<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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>
848 N. LA CIENEGA BOULEVARD, SUITE 206
LOS ANGELES, CALIFORNIA 90069
(310) 652-8850
(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.
848 N. LA CIENEGA BOULEVARD, SUITE 206
LOS ANGELES, CALIFORNIA 90069
TEL. (310) 652-8850
FAX. (310) 659-4717
(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, one Class A
Warrant and one Class B Warrant..... 1,495,000 Units(2) $5.00 $7,475,000 $2,266
- ------------------------------------------------------------------------------------------------------------------
units, each consisting of one share of
Class A Common Stock and one Class B
Warrant(3).......................... 1,495,000 units(4) $6.50 $9,717,500 $2,945
- ------------------------------------------------------------------------------------------------------------------
Class A Common Stock (5).............. 2,990,000 shares(4) $8.75 $26,162,500 $7,929
- ------------------------------------------------------------------------------------------------------------------
Unit Purchase Option(6)............... 130,000 units $.001 $130 --
- ------------------------------------------------------------------------------------------------------------------
units, each consisting of one share of
Class A Common Stock, one Class A
Warrant and one Class B
Warrant(7).......................... 130,000 units $6.50 $845,000 $257
- ------------------------------------------------------------------------------------------------------------------
units, each consisting of one share of
Class A Common Stock and one Class B
Warrant(8).......................... 130,000 units $6.50 $845,000 $257
- ------------------------------------------------------------------------------------------------------------------
Class A Common Stock(9)............... 260,000 shares $8.75 $2,275,000 $690
- ------------------------------------------------------------------------------------------------------------------
Class A Warrants (10)................. 1,200,000 warrants -- -- --
- ------------------------------------------------------------------------------------------------------------------
units, each consisting of one share of
Class A Common Stock and one Class B
Warrant(11)......................... 1,200,000 units $6.50 $7,800,000 $2,364
- ------------------------------------------------------------------------------------------------------------------
Class A Common Stock(12).............. 1,200,000 shares $8.75 $10,500,000 $3,182
- ------------------------------------------------------------------------------------------------------------------
Total............................... $19,890
==================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 195,000 Units subject to the Underwriter's over-allotment option.
(3) Issuable upon exercise of the Class A Warrants.
(4) Assumes the Underwriter's over-allotment option is exercised in full.
(5) Issuable upon exercise of the Class B Warrants.
(6) To be issued to the Underwriter.
(7) Issuable upon exercise of the Unit Purchase Option.
(8) Issuable upon exercise of the Class A Warrants underlying the Unit Purchase
Option.
(9) Issuable upon exercise of the Class B Warrants underlying the Unit Purchase
Option.
(10) These Class A Warrants are being registered for resale by the selling
securityholders, each of whom was an investor in the Registrant's private
placement (the "Selling Securityholders").
(11) Issuable upon the exercise of Class A Warrants registered for resale by the
Selling Securityholders.
(12) Issuable upon the exercise of the Class B Warrants underlying the Class A
Warrants registered for resale by the Selling Securityholders.
------------------------
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 CLASS A WARRANTS, THE CLASS B 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
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) up to 1,495,000
units, including 195,000 units to cover over-allotments, if any (the "Units"),
each Unit consisting of one share of Class A Common Stock ("Class A Common
Stock") of On'Village Communications, Inc., a California corporation (the
"Company"), one redeemable Class A Warrant ("Class A Warrant") and one
redeemable Class B Warrant ("Class B Warrant"), for sale by the Company in an
underwritten public offering, together with the underlying securities issuable
upon exercise of the Class A Warrants and Class B Warrants, and (ii) an
additional 1,200,000 Class A Warrants for resale by the holders thereof (the
"Selling Securityholders' Warrants") in an offering that is not underwritten,
together with the 1,200,000 Class B Warrants (the "Selling Securityholders'
Class B Warrants") underlying the Selling Securityholders' Warrants and the
2,400,000 shares of Class A Common Stock underlying the Selling Securityholders'
Warrants and the Selling Securityholders' Class B Warrants. The Selling
Securityholders' Warrants will be issued upon the closing of the underwritten
offering in exchange for warrants issued in connection with a private placement
by the Company completed in January 1997. The Selling Securityholders' Warrants
are expected to become tradeable on or about the date of the Prospectus included
in this Registration Statement, subject to a contractual restriction that the
Selling Securityholders may not sell the Selling Securityholders' Warrants for a
period of one year after the closing of the underwritten offering.
Following the Prospectus for the underwritten offering are pages of the
Prospectus relating solely to the Selling Securityholders' Warrants and the
securities underlying the Selling Securityholders' Warrants: alternate front and
back cover pages and sections entitled "Concurrent Public Offering" and
collectively, "Selling Securityholders" and "Plan of Distribution" to be used in
lieu of the sections entitled "Concurrent Securities Offering" and
"Underwriting," respectively.
<PAGE> 4
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.
SUBJECT TO COMPLETION, DATED MARCH 5, 1997
PROSPECTUS
1,300,000 UNITS
ON'VILLAGE COMMUNICATIONS, INC.
CONSISTING OF 1,300,000 SHARES OF CLASS A COMMON STOCK,
1,300,000 REDEEMABLE CLASS A WARRANTS AND 1,300,000 REDEEMABLE CLASS B 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"), one redeemable Class A Warrant (the "Class A
Warrant") and one redeemable Class B Warrant (the "Class B Warrant"). The
components of the Units will be transferable separately immediately upon
issuance. Each Class A Warrant entitles the holder to purchase one share of
Class A Common Stock and one Class B Warrant at an exercise price of $6.50,
subject to adjustment, until the fifth anniversary of the date of this
Prospectus. Each Class B Warrant entitles the holder to purchase one share of
Class A Common Stock at an exercise price of $8.75, subject to adjustment, until
the fifth anniversary of the date of this Prospectus. The Class A Warrants and
the Class B Warrants (collectively, 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 with respect
to the Class A Warrants and $12.25 per share with respect to the Class B
Warrants (subject to adjustment in each case). 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, the Class A Warrants and the Class B Warrants
listed on the Nasdaq SmallCap Market. 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 72% 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 registration statement of which this Prospectus is a part also covers
the offering for resale by certain securityholders (the "Selling
Securityholders") of 1,200,000 Class A Warrants (the "Selling Securityholders'
Warrants"), and the 1,200,000 shares of Class A Common Stock and 1,200,000 Class
B Warrants underlying the Selling Securityholders' Warrants and 1,200,000 shares
of Class A Common Stock issuable upon exercise of such Class B Warrants. The
Selling Securityholders' Warrants and the securities underlying such warrants
are sometimes collectively referred to as the "Selling Securityholders'
Securities." The Selling Securityholders' Warrants are issuable upon the closing
of the Offering to the Selling Securityholders upon the automatic conversion of
1,200,000 bridge warrants (the "Bridge Warrants"), acquired by them in
connection with the Company's private placement completed in January 1997 (the
"Bridge Financing"). The Selling Securityholders have agreed not to sell the
Selling Securityholders' Warrants for at least one year after the closing of the
Offering. In addition, the Selling Securityholders have agreed not to exercise
the Selling Securityholders' Warrants for one year after the closing of the
Offering. See "Concurrent Securities Offering." Sales of any of the Selling
Securityholders' Securities, or even the potential of such sales at any time,
may have an adverse effect on the market prices of the securities offered
hereby. Unless the context otherwise requires, all references to the Warrants
shall include the Selling Securityholders' Warrants.
------------------------
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..................................... $5.00 $0.50 $4.50
- ------------------------------------------------------------------------------------------------------------------------
Total(3)..................................... $6,500,000 $650,000 $5,850,000
========================================================================================================================
</TABLE>
(1) Does not reflect additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $195,000 or $0.15
per Unit ($224,250 if the over-allotment option is exercised in full); and
(ii) an option to purchase up to 130,000 Units at an exercise price of $6.00
per Unit, exercisable over a period of three years commencing two 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 $650,000 ($679,250 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
195,000 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 $7,475,000,
$747,500 and $6,727,500, 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> 5
[PHOTOGRAPHS]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH 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. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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> 6
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 Selling
Securityholders' Warrants, or (v) options 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 Bridge
Warrants into the Selling Securityholders' 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.
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 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. To date, the Company has entered into
arrangements with approximately 40 Independent Publishers. The Company plans to
offer enhanced advertising services, both directly to customers and indirectly
through the Independent Publishers, 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 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.
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, through March 1997. The Company is
3
<PAGE> 7
currently negotiating with Netscape in order to renew this agreement, although
there can be no assurance that this agreement will be renewed upon terms
acceptable to the Company, or at all. 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 848 North La
Cienega Boulevard, Suite 206, Los Angeles, California 90069. The Company's
telephone number is (310) 652-8850.
