitrator agree upon and appoint a third arbitrator who shall be qualified
under the same criteria set forth hereinabove for qualification of the initial
two arbitrators.
(iii) The three arbitrators shall within fifteen (15) days
of the appointment of the third arbitrator reach a decision as to whether the
parties shall use Landlord's or Tenant's submitted Market Rent, and shall
notify Landlord and Tenant thereof.
(iv) The decision of the majority of the three arbitrators
shall be binding upon Landlord and Tenant.
(v) If either Landlord or Tenant fails to appoint an
arbitrator within ten (10) days after the applicable Outside Agreement Date,
the arbitrator appointed by one of them shall
-27-
Initials: _____
_____
<PAGE> 32
reach a decision, notify Landlord and Tenant thereof, and such arbitrator's
decision shall be binding upon Landlord and Tenant.
(vi) If the two arbitrators fail to agree upon and appoint
a third arbitrator, or both parties fail to appoint an arbitrator, then the
appointment of the third arbitrator or any arbitrator shall be dismissed and
the matter to be decided shall be forthwith submitted to arbitration under the
provisions of the American Arbitration Association, but subject to the
instruction set forth in this item (d).
(vii) The cost of arbitration shall be paid by Landlord and
Tenant equally.
ARTICLE 32
SIGNAGE/DIRECTORY
Provided Tenant is not in default hereunder, Tenant, at Tenant's sole
cost and expense, shall have the right to one (l) line in the lobby directory
during the Lease Term. Provided Tenant is not in default hereunder, Tenant
shall have the right, at Tenant's sole cost and expense, to install a strip on
the Project's "monument" sign ("TENANT'S SIGNAGE"). Tenant's Signage shall be
subject to Landlord's approval as to size, design, location, graphics,
materials, colors and similar specifications and shall be consistent with the
exterior design, materials and appearance of the Project and the Project's
signage program and shall be further subject to all applicable local
governmental laws, rules, regulations, codes and other approvals. Tenant's
signage shall be personal to the original Tenant and may not be assigned to any
assignee or sublessee, or any other person or entity. Landlord has the right,
but not the obligation, to oversee the installation of Tenant's Signage. The
cost to operate, if any, Tenant's Signage shall be paid for by Tenant. Upon
the expiration of the Lease Term, or other earlier termination of this Lease,
Tenant shall be responsible for any and all costs associated with the removal
of Tenant's Signage, including, but not limited to, the cost to repair and
restore the Project to its original condition, normal wear and tear excepted.
IN WITNESS WHEREOF, the parties have executed this Lease, consisting
of the foregoing provisions and Articles, including all exhibits and other
attachments referenced therein, as of the date first above written.
"LANDLORD" ARDEN REALTY LIMITED PARTNERSHIP, a
Maryland limited partnership
By: ARDEN REALTY, INC., a Maryland
corporation, Its sole general partner
By: /s/ VICTOR J. COLEMAN
--------------------------------
Victor J. Coleman
Its: President and COO
By:
--------------------------------
Its: Executive Vice President
"TENANT" ON'VILLAGE COMMUNICATIONS, INC.
a California corporation
By: /s/ JACK TRACHT
-------------------------------------
Print Name: Jack Tracht
Its: CEO
By: /s/ ROBERT
--------------------------------------
Print Name: Robert
Its: _____________________________
-28-
Initials: _____
_____
<PAGE> 33
EXHIBIT "A"
PREMISES
EXHIBIT "A"
-1-
Initials: ______
______
<PAGE> 34
EXHIBIT "B"
RULES AND REGULATIONS
1. No sign, advertisement or notice shall be displayed, printed
or affixed on or to the Premises or to the outside or inside of the Project or
so as to be visible from outside the Premises or Project without Landlord's
prior written consent. Landlord shall have the right to remove any
non-approved sign, advertisement or notice, without notice to and at the
expense of Tenant, and Landlord shall not be liable in damages for such
removal. All approved signs or lettering on doors and walls shall be printed,
painted, affixed or inscribed at the expense of Tenant by Landlord or by a
person selected by Landlord and in a manner and style acceptable to Landlord.
2. Tenant shall not obtain for use on the Premises ice, drinking
water, waxing, cleaning, interior glass polishing, rubbish removal, towel or
other similar services, or accept barbering or bootblackening, or coffee cart
services, milk, soft drinks or other like services on the Premises, except from
persons authorized by Landlord and at the hours and under regulations fixed by
Landlord. No vending machines or machines of any description shall be
installed, maintained or operated upon the Premises without Landlord's prior
written consent.
3. The sidewalks, halls, passages, exits, entrances, elevators
and stairways shall not be obstructed by Tenant or used for any purpose other
than for ingress and egress from Tenant's Premises.
4. Toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than for which they were constructed
and no foreign substance of any kind whatsoever shall be thrown therein.
5. Tenant shall not overload the floor of the Premises or mark,
drive nails, screw or drill into the partitions, ceilings or floor or in any
way deface the Premises.