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......1,300,000 Units, each Unit consisting of one share of
Class A Common Stock, one Class A Warrant and one Class
B Warrant. Each Class A Warrant entitles the holder to
purchase one share of Class A Common Stock and one Class
B Warrant at an exercise price of $6.50, subject to
adjustment, at any time until the fifth anniversary of
the date of this Prospectus. Each Class B Warrant
entitles the holder to purchase one share of Class A
Common Stock at an exercise price of $8.75, 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."
Securities Offered
Concurrently by
Selling
Securityholders.......1,200,000 Class A Warrants, 1,200,000 Class B Warrants
issuable upon exercise of such Class A Warrants and
2,400,000 shares of Class A Common Stock issuable upon
exercise of such Class A Warrants and Class B Warrants.
See "Concurrent Securities Offering."
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> 8
Common Stock Outstanding
After the
Offering(1)...........Class A Common Stock.................1,300,000 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, selling expenses, advertising,
promotion and marketing activities, 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
Class A Warrants........ONVCW
Class B Warrants........ONVCZ
- ------------------
(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) 200,000 shares of Class A Common Stock reserved for
issuance under the Option Plan, under which no options have been granted to
date and (ii) 2,400,000 shares of Class A Common Stock issuable upon
exercise of the Bridge Warrants and the Class B Warrants underlying 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) 3,900,000 shares of Class A Common Stock issuable upon
exercise of the Warrants included in the Units offered hereby; (ii) 780,000
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) 520,000 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) 2,400,000 shares of Class A
Common Stock issuable upon exercise of the Selling Securityholders' Warrants
and the Class B Warrants underlying such Warrants. Also does not include
200,000 shares of Class A Common Stock reserved for issuance under the
Option Plan, under which no options 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> 9
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NOVEMBER 13, 1995
NOVEMBER 13, 1995 (INCEPTION) TO
(INCEPTION) TO YEAR ENDED DECEMBER 31, 1996
DECEMBER 31, 1995 DECEMBER 31, 1996 (CUMULATIVE)
----------------- ----------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ -- $ 65,548 $ 65,548
Costs and expenses:
Cost of revenue............................. 6,250 114,052 120,302
General and administrative.................. 12,325 377,254 389,579
Selling and marketing....................... -- 152,365 152,365
-------- --------- ---------
Total costs and expenses...................... 18,575 643,671 662,246
-------- --------- ---------
Net loss...................................... $ (18,575) $(578,123) $(596,698)
======== ========= =========
Net loss per common share(1).................. $ (0.02) $ (0.67)
-------- ---------
Weighted average common shares
outstanding(1).............................. 818,344 858,499
======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
--------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)............................. $(522,303) $ (657,393) $ 4,423,252
Total assets............................................. 240,786 1,975,693 4,822,790
Total liabilities........................................ 578,744 2,144,120 306,593
Deficit accumulated during the development stage......... (596,698) (607,167) (1,122,543)
Total shareholders' equity (deficit)..................... (337,958) (168,427) 4,516,197
</TABLE>
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(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 (i) the issuance in January 1997 of $2,000,000
principal amount of Bridge Notes, net of a $180,000 debt discount and (ii)
the repayment from the proceeds of the Bridge Notes of an aggregate of
$200,000 principal amount of 10% promissory notes issued prior to the Bridge
Financing (the "Interim Notes"), including a $10,000 charge to operations in
connection with such repayment, as if those events occurred as of December
31, 1996. See "Capitalization -- Bridge Financing," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 4 of
Notes to Financial Statements.
(3) Adjusted to give effect to (i) the sale of the 1,300,000 Units offered
hereby at an offering price of $5.00 per Unit, and (ii) the receipt of the
net proceeds therefrom and the use of a portion of the net proceeds to repay
the Bridge Notes, together with accrued interest of $33,300 through April 1,
1997, and an estimated charge to operations of $481,700, representing 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> 10
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 December 31, 1996, the Company had
a deficit accumulated during the development stage of approximately $597,000 and
a working capital deficit of approximately $522,000. During the period November
13, 1995 (inception) to December 31, 1996, the Company recognized limited
revenue of approximately $66,000 and incurred a cumulative net loss of
approximately $597,000, including a net loss of approximately $578,000 for the
year ended December 31, 1996. Since December 31, 1996, the Company has continued
to incur losses. Such losses have resulted principally from limited revenue 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. Upon
expiration of this agreement in March 1997, the Company may enter into a new
arrangement with Netscape, which would also provide for significant payments to
Netscape by the Company. 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> 11
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. 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 the date of this Prospectus, the Company had
entered into approximately 40 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.
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."
RELIANCE ON ADVERTISING REVENUE. The Company has derived substantially all
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 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
8
<PAGE> 12
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"
and "-- Uncertain Adoption of the Internet as an Advertising Medium."
DEPENDENCE ON RELATIONSHIP WITH NETSCAPE; IMPENDING EXPIRATION OF EXISTING
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 March 1997. Currently, two competing yellow
page services are also listed. The Company is also currently one of seven yellow
page directories referred to as a "premier partner" on Netscape's "Destinations"
yellow page toolbar. The agreement with Netscape is not exclusive and gives
Netscape the ability to change its services and Web page without the Company's
approval. Although the Company is currently negotiating with Netscape regarding
the renewal of its contract, no assurance can be given that Netscape will renew
the contract upon its expiration in March 1997 on terms acceptable to the
Company, or at all, 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 not to renew its contract with the Company, 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 the integral
components of its current and future technologies. All of the Company's
applications, 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 build and maintain the
software programs which support the Company's "search engine" (automated
programs that search the Company's database) and other technological components.
Given that Network Publishing may terminate the agreement upon 90 days' notice,
there is no assurance that the services of Network Publishing will be available
in the future, or that if the agreement is terminated another technology
supplier satisfactory to the Company can or will supply the requisite
technology. Failure of Network Publishing or another technology supplier to
support and maintain the Company's software programs and 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 is 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 or financial condition.
The Company currently has only one employee 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."
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<PAGE> 13
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 three 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. 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, World Pages and ZIP2, seven of which are currently
showcased on the Netscape "Destinations" page. 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
10
<PAGE> 14
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 50 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.
LIMITED MARKETING CAPABILITIES. The Company's operating results will depend
to a large extent on its ability to successfully market its services, initially
primarily 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. There can be no assurance that any marketing efforts
undertaken by the Company will be successful or will result in any significant
sales of its services. In addition, the Company's strategy will be to rely
primarily on independent third party sales representatives affiliated with
Independent Publishers for the sale of advertising on the Company's services.
Failure of the Company's third party arrangements to achieve successful
advertising sales could have a material adverse effect on the Company's ability
to generate revenue. See "-- Reliance on Advertising Revenue" and
"-- Substantial Dependance on Independent Publishers."
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 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
11
<PAGE> 15
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.
UNCERTAIN ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM. 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. See "-- Reliance on Advertising Revenue." 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."
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
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<PAGE> 16
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 its 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 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 or 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, Chief
Operating Officer and Chief Financial 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. Howard Fites, the Company's Web
Master and Senior Editor. Although the Company has entered into employment
agreements with each of Messrs. J. Tracht, R. Tracht, Walden, and Austin, and
has obtained key-man life insurance coverage on the lives of each of the
foregoing 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 50 employees (including approximately 20 to 25 national, regional
and district sales managers) in the approximately 12 months following the
consummation of the Offering in the areas of marketing, product development and
administration. 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
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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.
INTELLECTUAL PROPERTY RIGHTS. The Company relies on a combination of
copyright and trademark laws and contractual provisions to protect its
intellectual property rights. The Company has applied for a service mark
registration for "On'Village", and will continue to evaluate the registration of
additional service marks and trademarks, as appropriate. 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."
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, 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 products, 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 72% 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."
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<PAGE> 18
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 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, 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 Restrictions on
Shares."
SUBSTANTIAL PORTION OF NET PROCEEDS TO BE USED TO REPAY BRIDGE NOTES;
CHARGES ARISING FROM DEBT ISSUANCE COSTS. Approximately $2,033,000 of the net
proceeds of the Offering will be used to repay in full interest and principal on
the Bridge 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
$515,000. 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, $14,000 of which was recorded in the
fiscal quarter ended December 31, 1996 and $10,000 of which will be recorded in
the fiscal quarter ending March 31, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
SHARES AVAILABLE FOR FUTURE SALE; REGISTRATION RIGHTS. Future sales of
Common Stock by existing shareholders pursuant to Rule 144 under the Securities
Act, pursuant to the Concurrent Securities Offering or otherwise, could have an
adverse effect on the price of the Company's securities. Pursuant to the
Concurrent Securities Offering, 1,200,000 Selling Securityholders' Warrants and
the underlying securities have been registered for resale concurrently with the
Offering, subject to a contractual restriction that the Selling Securityholders
not sell any of the Selling Securityholders' Warrants for at least one year from
the closing of the Offering. Upon the sale of the 1,300,000 Units offered
hereby, the Company will have outstanding 1,300,000 shares of Class A Common
Stock, 1,199,996 shares of Class B Common Stock, 1,300,000 Class A Warrants,
1,300,000 Class B Warrants and 1,200,000 Selling Securityholders' Warrants
(1,495,000 shares of Class A Common Stock, 1,199,996 shares of Class B Common
Stock, 1,495,000 Class A Warrants, 1,495,000 Class B Warrants and 1,200,000
Selling Securityholders' Warrants if the Underwriter's over-allotment option is
exercised in full). The shares of Class A Common Stock, Class A Warrants and
Class B Warrants sold in the Offering will be freely tradeable without
restriction under the Securities Act, unless 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. 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 their 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
15
<PAGE> 19
market may adversely affect the market price of the securities offered hereby.
See "Concurrent Securities Offering," "Description of Securities," "Shares
Eligible for Future Sale" and "Underwriting."
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. Upon sale of the 1,300,000
Units offered hereby, the Company will have outstanding 1,300,000 Class A
Warrants to purchase 1,300,000 shares of Class A Common Stock and 1,300,000
Class B Warrants and 1,300,000 Class B Warrants to purchase 1,300,000 shares of
Class A Common Stock (or 1,495,000 Class A Warrants to purchase 1,495,000 shares
of Class A Common Stock and 1,495,000 Class B Warrants, and 1,495,000 Class B
Warrants to purchase 1,495,000 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 Selling Securityholders' Warrants to
purchase 1,200,000 shares of Class A Common Stock and 1,200,000 Class B
Warrants, the Unit Purchase Option to purchase an aggregate of 520,000 shares of
Class A Common Stock assuming exercise of the underlying Warrants and 200,000
shares of Class A Common Stock reserved for issuance under the Option Plan.
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 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 $3.19 per share or approximately 64% 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 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, Class A Warrants and Class B Warrants
meet the current Nasdaq listing
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<PAGE> 20
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 requirements for
listing on Nasdaq. 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. 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 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,
reductions in security analysts' and the news media's coverage of the Company,
and lower prices for the Company's securities than might otherwise be attained.
RISK OF LOW-PRICE STOCKS. 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 worths 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 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
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<PAGE> 21
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 securities to those persons desiring to
exercise their Warrants unless and until the underlying securities 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 securities
underlying the Warrants is then in effect under the Securities Act and such
securities 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 securities 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 securities issuable upon the
exercise of the Warrants is not kept effective or if such securities 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 Class A Warrants and
the Class B 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 with respect to the Class A
Warrants and $12.25 per share with respect to the Class B Warrants. 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 Amended and 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 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 substantially all
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 &
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<PAGE> 22
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, which was recently
adopted to replace Rule 10b-6 and certain other rules promulgated under the
Exchange Act will 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, under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the Selling Securityholders' Warrants may not simultaneously
engage in market-making activities with respect to any securities of the Company
for the applicable "cooling off" period (up to 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 Selling Securityholders'
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."
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<PAGE> 23
USE OF PROCEEDS
The net proceeds from the sale of 1,300,000 Units offered hereby, after
deducting the underwriting discount and commissions and other estimated expenses
of the Offering, are estimated to be approximately $5,200,000 ($6,048,250 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)......................... $2,033,000 39.1%
Selling expenses(2).................................. 970,000 18.7
Advertising, promotion and marketing(3).............. 515,000 9.9
License fees(4)...................................... 100,000 1.9
Working capital(5)................................... 1,582,000 30.4
---------- ------
Total...................................... $5,200,000 100.0%
========== ======
</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 April 1, 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 have been and will be 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) Includes expenses associated with developing the Company's sales force,
including salaries, commissions and travel expenses for an estimated 20 to
25 national, regional and district sales managers anticipated to be hired
following the consummation of the Offering to market the Company's services.
See "Business -- Sales, Marketing and Distribution."
(3) Includes amounts which may be paid to Netscape and/or 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.
(4) Represents royalties payable to Pro-CD for the Company's licensed database.
(5) Working capital will be used for general corporate purposes, including
approximately $660,000 in aggregate annual base compensation (including
payment of compensation to the Company's executive officers and technical
and administrative personnel), insurance, professional fees, and lease
payments relating to a 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 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
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<PAGE> 24
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."
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, 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 or joint
venture, 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, interestbearing investments or accounts. The Company
anticipates that any proceeds received upon exercise of the Underwriter's
over-allotment option, the Warrants or the Selling Securityholders' 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> 25
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
giving pro forma effect to (i) the issuance in January 1997 of the Bridge Notes,
net of debt discount and (ii) the repayment of the Interim Notes from the
proceeds of the Bridge Notes. At December 31, 1996, the Company had a pro forma
net tangible book value of approximately $(564,000), approximately $(0.47) per
share ($(1.41) per share if the Escrow Shares are excluded). After giving effect
to the issuance of the 1,300,000 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 (including interest), the pro forma net tangible book value per
share of the Company, as adjusted at December 31, 1996 would have been
approximately $4,516,000, or approximately $1.81 per share ($2.66 per share if
the Escrow Shares were excluded). This would result in an immediate dilution to
investors in the Offering of $3.19, or 64%, per share ($2.34, or 47%, 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 $2.28 per share ($4.07
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................................................ (0.47)
Increase per share attributable to new investors........... 2.28
------ -----
Pro forma net tangible book value per share after the
Offering................................................... 1.81
-----
Dilution per share to new investors(1)....................... $3.19
=====
</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 $1.99, resulting in dilution to new investors in the Offering
of $3.01, 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) 48.0% $ 152,940 2.3% $0.13
New Investors...................... 1,300,000 52.0 6,500,000 97.7 5.00
--------- ----- ---------- -----
Total.............................. 2,499,996 100.0% $ 6,652,940 100.0%
========= ===== ========== =====
</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> 26
CAPITALIZATION
The following table sets forth the capitalization of the Company giving
retroactive effect to the Recapitalization (including the approximate
6.94975-for-1 stock split of the Common Stock effected in October 1996) (i) as
of December 31, 1996, (ii) pro forma as of December 31, 1996 to reflect the
Bridge Financing and the repayment of the Interim Notes subsequent to such date,
and (iii) as adjusted to give effect to the issuance by the Company of 1,300,000
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 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 DECEMBER 31, 1996
--------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- -----------
<S> <C> <C> <C>
Interim Notes payable, net of unamortized
discount(1)..................................... $ 191,667 $ 0 $ 0
======== ========== ===========
Bridge Notes payable, net of discount(2).......... 0 1,820,000 $ 0
======== ========== ===========
Total debt...................................... 191,667 1,820,000 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, 1,300,000 shares issued
and outstanding, as adjusted(3).............. 0 0 5,200,000
Class B Common Stock, 1,400,000 shares
authorized; 1,199,996 shares issued and
outstanding(4)............................... 152,940 152,940 152,940
Additional paid in capital(5)................... 105,800 285,800 285,800
Deficit accumulated during the development
stage........................................ (596,698) (607,167)(1) (1,122,543)(6)
-------- ---------- -----------
Total shareholders' equity (deficit).... (337,958) (168,427) 4,516,197
-------- ---------- -----------
Total capitalization.............................. $(146,291) $1,651,573 $ 4,516,197
======== ========== ===========
</TABLE>
- ---------------
(1) Pro forma to give effect to the repayment of the Interim Notes and the
recognition of approximately $10,000 of expense associated with this
repayment.
(2) Gives pro forma effect to the issuance in January 1997 of $2,000,000
principal amount of Bridge Notes, recorded net of a $180,000 debt discount.
The Bridge Notes are payable on the closing of the Offering. See "Use of
Proceeds."
(3) Does not include (i) 3,900,000 shares of Class A Common Stock issuable upon
exercise of the Warrants included in the Units offered hereby; (ii) 780,000
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) 520,000 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 Selling Securityholders' Warrants
and the Class B Warrants underlying such warrants. Also does not give effect
to 200,000 shares reserved for future grant under the Option Plan. See
"Management -- Stock Option Plan."
(4) Includes 800,000 Escrow Shares. See "Principal Shareholders -- Escrow
Shares."
(5) Gives effect in the pro forma calculation to the allocation of $180,000 to
the Warrants issued in connection with the Bridge Notes and a corresponding
$180,000 debt discount for the Bridge Notes.
23
<PAGE> 27
(6) As adjusted to give effect to the recognition of approximately $515,000 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"), 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 in which it 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. 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 Selling Securityholders' Warrants, each of which
will be identical to the Class A Warrants included in the Units offered hereby.