6. In no event shall Tenant place a load upon any floor of the
Premises or portion of any such flooring exceeding the floor load per square
foot of area for which such floor is designed to carry and which is allowed by
law, or any machinery or equipment which shall cause excessive vibration to the
Premises or noticeable vibration to any other part of the Project. Prior to
bringing any heavy safes, vaults, large computers or similarly heavy equipment
into the Project, Tenant shall inform Landlord in writing of the dimensions and
weights thereof and shall obtain Landlord's consent thereto. Such consent
shall not constitute a representation or warranty by Landlord that the safe,
vault or other equipment complies, with regard to distribution of weight and/or
vibration, with the provisions of this Rule 6 nor relieve Tenant from
responsibility for the consequences of such noncompliance, and any such safe,
vault or other equipment which Landlord determines to constitute a danger of
damage to the Project or a nuisance to other tenants, either alone or in
combination with other heavy and/or vibrating objects and equipment, shall be
promptly removed by Tenant upon Landlord's written notice of such determination
and demand for removal thereof.
7. Tenant shall not use or keep in the Premises or Project any
kerosene, gasoline or inflammable, explosive or combustible fluid or material,
or use any method of heating or air-conditioning other than that supplied by
Landlord.
8. Tenant shall not lay linoleum, tile, carpet or other similar
floor covering so that the same shall be affixed to the floor of the Premises
in any manner except as approved by Landlord.
9. Without Landlord's prior written approval, Tenant shall not
install or use any blinds, shades, awnings or screens in connection with any
window or door of the Premises and shall not use any drape or window covering
facing any exterior glass surface other than the standard drapes, blinds or
other window covering established by Landlord.
EXHIBIT "B"
-1-
Initials: ______
______
<PAGE> 35
10. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system by closing drapes when the sun's rays fall
directly on windows of the Premises. Tenant shall not obstruct, alter, or in
any way impair the efficient operation of Landlord's heating, ventilating and
air-conditioning system. Tenant shall not tamper with or change the setting of
any thermostats or control valves.
11. The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the
permitted use of the Premises. Tenant shall not, without Landlord's prior
written consent, occupy or permit any portion of the Premises to be occupied or
used for the manufacture or sale of liquor or tobacco in any form, or a barber
or manicure shop, or as an employment bureau. The Premises shall not be used
for lodging or sleeping or for any improper, objectionable or immoral purpose.
No auction shall be conducted on the Premises.
12. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises, or disturb or interfere with occupants of Project or
neighboring buildings or premises or those having business with it by the use
of any musical instrument, radio, phonographs or unusual noise, or in any other
way.
13. No bicycles, vehicles or animals of any kind shall be brought
into or kept in or about the Premises, and no cooking shall be done or
permitted by any tenant in the Premises, except that the preparation of coffee,
tea, hot chocolate and similar items for tenants, their employees and visitors
shall be permitted. No tenant shall cause or permit any unusual or
objectionable odors to be produced in or permeate from or throughout the
Premises.
14. The sashes, sash doors, skylights, windows and doors that
reflect or admit light and air into the halls, passageways or other public
places in the Project shall not be covered or obstructed by any tenant, nor
shall any bottles, parcels or other articles be placed on the window sills.
15. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows by any tenant, nor shall any changes be made in
existing locks or the mechanisms thereof unless Landlord is first notified
thereof, gives written approval, and is furnished a key therefor. Each tenant
must, upon the termination of his tenancy, give to Landlord all keys of stores,
offices, or toilets or toilet rooms, either furnished to, or otherwise procured
by, such tenant, and in the event of the loss of any keys so furnished, such
tenant shall pay Landlord the cost of replacing the same or of changing the
lock or locks opened by such lost key if Landlord shall deem it necessary to
make such change.
16. Landlord shall have the right to prohibit any advertising by
any tenant which, in Landlord's opinion, tends to impair the reputation of the
Project or its desirability as an office building and upon written notice from
Landlord any tenant shall refrain from and discontinue such advertising.
17. Landlord reserves the right to control access to the Project
by all persons after reasonable hours of generally recognized business days and
at all hours on Sundays and legal holidays. Each tenant shall be responsible
for all persons for whom it requests after hours access and shall be liable to
Landlord for all acts of such persons. Landlord shall have the right from time
to time to establish reasonable rules pertaining to freight elevator usage,
including the allocation and reservation of such usage for tenants' initial
move-in to their premises, and final departure therefrom.
18. Any person employed by any tenant to do janitorial work shall,
while in the Project and outside of the Premises, be subject to and under the
control and direction of the Office of the Project (but not as an agent or
servant of Landlord, and the tenant shall be responsible for all acts of such
persons).
19. All doors opening on to public corridors shall be kept closed,
except when being used for ingress and egress.
EXHIBIT "B"
-2-
Initials: ______
______
<PAGE> 36
20. The requirements of tenants will be attended to only upon
application to the Office of the Project.
21. Canvassing, soliciting and peddling in the Project are
prohibited and each tenant shall cooperate to prevent the same.
22. All office equipment of any electrical or mechanical nature
shall be placed by tenants in the Premises in settings approved by Landlord, to
absorb or prevent any vibration, noise or annoyance.
23. No air-conditioning unit or other similar apparatus shall be
installed or used by any tenant without the prior written consent of Landlord.
Tenant shall pay the cost of all electricity used for air-conditioning in the
Premises if such electrical consumption exceeds normal office requirements,
regardless of whether additional apparatus is installed pursuant to the
preceding sentence.
24. There shall not be used in any space, or in the public halls
of the Project, either by any tenant or others, any hand trucks except those
equipped with rubber tires and side guards.
25. All electrical ceiling fixtures hung in offices or spaces
along the perimeter of the Project must be fluorescent and/or of a quality,
type, design and bulb color approved by Landlord. Tenant shall not permit the
consumption in the Premises of more than 2-1/2 watts per net usable square foot
in the Premises in respect of office lighting nor shall Tenant permit the
consumption in the Premises of more than 1-1/2 watts per net usable square foot
of space in the Premises in respect of the power outlets therein, at any one
time. In the event that such limits are exceeded, Landlord shall have the
right to require Tenant to remove lighting fixtures and equipment and/or to
charge Tenant for the cost of the additional electricity consumed.
26. Parking.
(a) [Intentionally omitted.]
(b) Automobiles must be parked entirely within the stall
lines on the floor.
(c) All directional signs and arrows must be observed.
(d) The speed limit shall be 5 miles per hour.
(e) Parking is prohibited in areas not striped for
parking.
(f) Parking cards or any other device or form of
identification supplied by Landlord (or its operator) shall remain the property
of Landlord (or its operator). Such parking identification device must be
displayed as requested and may not be mutilated in any manner. The serial
number of the parking identification device may not be obliterated. Devices
are not transferable or assignable and any device in the possession of an
unauthorized holder will be void. There will be a replacement charge to the
Tenant or person designated by Tenant of $25.00 for loss of any parking card.
(g) The monthly rate for parking is payable one (1) month
in advance and must be paid by the third business day of each month. Failure
to do so will automatically cancel parking privileges and a charge at the
prevailing daily rate will be due. No deductions or allowances from the
monthly rate will be made for days parker does not use Parking Facilities.
(h) Tenant may validate visitor parking by such method or
methods as the Landlord may approve, at the validation rate from time to time
generally applicable to visitor parking.
(i) Landlord (and its operator) may refuse to permit any
person who violates the within rules to park in the parking lot, and any
violation of the rules shall subject the automobile to removal from the parking
lot at the parker's expense. In either of said events, Landlord (or its
operator) shall refund a prorata portion of the current monthly parking rate
and the sticker or any other form of identification supplied by Landlord (or
its operator) will be returned to Landlord (or its operator).
(j) The Building manager or parking attendants, if any,
are not authorized to make or allow any exceptions to these Rules and
Regulations.
EXHIBIT "B"
-3-
Initials: ______
______
<PAGE> 37
(k) Every parker is required to park and lock their own
automobile. All responsibility for any loss or damage to automobiles or any
personal property therein is assumed by the parker.
(l) Loss or theft of parking identification devices from
automobiles must be reported to the Building manager immediately, and a lost or
stolen report must be filed by the parker at that time.
(m) The Parking facilities are for the sole purpose of
parking one automobile per space. Washing, waxing, cleaning or servicing of
any vehicles by the parker or his agents is prohibited.
(n) Landlord (and its operator) reserves the right to
refuse the issuance of monthly stickers or other parking identification devices
to any Tenant and/or its employees who refuse to comply with the above Rules
and Regulations and all City, State or Federal ordinances, laws or agreements.
(o) Tenant agrees to acquaint all employees with these
Rules and Regulations.
(p) No vehicle shall be stored in the parking lot for a
period of more than one (1) week.
EXHIBIT "B"
-4-
Initials: ______
______
<PAGE> 38
EXHIBIT "C"
NOTICE OF LEASE TERM DATES
AND TENANTS PROPORTIONATE SHARE
TO: _______________________________ DATE: ___________________________________
_______________________________ ___________________________________
_______________________________
RE: Lease dated ________________, 19__, between _______________________________
__________________________________ ("LANDLORD"), and ______________________
__________________________________ ("TENANT"), concerning Suite __________,
located at _______________________________________________.
Ladies and Gentlemen:
In accordance with the Lease, Landlord wishes to advise and/or confirm
the following:
1. That the Premises have been accepted herewith by the
Tenant as being substantially complete in accordance with the Lease and that
there is no deficiency in construction.
2. That the Tenant has taken possession of the Premises
and acknowledges that under the provisions of the Lease the Term of said Lease
shall commence as of ____________ for a term of ________________________ ending
on ________________________.
3. That in accordance with the Lease, Basic Rental
commenced to accrue on ________________________.
4. If the Commencement Date of the Lease is other than
the first day of the month, the first billing will contain a prorata
adjustment. Each billing thereafter shall be for the full amount of the
monthly installment as provided for in said Lease.