The Selling Securityholders' Warrants have been registered for resale in the
Registration Statement of which this Prospectus forms a part, subject to the
contractual restriction that the Selling Securityholders have agreed not to
exercise the Selling Securityholders' Warrants for a period of one year from the
closing of the Offering and not to sell the Securityholders' Warrants for a
period of one year from the closing of the Offering. See "Concurrent Securities
Offering."
24
<PAGE> 28
SELECTED FINANCIAL DATA
The following selected financial data 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 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 (INCEPTION) TO
(INCEPTION) TO YEAR ENDED DECEMBER 31, 1996
DECEMBER 31, 1995 DECEMBER 31, 1996 (CUMULATIVE)
----------------- ----------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................... $ -- $ 65,548 $ 65,548
Costs and expenses:
Cost of revenue......................... 6,250 114,052 120,302
General and administrative.............. 12,325 377,254 389,579
Selling and marketing................... -- 152,365 152,365
-------- --------- ---------
Total costs and expenses.................. 18,575 643,671 662,246
-------- --------- ---------
Net loss.................................. $ (18,575) $(578,123) $(596,698)
======== ========= =========
Net loss per common share(1).............. $ (0.02) $ (0.67)
-------- ---------
Weighted average common shares
outstanding(1).......................... 818,344 858,499
======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL PRO FORMA(2)
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)....................................... $(522,303) $ (657,393)
Total assets....................................................... 240,786 1,975,693
Total liabilities.................................................. 578,744 2,144,120
Deficit accumulated during the development stage................... (596,698) (607,167)
Total shareholders' equity (deficit)............................... (337,958) (168,427)
</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 (i) the issuance in January 1997 of $2,000,000
principal amount of Bridge Notes, net of a $180,000 debt discount and (ii)
the repayment from the proceeds of the Bridge Notes of an aggregate of
$200,000 principal amount of Interim Notes, including a $10,000 charge to
operations in connection with such repayment, as if those events occurred as
of December 31, 1996. See "Capitalization -- Bridge Financing,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 of Notes to Financial Statements.
25
<PAGE> 29
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. To date, the Company
has entered into approximately 40 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 approximately 30 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 December 31, 1996 (cumulative) (the
"Initial Period"), the Company incurred a cumulative net loss of approximately
$597,000, including a net loss of approximately $578,000 for the year ended
December 31, 1996. Since December 31, 1996, 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> 30
REVENUE
During the Initial Period, the Company generated revenue of approximately
$65,500, derived primarily 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 $29,700 of deferred revenue
as of December 31, 1996 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. To
date, the Company has entered into approximately 40 of such arrangements and has
generated extremely limited revenue from such arrangements.
COST AND EXPENSES
Costs and expenses are comprised of cost of revenue, general and
administrative expenses and selling and marketing expenses. For the Initial
Period, the Company's cost of revenue was approximately $120,000, 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 ranging from 5% to 7.5% of the
Company's annual revenue, if any. See "-- Liquidity and Capital Resources."
General and administrative expenses during the Initial Period were
approximately $390,000, and were comprised primarily of salaries for
administrative personnel and executive officers (including approximately $71,000
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 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 chief technical
officer, 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
$152,000, and were comprised of costs incurred to support the Company's test
marketing activities, the commencement of the establishment of relationships
with Independent Publishers and expenses relating to the amortization of the
agreement with Netscape of approximately $97,000. 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 four regional sales managers, 8 district 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 LOSS
The Company incurred a net loss during the Initial Period of approximately
$597,000. 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
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.
27
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had a deficit accumulated during the
development stage of approximately $597,000 and a working capital deficit of
approximately $522,000. 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, and (v) the issuance in January 1997 of
the Bridge Notes and Bridge Warrants. 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 $1,680,000 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 will
be recorded in the fiscal quarter ending March 31, 1997. On the closing of the
Bridge Financing, the Interim Warrants automatically converted into 200,000
Bridge Warrants. The Company has allocated a portion of the proceeds of the
Offering to repay principal and accrued interest on the Bridge Notes. The
Company will recognize a charge to operations of approximately $515,000 in
connection with the repayment of the Bridge Notes. See "Use of Proceeds" and
"Capitalization -- Bridge Financing."
Pursuant to the Company's 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 $171,666 through March 1997 (of which $146,666
had been paid as of the date of this Prospectus). Upon expiration of this
agreement in March 1997, the Company may enter into a new arrangement with
Netscape which would also provide for significant payments to Netscape by the
Company. Further, the Company is 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, pursuant to its agreement
with Network Publishing, the Company is obligated to pay Network Publishing a
percentage of its advertising revenue equal to 5% of the Company's first
$7,499,999 of annual revenue, 6% of the next $2,000,000 of annual revenue, 7% of
the next $3,000,000 of annual revenue and 7.5% of annual revenue in excess of
$12,500,000. In the event that Network Publishing ceases to provide services to
the Company under this agreement, the Company will be obligated to pay Network
Publishing 1% of its annual revenue. See "Business" and Notes 1, 6 and 7 of
Notes to Financial Statements.
The Company plans to finance the acquisition of approximately $280,000 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 50 employees (including
approximately 20 to 25 national, regional and district sales
28
<PAGE> 32
managers 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." Prior to consummation of the Offering, the Company intends to
relocate its headquarters, which is expected to result in significantly higher
monthly rent expense. 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."
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, 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
29
<PAGE> 33
the Company will not affect the Company's total shareholders' equity, it may
have a depressive effect on the market price of the Company's securities.
NEW ACCOUNTING PRONOUNCEMENT
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. The Company does not
expect adoption of SFAS No. 125 to have a material effect on its financial
position or results of operations.
30
<PAGE> 34
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.
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 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. To date, the Company has entered into
arrangements with approximately 40 Independent Publishers. The Company plans to
offer enhanced advertising services, both directly to customers and indirectly
through the Independent Publishers, 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 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 1980's and 1990's 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 1990's. 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. 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 Web-site. New software-based authoring tools
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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 Web-sites. 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.
THE YELLOW PAGE ADVERTISING MARKET
Yellow page directories have been published in the United States since at
least the 1890's and, traditionally, have been published almost exclusively by
telephone utilities. In the early 1980's, due in part to telephone deregulation,
independent companies began publishing an increasing number of directories.
There are currently an estimated 350 independent local yellow page publishers
("Independent Publishers"). The Company believes that yellow page directories
have proved to be a successful advertising medium.
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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 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, and On'Zine, an interactive service designed to enable
users to communicate and access relevant and related content and information on
outside Websites. 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 or
Netscape's "Destinations" yellow page toolbar, as well as through numerous other
links throughout the Web. The Company's agreement with Netscape expires on March
31, 1997. The Company is currently negotiating with Netscape in order to renew
this agreement, although there can be no assurance that this agreement will be
renewed upon terms acceptable to the Company, or at all. 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 Web-site and e-mail address.
Users can link to these Web-sites by clicking on them. The page behind most
business listings are linked to a zoomable map prepared by a third party 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
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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, substantially all 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 initial 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."
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."
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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 Web-sites. These Websites are organized by category,
and have been selected, reviewed and rated by the Company. On'Zine currently
lists over 400 Web-sites 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 Web-sites by simply clicking on the desired
Web-site 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 Web-sites. Accordingly,
the Company plans to offer advertisers (in particular, businesses purchasing
enhanced advertisements on the On'Village Yellow Pages, either directly or
through Independent Publishers) and third-party Web-site 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.
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. 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
and On'Zine. In the future, as the Company
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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 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 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 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 initial 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, in September 1996, the
Company entered into 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 March 1997. Currently,
two competing yellow page services are also listed. On'Village Yellow Pages is
also currently one of seven yellow page directories referred to as a "premier
partner" on Netscape's "Destinations" yellow page toolbar. The Company believes
that a significant percentage of the limited traffic to its sites has been
generated through these listings. The Company's agreement with Netscape expires
on March 31, 1997. The Company is currently negotiating with Netscape in order
to renew this agreement, although there can be no assurance that this agreement
will be renewed upon terms acceptable to the Company, or at all. Therefore, 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.
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
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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 products. 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 and My Place through the Independent
Publishers. To date, the Company has entered into approximately 40 arrangements
with Independent Publishers.
In the approximately 12 months following the consummation of the Offering,
the Company plans to add an additional approximately 20 to 25 national, regional
and district sales managers to 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 March 1997. Currently, two
competing yellow page services are also listed. The Company is also currently
one of seven yellow page directories referred to as a "premiere partner" on
Netscape's "Destinations" yellow page toolbar. To date, a significant percentage
of the limited traffic to the Company's site is generated through these Netscape
listings. The Company's agreement with Netscape expires on March 31, 1997.
Although the Company is currently negotiating with Netscape regarding the
renewal of its contract, no assurance can be given that Netscape will renew the
contract upon its expiration in March 1997 upon terms acceptable to the Company,
or at all, 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 not to renew its contract with the Company, 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.