5. Rent is due and payable in advance on the first day
of each and every month during the Term of said Lease. Your rent checks should
be made payable to ________________________ at ________________________________.
6. The exact number of rentable square feet within the
Premises is __________ square feet.
7. Tenant's Proportionate Share, as adjusted based upon
the exact number of rentable square feet within the Premises is _______%.
AGREED AND ACCEPTED:
TENANT:
__________________________________________________,
a ________________________________________________
By: _____________________________________________
Its:_________________________________________
EXHIBIT "C"
-1-
Initials: ______
______
<PAGE> 39
EXHIBIT "D"
This Tenant Work Letter shall set forth the terms and conditions
relating to the renovation of the tenant improvements in the Premises. This
Tenant Work Letter is essentially organized chronologically and addresses the
issues of the construction of the Premises, in sequence, as such issues will
arise.
SECTION 1
CONSTRUCTION DRAWINGS FOR THE PREMISES
LANDLORD SHALL CONSTRUCT THE IMPROVEMENTS IN THE PREMISES (THE "TENANT
IMPROVEMENTS") pursuant to that certain plan dated March 19, 1997 and revised
on March 21, 1997 and prepared by Heney, Dong & Associates (collectively, the
"PLANS"). Unless specifically noted to the contrary on the Plans, the Tenant
Improvements shall be constructed using Building-standard specifications and
materials as determined by Landlord. Based upon the Plans, Landlord shall
cause the Architect to prepare detailed plans and specifications for the Tenant
Improvements ("WORKING DRAWINGS"). Landlord shall then forward the Working
Drawings to Tenant for Tenant's approval. Tenant shall approve or reasonably
disapprove any draft of the Working Drawings within three (3) business days
after Tenant's receipt thereof; provided, however, that (i) Tenant shall not be
entitled to disapprove any portion, component or aspect of the Working Drawings
which are consistent with the Plans unless Tenant agrees to pay for the
additional cost resulting from such change in the Plans as part of the
Over-Allowance Amount pursuant to Section 2 below, and (ii) any disapproval of
the Working Drawings by Tenant shall be accompanied by a detailed written
explanation of the reasons for Tenant's disapproval. Failure of Tenant to
reasonably disapprove any draft of the Working Drawings within said three (3)
business day period shall be deemed to constitute Tenant's approval thereof.
The Working Drawings, as approved by Landlord and Tenant, may be referred to
herein as the "APPROVED WORKING DRAWINGS." Tenant shall make no changes or
modifications to the Plans or the Approved Working Drawings without the prior
written consent of Landlord, which consent may be withheld in Landlord's sole
discretion if such change or modification would directly or indirectly delay
the "Substantial Completion," as that term is defined in Section 5.1 of this
Tenant Work Letter, of the Tenant Improvements in the Premises or increase the
cost of designing or constructing the Tenant Improvements.
SECTION 2
OVER-ALLOWANCE AMOUNT
In the event that after Tenant's execution of the Lease, any
revisions, changes, or substitutions shall be made to the Plans or the Approved
Working Drawings or the Tenant Improvements, any additional costs which arise
in connection with such revisions, changes or substitutions shall be considered
to be an "OVER-ALLOWANCE AMOUNT." The Over-Allowance Amount shall be paid by
Tenant to Landlord, as Additional Rent, within ten (10) days after Tenant's
receipt of invoice therefor. The Over-Allowance Amount shall be disbursed by
Landlord prior to the disbursement of any portion of Landlord's contribution to
the construction of the Tenant Improvements.
SECTION 3
RETENTION OF CONTRACTOR;
WARRANTIES AND GUARANTIES
Landlord hereby assigns to Tenant all warranties and guaranties by the
contractor who constructs the Tenant Improvements (the "CONTRACTOR") relating
to the Tenant Improvements, and Tenant hereby waives all claims against
Landlord relating to, or arising out of the
EXHIBIT "D"
-1-
Initials: ______
______
<PAGE> 40
construction of, the Tenant Improvements. The Contractor shall be designated
and retained by Landlord to construct the Tenant Improvements.
SECTION 4
TENANT'S COVENANTS
Tenant shall, at no cost to Tenant, cooperate with Landlord and the
space planner or architect retained by Landlord ("ARCHITECT") to cause a Notice
of Completion to be recorded in the office of the Recorder of the County of Los
Angeles in accordance with Section 3093 of the Civil Code of the State of
California or any successor statute upon completion of construction of the
Tenant Improvements.
SECTION 5
COMPLETION OF THE TENANT IMPROVEMENTS
5.1 Substantial Completion. For purposes of this Lease,
"SUBSTANTIAL COMPLETION" of the Tenant Improvements in the Premises shall occur
upon the completion of construction of the Tenant Improvements in the Premises
pursuant to the Approved Working Drawings, with the exception of any punch list
items and any tenant fixtures, work-stations, built-in furniture, or equipment
to be installed by Tenant.
5.2 Delay of the Substantial Completion of the Premises. Except
as provided in this Section 5.2, the Commencement Date shall occur as set forth
in the Lease. If there shall be a delay or there are delays in the Substantial
Completion of the Tenant Improvements in the Premises as a result of the
following (collectively, "TENANT DELAYS"):
5.2.1 Tenant's failure to timely approve any matter
requiring Tenant's approval;
5.2.2 A breach by Tenant of the terms of this Tenant Work
Letter or the Lease;
5.2.3 Tenant's request for changes in the Plans, Working
Drawings or Approved Working Drawings;
5.2.4 Changes in any of the Plans, Working Drawings or
Approved Working Drawings because the same do not comply with applicable laws;
5.2.5 Tenant's requirement for materials, components,
finishes or improvements which are not available in a commercially reasonable
time given the anticipated date of Substantial Completion of the Tenant
Improvements in the Premises, or which are different from, or not included in,
Landlord's standard improvement package items for the Building;
5.2.6 Changes to the base, shell and core work of the
Building required by the Approved Working Drawings or any changes thereto; or
5.2.7 Any other acts or omissions of Tenant, or its agents,
or employees;
then, notwithstanding anything to the contrary set forth in the Lease or this
Tenant Work Letter and regardless of the actual date of the Substantial
Completion of the Tenant Improvements in the Premises, the date of Substantial
Completion thereof shall be deemed to be the date that Substantial Completion
would have occurred if no Tenant Delay or Delays, as set forth above, had
occurred.
5.3 Outside Date. In the event that the Substantial Completion of
the Premises has not occurred by the "OUTSIDE DATE," which shall be September
1, 1997, as such September 1, 1997 date may be extended by the number of days
of Tenant Delays and by the number of days of "Force Majeure Delays" (as
defined below), then the sole remedy of Tenant shall be the right to deliver a
notice to Landlord (the "OUTSIDE DATE TERMINATION NOTICE") electing to
terminate this Lease effective upon receipt of the Outside Date Termination
Notice by Landlord (the
EXHIBIT "D"
-2-
Initials: ______
______
<PAGE> 41
"EFFECTIVE DATE"). Except as provided hereinbelow, the Outside Date
Termination Notice must be delivered by Tenant to Landlord, if at all, not
earlier than the Outside Date and not later than five (5) business days after
the Outside Date. If Tenant delivers the Outside Date Termination Notice to
Landlord, then Landlord shall have the right to suspend the Effective Date for
a period ending thirty (30) days after the original Effective Date. In order
to suspend the Effective Date, Landlord must deliver to Tenant, within five (5)
business days after receipt of the Outside Date Termination Notice, a
certificate of the Contractor certifying that it is such Contractor's best good
faith judgment that Substantial Completion of the Premises will occur within
thirty (30) days after the original Effective Date. If Substantial Completion
of the Premises occurs within said thirty (30) day suspension period, then the
Outside Date Termination Notice shall be of no further force and effect; if,
however, Substantial Completion of the Premises does not occur within said
thirty (30) day suspension period, then this Lease shall terminate as of the
date of expiration of such thirty (30) day period. If prior to the Outside
Date Landlord determines that Substantial Completion of the Premises will not
occur by the Outside Date, Landlord shall have the right to deliver a written
notice to Tenant stating Landlord's opinion as to the date by which Substantial
Completion of the Premises shall occur and Tenant shall be required, within
five (5) business days after receipt of such notice, to either deliver the
Outside Date Termination Notice (which will mean that this Lease shall
thereupon terminate and shall be of no further force and effect) or agree to
extend the Outside Date to that date which is set by Landlord. Failure of
Tenant to so respond in writing within said five (5) business day period shall
be deemed to constitute Tenant's agreement to extend the Outside Date to that
date which is set by Landlord. If the Outside Date is so extended, Landlord's
right to request Tenant to elect to either terminate or further extend the
Outside Date shall remain and shall continue to remain, with each of the notice
periods and response periods set forth above, until the Substantial Completion
of the Premises or until this Lease is terminated. For purposes of this
Section 5.3, "FORCE MAJEURE DELAYS" shall mean and refer to a period of delay
or delays encountered by Landlord affecting the work of construction of the
Tenant Improvements because of delays due to excess time in obtaining
governmental permits or approvals beyond the time period normally required to
obtain such permits or approvals for similar space, similarly improved, in
comparable office buildings in Calabasas, California; fire, earthquake or other
acts of God; acts of the public enemy; riot; public unrest; insurrection;
governmental regulations of the sales of materials or supplies or the
transportation thereof; strikes or boycotts; shortages of material or labor or
any other cause beyond the reasonable control of Landlord.
SECTION 6
MISCELLANEOUS
6.1 Tenant's Representative. Tenant has designated Mr. Bill Rossi
as its sole representative with respect to the matters set forth in this Tenant
Work Letter, who, until further notice to Landlord, shall have full authority
and responsibility to act on behalf of the Tenant as required in this Tenant
Work Letter.
6.2 Landlord's Representative. Prior to commencement of
construction of the Tenant Improvements, Landlord shall designate a
representative with respect to the matters set forth in this Tenant Work
Letter, who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Tenant Work
Letter.