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.
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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."
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 site, 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 either party upon 90 days' notice, the Company is required to make
specified royalty payments to Network Publishing, based on the Company's annual
revenue, in exchange for Network Publishing building and maintaining the
Company's systems, including the design and maintenance of the software programs
that support the search engine and other functions of the Company's Websites.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." 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 applications, systems and
maintenance activities, including server hosting, are managed and maintained by
Network Publishing. The Company believes that Network Publishing is a
high-quality, Internet-savvy company 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.
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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, World Pages and ZIP2,
seven of which are currently showcased on the Netscape "Destinations" page. 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, 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. The Company has
applied for service mark registration for "On'Village", and will continue to
evaluate the registration of additional service marks and trademarks, as
appropriate. 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."
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
39
<PAGE> 43
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 third parties will
not in the future claim infringement by the Company with respect to current or
future products, trademarks or other proprietary rights, 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 proprietary technology, 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 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 February 15, 1997, the Company had 20 full-time and 3 part-time
employees, including four in research and technology, nine in sales and
marketing and ten 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 50 employees (including
approximately 20 to 25 national, regional and district sales managers) in the
approximately 12 months following the Offering in the areas of marketing,
product development and administration. Competition for employees in the
Company's
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<PAGE> 44
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 approximately 1,650 square feet of office space in Los Angeles,
California. This facility is leased from Robert Tracht Enterprises, Inc., a
company owned and founded by Mr. Robert Tracht, the President and Chief
Operating Officer of the Company. See "Certain Transactions." The lease is on a
month-to-month basis with rent payments of approximately $1,500 per month.
Although the Company's existing facility is adequate for the Company's current
requirements, in the near future, the Company will require additional space.
Accordingly, the Company is currently in the process of negotiating the terms of
a lease for a new facility with an unrelated third party.
LEGAL PROCEEDINGS
The Company is not currently engaged in any legal proceedings.
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<PAGE> 45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are the directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------ --- -------------------------------------------------
<S> <C> <C>
Jack B. Tracht 47 Chief Executive Officer and Director
Robert D. Tracht 42 President, Chief Operating Officer, Chief
Financial Officer and Director
Jeff W. Walden 43 Senior Vice President of Marketing and Director
James E. Austin 57 Senior Vice President of Sales, Secretary and
Director
</TABLE>
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 Tracht.
ROBERT D. TRACHT is a co-founder of the Company and has served as its
President, Chief Financial Officer and a Director since the Company's inception
in November 1995, and has served as the Company's Chief Operating Office since
May 1996. Mr. Tracht is the founder and a principal of Robert Tracht
Enterprises, Inc., 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 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 Robert
Tracht Enterprises 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 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.
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<PAGE> 46
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. Jack B. Tracht is the brother of Robert D. Tracht.
KEY EMPLOYEE
The following individual is an additional key employee of the Company:
HOWARD M. FITES has served as the Company's Web Master and Senior Editor
since its inception in November 1995. Mr. Fites' responsibilities at the Company
include working with Network Publishing 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.
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. The Board of Directors intends to appoint
independent directors to the Audit and Compensation Committee at such time as
such directors (who have not yet been selected) join the Board of Directors.
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.
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,
nonemployee directors are not precluded from serving the Company in any other
capacity and receiving compensation therefor.
Directors are also eligible to participate in the Stock Option Plan.
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<PAGE> 47
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 other 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 employment agreements (the "Employment Agreement")
with each of Jack B. Tracht, the Company's Chief Executive Officer; Robert D.
Tracht, the Company's President, Chief Operating Officer and Chief Financial
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 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.
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 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.
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<PAGE> 48
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 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 200,000 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 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 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
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<PAGE> 49
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 intends to obtain directors' and officers' liability insurance.
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 Robert Tracht Enterprise, Inc. ("RTE"). Robert D. Tracht, the
Company's President, Chief Financial Officer 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.
The Company's principal administrative, sales, and marketing facility is
leased from RTE. During the year ended December 31, 1996, the Company made total
payments with respect to the lease of approximately $10,700. See
"Business -- Facilities"
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.
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.
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<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 and
executive officers; and (iii) all officers and directors of the Company as a
group (a) prior to the Offering, and (b) as adjusted to give effect to the sale
of the 1,300,000 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 22.0% 10.6% 18.1%
Robert D. Tracht............................ 264,091 22.0 10.6 18.1
James E. Austin............................. 264,091 22.0 10.6 18.1
Jeff W. Walden.............................. 264,091 22.0 10.6 18.1
All executive officers and directors as a
group (4 persons)......................... 1,056,364 88.0 42.4 72.4
</TABLE>
- ---------------
(1) The address of each principal shareholder is c/o the Company at 848 N. La
Cienega Boulevard, Suite 206, Los Angeles, California 90069.
(2) Includes 176,061 Escrow Shares owned by each individual, or a total of
704,244 Escrow Shares for all executive officers and directors as a group.
See "-- Escrow Shares." 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. 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."
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;
(ii) the Minimum Pretax Income amounts to at least $4.0 million for
the fiscal year ending December 31, 1999;
(iii) the Minimum Pretax Income amounts to at least $5.0 million
for the fiscal year ending December 31, 2000;
(iv) 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;
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<PAGE> 51
(v) 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
(vi) during the periods specified in (iv) or (v) 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 (iv) or (v), respectively, equals or
exceeds the applicable levels set forth in (iv) or (v), 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 $4.0 million for
the fiscal year ending on December 31, 1998;
(ii) the Minimum Pretax Income amounts to at least $5.3 million for
the fiscal year ending on December 31, 1999;
(iii) the Minimum Pretax Income amounts to at least $6.6 million
for the fiscal year ending on December 31, 2000;
(iv) 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;
(v) 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
(vi) during the periods specified in (iv) or (v) 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 (iv) or (v), respectively, equals or
exceeds the applicable levels set forth in (iv) or (v), 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.
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, it may have a negative effect on the market price of
the Company's securities.
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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.
CONCURRENT SECURITIES OFFERING
An additional 1,200,000 redeemable Class A Warrants have been registered
pursuant to the registration statement under the Securities Act, of which this
Prospectus forms a part, for sale by the holders thereof (the "Selling
Securityholders"). These Class A Warrants are identical to the Class A Warrants
included in the Units offered hereby and are being issued to the Selling
Securityholders on the closing of the Offering upon the automatic conversion of
all of the Company's outstanding Bridge Warrants. All of the Selling
Securityholders' Warrants issued upon conversion of the Bridge Warrants, the
Class A Common Stock and Class B Warrants issuable upon exercise of such Class A
Warrants and the Class A Common Stock issuable upon exercise of the Class B
Warrants will be registered, at the Company's expense, under the Securities Act
and are expected to become tradeable on or about the closing of the Offering,
subject to a contractual restriction that such Class A Warrants and underlying
securities may not be sold for at least one year after the closing of the
Offering. The Selling Securityholders have also agreed not to exercise their
Selling Securityholders' Warrants for a period of one year following the closing
of the Offering. After the one-year period following the closing of the
Offering, the Selling Securityholders may exercise the Selling Securityholders'
Warrants and sell the Class A Common Stock issuable upon exercise of their
warrants without restriction if a current prospectus relating to such Class A
Common Stock is in effect and the securities are qualified for sale. The Company
will not receive any proceeds from the sale of the Selling Securityholders'
Warrants. Sales of Selling Securityholders' Warrants issued upon conversion of
the Bridge Warrants or the securities underlying such Class A Warrants or even
the potential of such sales could have an adverse effect on the market prices of
the Units, the Class A Common Stock and the Warrants. See "Shares Eligible For
Future Sale."
There are no material relationships between any of the Selling
Securityholders and the Company, nor have any such material relationships
existed since the Company's inception. The Company has been informed by the
Underwriter that there are no agreements between the Underwriter and any Selling
Securityholder regarding the distribution of the Selling Securityholders'
Warrants or the underlying securities.
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholders' Warrants may not
simultaneously engage in market making activities with respect to any securities
of the Company for a period of up to 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 Selling Securityholders'
Warrants, neither of such firms will be able to make a market in the Company's
securities during the applicable restrictive period. However, neither the
Underwriter nor Blair & Co. has agreed to, nor is either of them obligated to,
act as broker-dealer in the sale of the Selling Securityholders' Warrants, and
the Selling Securityholders may be required, and in the event Blair & Co. is a
market maker, will likely be required, to sell such securities through another
broker-dealer. In addition, each Selling Securityholder desiring to sell
Warrants will be subject to the applicable provisions of the Exchange Act and
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<PAGE> 53
the rules and regulations thereunder, including without limitation Regulation M,
which provisions may limit the timing of the purchases and sales of shares of
the Company's securities by such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
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, one Class A
Warrant and one Class B Warrant. Each Class A Warrant entitles the holder
thereof to purchase one share of Class A Common Stock and one Class B Warrant,
and each Class B 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 so long as at least one shareholder has given notice
at the meeting of shareholders prior to the notice of that shareholder's desire
to cumulate votes. 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 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
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<PAGE> 54
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.