6.3 Time of the Essence in This Tenant Work Letter. Unless
otherwise indicated, all references herein to a "number of days" shall mean and
refer to calendar days.
EXHIBIT "D"
-3-
Initials: ______
______
<PAGE> 42
EXHIBIT "E"
FORM OF LETTER OF CREDIT
Arden Realty Limited Partnership
21031 Ventura Blvd., Suite 921
Woodland Hills, CA 91364
Attn: Ms. Ria Valas
Ladies and Gentlemen:
We hereby establish in your favor, for the account of On'Village
Communications, Inc., a California corporation ("APPLICANT"), our Irrevocable
Letter of Credit and authorize you to draw on us at sight, the aggregate amount
of Seventy Eight Thousand Dollars ($78,000.00) ("STATED AMOUNT").
Funds under this Letter of Credit are available to Arden Realty
Limited Partnership, a Maryland limited partnership ("BENEFICIARY") as follows:
Any and all of the sums hereunder may be drawn down at any time and
from time to time from and after the date hereof by Beneficiary when
accompanied by this Letter of Credit and a written statement signed by an
authorized signatory of Beneficiary, certifying that such moneys are due and
owing to Beneficiary as a result of a default by Applicant with respect to any
provision of that certain Standard Office Lease dated April 7, 1997 ("LEASE")
by and between Beneficiary, as Landlord, and Applicant, as Tenant, together
with a notarized certification by any such individual representing that such
individual is authorized by Beneficiary to take such action on behalf of
Beneficiary. The sums drawn by Beneficiary under this Letter of Credit shall
be payable upon demand without necessity of notice.
This Letter of Credit is transferable by Beneficiary in its entirety.
Should a transfer be desired, such transfer will be subject to the return to us
of this Letter of Credit, together with written instructions.
The amount of each draft must be endorsed on the reverse hereof by the
negotiating bank. We hereby agree that this Letter of Credit shall be duly
honored upon presentation and delivery of the certification specified above.
This Letter of Credit shall expire on May 31, 1999.
Notwithstanding the above expiration of this Letter of Credit, the
term of this Letter of Credit shall be automatically renewed for successive,
additional one (1) year periods unless, at least thirty (30) days prior to any
such date of expiration, the undersigned shall give written notice to
Beneficiary, by certified mail, return receipt requested and at the address set
forth above or at such other address as may be given to the undersigned by
Beneficiary, that this Letter of Credit will not be renewed.
This Letter of Credit is governed by the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce
Publication 500.
Very truly yours,
WELLS FARGO BANK, N.A.
By:_________________________________
Its:_____________________________
EXHIBIT "E"
<PAGE> 43
EXHIBIT "F"
NONDISTURBANCE AND ATTORNMENT AGREEMENT
(CITY OF CALABASAS)
EXHIBIT "F"
<PAGE> 44
RECORDING REQUESTED BY:
JAMES C. NEIL, ESQ.
WHEN RECORDED, RETURN TO:
JAMES C. NEIL, ESQ.
800 S. FIGUEROA STREET, SUITE 670
LOS ANGELES, CA 90017
NONDISTURBANCE AND ATTORNMENT AGREEMENT
This Nondisturbance and Attornment Agreement ("Agreement") is entered
into as of April 8, 1997, by and among the CITY OF CALABASAS, a California
municipal corporation ("City"), ARDEN REALTY LIMITED PARTNERSHIP, a Maryland
limited partnership ("Landlord") and ON'VILLAGE COMMUNICATIONS, INC., a
California corporation ("Tenant").
R E C I T A L S :
A. Landlord and Tenant have entered into an Office Lease dated
April 7, 1997 ("Lease"), covering certain premises ("Demised Premises"),
situated in the City of Calabasas, Los Angeles County, State of California
being part of an office building commonly known as 26135 Mureau Road,
Calabasas, California ("Property"). The Property is more particularly
described in attached Exhibit A, incorporated by reference.
B. City has stated intentions of exercising its power of eminent
domain and acquiring ownership of the Property and the City Council has adopted
a Resolution of Necessity for such acquisition.
-1-
<PAGE> 45
C. On the terms and conditions in this Agreement, the parties
desire to assure Tenant possession of the Demised Premises for the entire term
of the Lease, even though City may acquire ownership of the Property by or
under the threat of eminent domain before the expiration of the Lease.
Therefore, in consideration of the mutual covenants and agreements
contained in this Agreement, the parties agree as follows:
1. NONDISTURBANCE.
So long as Tenant is not in default, beyond any period given to Tenant
to cure a default, in the payment of rent or in the performance of any of the
terms, covenants, or conditions of the Lease, City will not act in a capacity
as landlord or through the eminent domain action to terminate or otherwise
affect Tenant's interest under the Lease. Tenant expressly acknowledges that
Tenant is aware of the City's probable acquisition of the Subject Property and
agrees that Tenant shall not be entitled to relocation benefits, or claims for
goodwill or bonus value, arising out of or related to City's subsequent
acquisition of the Premises and Tenant's occupancy of the Premises in
accordance with the Lease. Tenant, therefore, waives, releases and forever
discharges any and all rights, claims or actions for relocation benefits
pursuant to Government Code Section 7260 et. seq. Tenant further waives,
releases and forever discharges all rights, claims or action for goodwill or
bonus value against City unless the Lease of Tenant is terminated other than as
may be allowed pursuant to the terms of the Lease between Landlord and Tenant.