CLASS A WARRANTS
The holder of each Class A Warrant is entitled, upon payment of the
exercise price of $6.50, to purchase one share of Class A Common Stock and one
Class B Warrant. Unless previously redeemed, the Class A Warrants are
exercisable at any time after issuance until 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 and the Class B
Warrants is in effect and the underlying Class A Common Stock and the Class B
Warrants are qualified for sale or exempt from qualification under applicable
state securities laws. The Class A Warrants included in the Units offered hereby
are immediately transferable separately from the Class A Common Stock and the
Class B Warrants issued with such Class A Warrants as part of the Units. The
Class A Warrants are subject to redemption, as described below.
CLASS B WARRANTS
The holder of each Class B Warrant is entitled, upon payment of the
exercise price of $8.75, to purchase one share of Class A Common Stock. Unless
previously redeemed, the Class B Warrants are exercisable at any time after
issuance until the fifth anniversary of the date of this Prospectus, provided
that at such time a current prospectus relating to the underlying Class A Common
Stock is then in effect and the underlying Class A Common Stock is qualified for
sale or exempt from qualification under applicable state securities laws. The
Class B Warrants included in the Units offered hereby are immediately
transferable separately from the Class A Common Stock and the Class A Warrants
issued with such Class B Warrants as part of the Units, and the Class B Warrants
underlying the Class A Warrants will be transferable separately from the Class A
Common Stock received upon exercise of the Class A Warrants. The Class B
Warrants are subject to redemption, as described below.
REDEMPTION
The Class A 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. The Class B 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 $12.25 per
share. During the first 54 months following the date of this Prospectus, the
Class B Warrants may not be redeemed earlier than six months after the
redemption of the Class A Warrants. Holders of Warrants will automatically
forfeit their rights to purchase the shares of Class A Common Stock or Warrants
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 of a class, except for those
underlying the Unit Purchase Option, must be redeemed if any of that class 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 Company's warrant agent (the
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<PAGE> 55
"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 1997 Plan or other employee benefit plans or (ii)
the sale or exercise of outstanding options or warrants or the Warrants offered
hereby.
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 130,000 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 three-year period commencing two years from the date of this
Prospectus at an exercise price of $6.00 per Unit (120% 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 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 2,499,996 shares of Common Stock
outstanding. Of these shares, the 1,300,000 shares of Class A Common Stock sold
hereunder will be freely transferable without restriction or registration under
the
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<PAGE> 56
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,
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 of
the current shareholders, executive officers and directors 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.
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
nonaffiliate 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.
Pursuant to registration rights acquired in the Bridge Financing, the
Company has, concurrently with the Offering, registered for resale on behalf of
the Selling Securityholders, the Selling Securityholders' Securities subject to
the contractual restriction that the Selling Securityholders agreed (i) not to
exercise the Selling Securityholders' Warrants for a period of one year from the
closing of the Offering, and (ii) not to sell the Selling Securityholders'
Warrants for a period of one year from the closing of the Offering.
The Underwriter also 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.
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UNDERWRITING
D.H. Blair Investment Banking Corp., the Underwriter, has agreed, subject
to the terms and conditions of the Underwriting Agreement, to purchase the
1,300,000 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 substantially all 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 195,000 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 130,000 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
three-year period commencing two years from the date of this Prospectus at an
exercise price of $6.00 per Unit, 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. 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.
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
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<PAGE> 58
of $60,000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The directors, executive officers, and holders of the shares of the 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 Class A Warrants or Class B 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 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. from engaging in any market making
activities with regard to the Company's securities for the period of up to 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.
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.
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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 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.
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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-13
</TABLE>
F-1
<PAGE> 61
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, for the
year ended December 31, 1996 and for the period November 13, 1995 (Inception) to
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,
for the year ended December 31, 1996 and for the period November 13, 1995
(Inception) to 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> 62
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents........................................ $ 27,526 $ 25,518
Accounts receivable, net of allowance for doubtful accounts of
$0 and $3,671................................................. -- 20,335
Prepaid expenses and other assets................................ 5,000 10,588
------- --------
Total current assets............................................... $ 32,526 $ 56,441
------- --------
Property and equipment, net (Note 3)............................... -- 11,340
Other assets
License agreements, net of accumulated amortization of $6,250 and
$190,061 (Note 7)............................................. 93,750 81,605
Deferred loan fees............................................... -- 30,554
Deferred offering costs.......................................... -- 60,846
------- --------
Total assets..................................................... $126,276 $ 240,786
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable................................................. $ 915 $ 58,771
Accrued expenses................................................. 2,252 180,701
Royalties and production costs payable........................... -- 17,861
Deferred revenues................................................ -- 29,744
Accrued license cost (Note 7).................................... 60,000 100,000
Notes payable (Note 4)........................................... -- 191,667
------- --------
Total current liabilities.......................................... 63,167 578,744
Long-term liabilities
Notes payable-related parties (Note 5)........................... 48,000 --
------- --------
Total liabilities.................................................. 111,167 578,744
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
and 1,199,996 shares issued and outstanding.................. 33,684 152,940
Additional paid-in capital....................................... -- 105,800
Deficit accumulated during the development stage................. (18,575) (596,698)
------- --------
Total shareholders' equity (deficit)............................... 15,109 (337,958)
------- --------
Total liabilities and shareholders' equity (deficit)............... $126,276 $ 240,786
======= ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 63
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NOVEMBER 13
NOVEMBER 13, 1995 (INCEPTION)
1995 (INCEPTION) YEAR TO
TO ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, 1996
1995 1996 (CUMULATIVE)
---------------- ------------ ----------------
<S> <C> <C> <C>
Revenue.......................................... $ -- $ 65,548 $ 65,548
-------- ---------- ----------
Costs and expenses
Cost of revenue................................ 6,250 114,052 120,302
General and administrative..................... 12,325 377,254 389,579
Selling and marketing.......................... -- 152,365 152,365
-------- ---------- ----------
18,575 643,671 662,246
-------- ---------- ----------
Net loss......................................... $(18,575) $ (578,123) $ (596,698)
======== ========== ==========
Net loss per common share........................ $ (0.02) $ (0.67)
======== ==========
Weighted average common shares outstanding....... 818,344 858,499
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 64
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD NOVEMBER 13, 1995 (INCEPTION) TO
DECEMBER 31, 1995 AND FOR THE YEAR
ENDED DECEMBER 31, 1996
<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)
========= ======== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 65
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NOVEMBER 13, 1995
NOVEMBER 13, 1995 (INCEPTION) TO
(INCEPTION) TO YEAR ENDED DECEMBER 31, 1996
DECEMBER 31, 1995 DECEMBER 31, 1996 (CUMULATIVE)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.................................... $ (18,575) $(578,123) $(596,698)
Adjustments to reconcile net loss to net
cash used for operating activities:
Provision for doubtful accounts........ -- 3,671 3,671
Depreciation and amortization.......... 6,250 185,216 191,466
Amortization of original issue
discount............................ -- 11,667 11,667
Issuance of common stock for
services............................ 1,684 19,256 20,940
Increase (decrease) in cash from changes in:
Accounts receivable...................... -- (24,006) (24,006)
Prepaid expenses and other assets........ (5,000) (5,588) (10,588)
License agreement........................ (100,000) (171,666) (271,666)
Accounts payable......................... 915 57,856 58,771
Accrued expenses......................... 2,252 184,249 186,501
Accrued license costs.................... 60,000 40,000 100,000
Royalties and production costs payable... -- 17,861 17,861
Deferred revenues........................ -- 29,744 29,744
--------- --------- ---------
Net cash used for operating activities........ (52,474) (229,863) (282,337)
--------- --------- ---------
Cash flows from investing activities
Purchase of property and equipment.......... -- (12,745) (12,745)
--------- --------- ---------
Net cash used for investing activities........ -- (12,745) (12,745)
--------- --------- ---------
Cash flows from financing activities
Net proceeds from issuance of common
stock.................................... 32,000 100,000 132,000
Borrowings on notes payable................. 48,000 232,000 280,000
Registration and financing costs............ -- (91,400) (91,400)
--------- --------- ---------
Net cash provided by financing activities..... 80,000 240,600 320,600
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents................................. 27,526 (2,008) 25,518
Cash and cash equivalents, at beginning of
period...................................... -- 27,526 -
--------- --------- ---------
Cash and cash equivalents, at end of period... $ 27,526 $ 25,518 $ 25,518
========= ========= =========
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest................................. $ 148 $ -- $ 148
Income taxes............................. 800 -- 800
========= ========= =========
Supplemental disclosure of non-cash activity
Issuance of common stock in exchange for
services................................. 1,684 19,256 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> 66
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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.