Landlord and City hereby agree that this Agreement and the terms
hereof, and any action taken consistent with the terms thereof, cannot be used
in any manner or in any way or as evidence in any subsequent action at law or
in equity involving the City's acquisition of the Property.
-2-
<PAGE> 46
2. ATTORNMENT.
If the Landlord's interest is transferred to and owned by City because
of City's exercise of its power of eminent domain or by purchase or other
method of acquisition, or by any other manner and City succeeds to Landlord's
interest under the Lease, Tenant shall be bound to the City, and City shall be
bound to Tenant under all of the terms, covenants, and conditions of the Lease
for the balance of the remaining term, including any extensions or renewals,
with the same effect as if City were Landlord under the Lease and had waived
its power of eminent domain as provided herein. Tenant agrees to attorn to
City as the Landlord, with the attornment being effective and self-operable
immediately upon City succeeding to the interest of Landlord under the Lease,
all without the execution by the parties of any further instruments. However,
Tenant shall not be obligated to pay rent to City until Tenant receives written
notice from City notifying Tenant that City has succeeded to Landlord's
interest under the Lease and directing where rent should be mailed. The
respective rights and obligations of Tenant and City upon attornment, to the
extent of the then remaining balance of the term of the Lease, shall be the
same as in the Lease, which is incorporated by reference in this Agreement. If
City succeeds to Landlord's interest in the Lease, City shall be bound to
Tenant under all the terms, covenants, and conditions of the Lease, and Tenant
shall, after City's succession to Landlord's interest, have the same remedies
against City for the breach of any agreement in the Lease that Tenant might
have had against Landlord.
3. NEW LEASE AND FURTHER INSTRUMENTS.
Immediately upon request by the City, Tenant and City shall enter into
a new written lease for the remainder of the original Term of the Lease on the
same terms and conditions as the Lease, except for any changes made necessary
because of the substitution of the City in place of Landlord.
4. DEFINITIONS.
-3-
<PAGE> 47
The term Landlord shall include Landlord and the successors, assigns,
and sublessees of Landlord. The term Tenant shall include Tenant and the
successors, assigns, and sublessees of Tenant. This Agreement shall inure to
the benefit of and be binding upon all successors, assigns, and sublessees.
The term Lease shall include the Lease and all amendments, addenda, extensions,
and renewals.
5. NO CHANGE IN LEASE.
Landlord and Tenant agree not to change, alter, amend, or otherwise
modify the Lease without the prior written consent of City. Any change,
alteration, amendment, or other modification to the Lease without the prior
written consent of City shall be void as to City.
6. MODIFICATION.
This Agreement may not be modified other than by an agreement in
writing signed by the parties or by their respective successors in interest.
7. ATTORNEY FEES.
If any party commences any action against any other party based on
this Agreement, the prevailing party shall be entitled to recover reasonable
attorney fees, expenses, and costs of suit.
-4-
<PAGE> 48
8. NOTICES.
In this Agreement, wherever it is required or permitted that notice
and demand be given by any party to another party, that notice or demand shall
be given in writing and forwarded by certified mail, addressed as follows:
For Landlord: Arden Realty Limited Partnership
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, California 90212
For Tenant: On'Village Communications, Inc.
26135 Mureau Road
Calabasas, California 91302
Attention: President
For City: Charles Cate, City Manager
City of Calabasas
26135 Mureau Road
Calabasas, California 91302
Any party may change an address given for notice by giving written
notice of that change by certified mail to all other parties.
-5-
<PAGE> 49
9. SUCCESSORS.
This Agreement shall be binding on and inure to the benefit of the
parties and their respective heirs, successors, and assigns.
10. AUTHORITY.
(a) If any party is a corporation or a partnership, all
individuals executing this Agreement on behalf of a corporation or partnership
represent and warrant that they are authorized to execute and deliver this
Agreement on behalf of the corporation or partnership and that this Agreement
is binding upon the corporation or partnership.
(b) The Mayor of the City of Calabasas is hereby authorized to
execute this Agreement pursuant to California Government Code Section 40602.
11. HEADINGS.
The headings of this Agreement are for reference only and shall not
limit or define any meaning of this Agreement.
12. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which is an original, but all of which shall constitute one and the same
instrument.
13. GOVERNING LAW.
This Agreement shall be construed in accordance with and governed by
California law.
-6-
<PAGE> 50
The parties have duly executed this Agreement as of the date first
above written.