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.
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 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.
F-7
<PAGE> 67
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Income Taxes
The Company has 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 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.
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
F-8
<PAGE> 68
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 $5,200,000 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>
DECEMBER 31,
1996
------------
<S> <C>
Computers and equipment................................. $ 12,745
Less accumulated depreciation........................... (1,405)
-------
Totals.................................................. $ 11,340
=======
</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).
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.
NOTE 6 -- COMMITMENTS
The Company leases its facility on a month-to-month basis.
F-9
<PAGE> 69
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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>
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.
The assets arising from these agreements are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
LIFE 1995 1996
--------- ------------ ------------
<S> <C> <C> <C>
Minimum royalty -- database...................... 1 Year $100,000 $100,000
Web page provider................................ 7 Months $ -- 171,666
-------- -------- --------
100,000 271,666
Less accumulated amortization.................... 6,250 190,061
-------- --------
$ 93,750 $ 81,605
======== ========
</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.
F-10
<PAGE> 70
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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 Class A warrants (see description of Class A 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 1,300,000
units ("Units"), plus an option for the underwriter to sell an additional
195,000 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, one Class A warrant and one Class B warrant. Each Class A
warrant, upon its exercise at $6.50 per warrant, entitles the holder to purchase
one share of the Company's Class A Common Stock and one Class B warrant. Each
Class B warrant, upon its exercise at $8.75 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.
F-11
<PAGE> 71
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
All shares and per share data included herein has been retroactively
adjusted to reflect the foregoing amendments.
NOTE 11 -- SUBSEQUENT EVENTS
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 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.
Conversion of Corporate Income Tax Status
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.
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.
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 stock of the Company). Nonqualified options may be granted
under the Option Plan at an exercise price less
F-12
<PAGE> 72
ON'VILLAGE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
F-13
<PAGE> 73
======================================================
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.................. 46
Principal Shareholders................ 47
Concurrent Securities Offering........ 49
Description of Securities............. 50
Shares Eligible for Future Sale....... 52
Underwriting.......................... 54
Legal Matters......................... 55
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.
1,300,000 UNITS
CONSISTING OF
1,300,000 SHARES OF CLASS A COMMON STOCK,
1,300,000 REDEEMABLE CLASS A WARRANTS
AND
1,300,000 REDEEMABLE CLASS B WARRANTS
------------------------
PROSPECTUS
------------------------
D.H. BLAIR
INVESTMENT BANKING CORP.
, 1997
======================================================
<PAGE> 74
PROSPECTUS ALTERNATE
ON'VILLAGE COMMUNICATIONS, INC.
1,200,000 REDEEMABLE CLASS A WARRANTS,
1,200,000 REDEEMABLE CLASS B WARRANTS AND
2,400,000 SHARES OF CLASS A COMMON STOCK
This Prospectus relates to 1,200,000 redeemable Class A Warrants (the
"Selling Securityholders' Warrants" or the "Class A Warrants") of On'Village
Communications, Inc., a California corporation (the "Company"), issued to
certain investors upon conversion of warrants issued to such investors (the
"Selling Securityholders") in connection with a private placement by the Company
completed in January 1997 (the "Bridge Financing"), and the 1,200,000 redeemable
Class B Warrants (the "Class B Warrants") issuable upon exercise of the Class A
Warrants, and the 2,400,000 shares of Class A Common Stock of the Company (the
"Class A Common Stock") underlying the Class A Warrants and Class B Warrants.
See "Selling Securityholders" and "Plan of Distribution." Each Class A Warrant
entitles the holder to purchase one share of Class A Common Stock and one Class
B Warrant at an exercise price of $6.50, subject to adjustment, until the fifth
anniversary of the date of this Prospectus. Each Class B Warrant entitles the
holder to purchase one share of Class A Common Stock at an exercise price of
$8.75, subject to adjustment, until the fifth anniversary of the date of this
Prospectus. The Class A Warrants and the Class B 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
with respect to the Class A Warrants and $12.25 per share with respect to the
Class B Warrants (subject to adjustment in each case). See "Description of
Securities."
The Selling Securityholders have agreed not to exercise the Selling
Securityholders' Warrants for a period of one year from the closing of the
Offering. The Selling Securityholders have also agreed not to sell the Selling
Securityholders' Warrants for a period of one year after the closing of the
Offering.
The securities offered by this Prospectus may be sold from time to time by
the Selling Securityholders, or by their transferees. The distribution of the
securities offered hereby may be effected in one or more transactions that may
take place in the over-the-counter market, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders.
The Selling Securityholders and intermediaries through whom such securities
are sold may be deemed "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commission received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders. In the event the Warrants are fully
exercised, the Company will receive gross proceeds of $28,800,000. See "Selling
Securityholders and Plan of Distribution."
On March 5, 1997, the Company filed a registration statement under the
Securities Act with the Securities and Exchange Commission (the "Commission")
relating to a public offering by the Company (the "Offering") of 1,300,000
Units, each Unit consisting of one share of Class A Common Stock, one Class A
Warrant and one Class B Warrant. The Company will receive approximately
$5,200,000 net proceeds from the sale of the Units (assuming no exercise of the
Underwriter's over-allotment option) after payment of underwriting discounts and
commissions and estimated expenses of the Offering.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7
------------------------
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.
The date of this Prospectus is , 1997
<PAGE> 75
ALTERNATE
SELLING SECURITYHOLDERS
An aggregate of up to 1,200,000 Class A Warrants, 1,200,000 shares of Class
A Common Stock and 1,200,000 Class B Warrants issuable upon exercise of the
Class A Warrants, and 1,200,000 shares of Class A Common Stock issuable upon
exercise of the Class B Warrants may be offered by certain securityholders who
received their Class A Warrants in connection with the Bridge Financing or by
their transferees.
The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering securities for resale
to the public. The Company will not receive any of the proceeds from the sale of
these securities. Except as described below, there are no material relationships
between any of the Selling Securityholders and the Company, nor have any such
material relationships existed within the past three years.
<TABLE>
<CAPTION>
NUMBER OF
CLASS A WARRANTS
BENEFICIALLY OWNED
AND MAXIMUM NUMBER
SELLING SECURITYHOLDER TO BE SOLD(1)
--------------------------------------------------------- ------------------
<S> <C>
Robert Berger............................................ 12,500
Brynde Berkowitz......................................... 50,000
Alice A. Berlin.......................................... 12,500
David James Brown M.D.P.A. Money Purchase Pension Plan... 100,000
Henry C. Cashen II....................................... 12,500
Howard Commander......................................... 25,000
Howard B. Culang......................................... 6,250
Badr Idbeis Self SEP..................................... 25,000
Milton I. & Jean A. Drucker, TIC......................... 12,500
Edmund H. Shea, Jr., TTEE for E&M RP Trust............... 50,000
Elvin E. & Genevieve M. Eberle, JTROS.................... 25,000
Fairfield-Maxwell, Ltd................................... 50,000
Jeffrey A. Feibelman..................................... 100,000
John S. & Elsie C. Fok, JTROS............................ 6,250
E. Kipp Friedli.......................................... 25,000
Hitesh A. Gandhi......................................... 25,000
Golden Leaves Knitwear Co................................ 37,500
Steve Gorlin............................................. 100,000
Stuart Grubes............................................ 12,500
Stanley D. Hoffman, TTEE for Stanley D. Hoffman Profit
Sharing Plan........................................... 25,000
Stanley D. Hoffman....................................... 18,750
Stanley D. Hoffman & Barry Hoffman, TIC.................. 12,500
Robert & Louise Juckniess, JTROS......................... 25,000
Jacob & Christel Katz, TIC............................... 25,000
Kathleen Katzmann........................................ 12,500
Gerald Kesselman......................................... 50,000
Harold Kesselman......................................... 12,500
Jane Kesselman........................................... 18,750
Roslyn B. Kopit.......................................... 12,500
Allen M. Kranz........................................... 12,500
Jorge M. & Linda M. Mandlebaum, JT....................... 6,250
Bret Marshall............................................ 6,250
</TABLE>
A-2
<PAGE> 76
ALTERNATE
<TABLE>
<CAPTION>
NUMBER OF
CLASS A WARRANTS
BENEFICIALLY OWNED
AND MAXIMUM NUMBER
SELLING SECURITYHOLDER TO BE SOLD(1)
--------------------------------------------------------- ---------
<S> <C>
Rudolph Mazurosky........................................ 6,250
Warren Noden............................................. 12,500
Stephen Osman............................................ 25,000
Melvin Paradise.......................................... 12,500
Jagat N. Patel........................................... 50,000
Wayne & Bonnie Pensenstadler, JTROS...................... 12,500
Haim Pinhasi............................................. 12,500
Daniel A. Potter......................................... 12,500
Marc Roberts............................................. 50,000
Kaytaro Sugahara......................................... 25,000
Gary & Catherine Von Glinow, JTROS....................... 25,000
Lawrence P. Wein......................................... 6,250
Dr. Robert M. Weiss...................................... 25,000
---------
Total.......................................... 1,200,000
=========
</TABLE>
- ---------------
(1) Does not include shares of Class A Common Stock and Class B Warrants
issuable upon exercise of the Class A Warrants and the shares of Class A
Common Stock issuable upon exercise of the Class B Warrants. The Selling
Securityholders have agreed not to exercise the Class A Warrants offered
hereby for a period of one year after the closing of the Offering.