ARDEN REALTY LIMITED PARTNERSHIP,
a Maryland limited partnership
By: Arden Realty, Inc., a Maryland corporation,
Its sole general partner
By: _______________________________________
Victor J. Coleman
Its: President and COO
ON'VILLAGE COMMUNICATIONS, INC.,
a California corporation
By: _______________________________________
Typed Name:
Title:
CITY OF CALABASAS
By: _______________________________________
Mayor
-7-
<PAGE> 51
ATTEST:
City Clerk
APPROVED AS TO FORM:
City Attorney
-8-
<PAGE> 52
STATE OF _________________)
) ss.
COUNTY OF LOS ANGELES )
On _______________, 1997, before me, ________________________, a Notary Public
in and for said state, personally appeared _______________________, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument, the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________________
Notary Public in and for said State
STATE OF _________________)
) ss.
COUNTY OF LOS ANGELES )
On _______________, 1997, before me, ________________________, a Notary Public
in and for said state, personally appeared _______________________, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her
-9-
<PAGE> 53
authorized capacity, and that by his/her signature on the instrument, the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
______________________________________
Notary Public in and for said State
-10-
<PAGE> 54
STATE OF _________________)
) ss.
COUNTY OF LOS ANGELES )
On _______________, 1997, before me, ________________________, a Notary Public
in and for said state, personally appeared _______________________, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument, the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________________
Notary Public in and for said State
-11-
<PAGE> 1
EXHIBIT 11.1
ON'VILLAGE COMMUNICATIONS, INC.
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
<TABLE>
<CAPTION>
NOVEMBER 12, YEAR SIX MONTHS ENDED
1995 (INCEPTION) TO ENDED -----------------------
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Weighted Average Common Stock
Outstanding(1)....................... 311,962 352,117 344,395 399,996
Common Stock Equivalents per SAB 83
Common shares and warrants issued
subsequent to February 1996 at prices
or exercise prices below the expected
offering price(2).................... 1,246,334 1,246,334 1,246,334 1,246,334
Assumed buyback of public
shares(3)......................... (739,952) (739,952) (739,952) (739,952)
--------- --------- --------- ---------
506,382 506,382 506,382 506,382
--------- --------- --------- ---------
Weighted Average Common Shares
Outstanding.......................... 818,344 858,499 850,777 906,378
========= ========= ========= =========
</TABLE>
- ---------------
(1) Excludes 800,000 shares of Class B Common Stock held in escrow.
(2) Amount represents all common stock and warrants issued within one year of
the initial filing of the Company's registration statement at a per share or
exercise price per share below the anticipated public offering price of
$5.00 per unit. As such, above calculation assumes the allocation of no
value to the warrants contained in the units being offered.
(3) Amount represents the repurchase of shares at an assumed purchase price of
$5.00 per share utilizing the proceeds received on the sale of common stock
or exercise of warrants. As such, above calculation assumes the allocation
of no value to the warrants contained in the units being offered.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Shareholders of
On'Village Communications, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated February 26, 1997,
relating to the financial statements of On'Village Communications, Inc., which
are contained in that Prospectus.
We also consent to the reference to us under the captions "Selected
Financial Data" and "Experts" in the Prospectus.
BDO SEIDMAN, LLP
Los Angeles, California
August 8, 1997
<PAGE> 1
EXHIBIT 99.1
August 7, 1997
Mr. Jack Tracht
CEO, On'Village Communications, Inc.
848 N. La Cienega Blvd. Suite 206
Los Angeles, CA 90069
Dear Mr. Tracht,
I, Nicholas Mitaskos, hereby consent to be named as a Director in the
Registration Statement on Form SB-2 of On'Village Communications, Inc.
/s/ NICHOLAS MITASKOS
--------------------------
Nicholas Mitaskos
<PAGE> 1
EXHIBIT 99.2
August 7, 1997
Mr. Jack Tracht
CEO, On'Village Communications, Inc.
848 N. La Cienega Blvd. Suite 206
Los Angeles, CA 90069
Dear Mr. Tracht,
I, David A. Searle, hereby consent to be named as a Director in the
Registration Statement on Form SB-2 of On'Village Communications, Inc.
/s/ DAVID A. SEARLE
-------------------------------
David A. Searle
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
BALANCE SHEETS, THE STATEMENTS OF OPERATIONS AND THE STATEMENTS OF CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 207,921
<SECURITIES> 0
<RECEIVABLES> 38,002
<ALLOWANCES> 7,671
<INVENTORY> 0
<CURRENT-ASSETS> 316,252
<PP&E> 16,711
<DEPRECIATION> 2,805
<TOTAL-ASSETS> 836,449
<CURRENT-LIABILITIES> 2,735,404
<BONDS> 0
0
0
<COMMON> 152,940
<OTHER-SE> (2,051,895)
<TOTAL-LIABILITY-AND-EQUITY> 836,449
<SALES> 23,914
<TOTAL-REVENUES> 23,914
<CGS> 63,031
<TOTAL-COSTS> 63,031
<OTHER-EXPENSES> 1,508,532
<LOSS-PROVISION> 7,671
<INTEREST-EXPENSE> 383,348
<INCOME-PRETAX> (1,930,997)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,930,997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,930,997)
<EPS-PRIMARY> (2.13)
<EPS-DILUTED> (2.13)
</TABLE>