A-3
<PAGE> 77
ALTERNATE
PLAN OF DISTRIBUTION
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
Each Selling Securityholder has agreed (i) not to sell, transfer or
otherwise dispose publicly the Selling Securityholders' Warrants for a period of
one year after the closing of the Offering, and (ii) not to exercise the Selling
Securityholders' Warrants for a period of one year after the closing of the
Offering.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholders' Warrants may not
simultaneously engage in market making activities with respect to any securities
of the Company for a period of up to five business days prior to the
commencement of such distribution. Accordingly, in the event the Underwriter of
the Company's initial public offering or D.H. Blair & Co., Inc. ("Blair & Co.")
is engaged in a distribution of the Selling Securityholders' Warrants, neither
of such firms will be able to make a market in the Company's securities during
the applicable restrictive period. However, neither the Underwriter nor Blair &
Co. has agreed to, nor is either of them obligated to, act as a broker-dealer in
the sale of the Selling Securityholders' Warrants, and the Selling
Securityholders may be required, and in the event Blair & Co. is a market maker,
will likely be required, to sell such securities through another broker-dealer.
In addition, each Selling Securityholder desiring to sell Warrants will be
subject to the applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Regulation M, which
provisions may limit the timing of the purchases and sales of shares of the
Company's securities by such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities by them might be deemed to be
underwriting discounts and commissions under the Securities Act.
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 Class A Warrants or Class B 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 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 promulgated under the Exchange Act.
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
A-4
<PAGE> 78
ALTERNATE
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.
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a Registration Statement under the
Securities Act was declared effective with respect to an underwritten offering
of 1,300,000 Units by the Company (1,495,000 Units if the Underwriter's
overallotment option is exercised in full), each Unit consisting of one share of
Class A Common Stock, one Class A Warrant and one Class B Warrant.
A-5
<PAGE> 79
======================================================
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....................
Risk Factors..........................
Use of Proceeds.......................
Dividend Policy.......................
Dilution..............................
Capitalization........................
Selected Financial Data...............
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Certain Transactions..................
Principal Shareholders................
Selling Securityholders...............
Plan of Distribution..................
Concurrent Public Offering............
Description of Securities.............
Shares Eligible for Future Sale.......
Legal Matters.........................
Experts...............................
Additional Information................
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.
1,200,000 REDEEMABLE CLASS A WARRANTS,
1,200,000 REDEEMABLE CLASS B WARRANTS
AND
2,400,000 SHARES OF CLASS A COMMON STOCK
--------------------
PROSPECTUS
--------------------
, 1997
======================================================
A-6
<PAGE> 80
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 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.
Section 3.17 of the California Corporations Code ("Section 317") provides
that the Registrant 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 Registrant or is or was
serving at the request of the Registrant 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 Registrant, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 317 also provides that the Registrant 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 Registrant 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 Registrant 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
Registrant 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 Registrant may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against
II-1
<PAGE> 81
him or incurred by him in any such capacity or arising out of his status as such
whether or not the Registrant would have the power to indemnify him against such
liabilities under Section 317.
The Registrant intends to enter into agreements with its directors and
executive officers that require the Registrant 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 Registrant 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 Registrant 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 Registrant 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................................... 125,000
Accounting fees and expenses...................................... 50,000
Legal fees and expenses........................................... 125,000
Blue Sky filing fees and expenses................................. 50,000
Transfer agent's fees and expenses................................ 5,000
Representative's nonaccountable expense allowance (3%)............ 224,250*
Miscellaneous expenses............................................ 64,048
--------
Total................................................... $679,250
========
</TABLE>
- ---------------
* Assumes the exercise of the over-allotment option (i.e., $7,475,000 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> 82
<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 accredited investors in connection with a private placement
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 forms of Class A Warrant and
Class B Warrant certificates).
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.
5.1 Opinion of Troy & Gould Professional Corporation.*
</TABLE>
II-3
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
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, dated December 20, 1996, 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
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 (to be contained in Exhibit
5.1).*
24.1 Power of Attorney (included on page II-6).
27.1 Financial Data Schedule
</TABLE>
- ---------------
* 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.
(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
II-4
<PAGE> 84
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> 85
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on March 4, 1997.
ON'VILLAGE COMMUNICATIONS, INC.
By: /s/ JACK B. TRACHT
------------------------------------
Jack B. Tracht
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jack B. Tracht and Robert D. Tracht, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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 March 4, 1997
- --------------------------------------------- Director (Principal Executive
Jack B. Tracht Officer)
/s/ ROBERT D. TRACHT President, Chief Operating March 4, 1997
- --------------------------------------------- Officer, Chief Financial
Robert D. Tracht Officer and Director
(Principal Financial and
Accounting Officer)
/s/ JAMES E. AUSTIN Senior Vice President of March 4, 1997
- --------------------------------------------- Sales and Director
James E. Austin
/s/ JEFF W. WALDEN Senior Vice President of March 4, 1997
- --------------------------------------------- Marketing and Director
Jeff W. Walden
</TABLE>
II-6
<PAGE> 86
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT 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..............................
4.2 Form of Warrant Agreement by and among the Company, American Stock
Transfer & Trust Company and the Underwriter (including forms of Class A
Warrant and Class B Warrant certificates)...............................
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 24, 1997, among the Company,
American Stock Transfer & Trust Company and the shareholders of the
Company listed on the signature page thereto............................
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, dated December 20, 1996, 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.................................
11.1 Statement regarding computation of net loss per share...................
23.1 Consent of BDO Seidman LLP..............................................
24.1 Power of Attorney (included on page II-6)...............................
27.1 Financial Data Schedule.................................................
</TABLE>
- ---------------
* Incomplete versions filed; portions for which confidential treatment have been
requested filed supplementally.
<PAGE> 1
EXHIBIT 1.1
1,300,000 Units
(each Unit consisting of (i) one share of Class A Common Stock;
(ii) one redeemable Class A warrant to purchase
one share of Class A Common Stock and one redeemable Class B warrant
and (iii) one redeemable Class B warrant)
ON'VILLAGE COMMUNICATIONS, INC.
UNDERWRITING AGREEMENT
----------------------
January __, 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
"Underwriters") pursuant to this Agreement (the "Agreement"), an aggregate of
1,300,000 Units, each unit being hereinafter referred to as a "Unit" and
consisting of (i) one share of Class A Common Stock, ("Shares"), (ii) one
redeemable Class A warrant ("Class A Warrants") to purchase one share of Class A
Common Stock and one redeemable Class B warrant ("Class B Warrant") at a price
of $6.50 from _______ __, 1997 to _______ __, 2002 and (iii) one redeemable
Class B Warrant to purchase one share of Class A Common Stock at a price of
$8.75 from _______ __, 1997 to _______ __, 2002. The Class A Warrants and Class
B Warrants are collectively referred to as the "Warrants". 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 195,000 additional Units. Unless the context otherwise indicates,
the term "Units" shall include the 195,000 additional Units referred to above.
The aggregate of 1,300,000 Units to be sold by the Company,
together with all or any part of the 195,000 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."
<PAGE> 2
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:
(a) A registration statement (File No. 333- )
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
-2-
<PAGE> 3
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 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 in all respects conform to the requirements of the Act and the
Rules and Regulations; and (ii) neither the Registration Statement nor the
Prospectus will 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; 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" 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 December 31, 1996 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, the
Company is not in violation, breach or default of or under, and consummation of
the transactions herein
-4-
<PAGE> 5
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 Schedules 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 rules and
guidelines with respect to pro forma financial statements, and
-5-
<PAGE> 6
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.
(l) 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) 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 States, any state, county or
locality, or of any agency or body of the United States or of any state, county
or locality, the
-6-
<PAGE> 7
violation of which would have a material adverse impact upon the condition
(financial or otherwise), business, property, prospective results of operations,
or net worth of the Company.
(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.
(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 any offering material in connection
with the 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.
-7-
<PAGE> 8
(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, the Subsidiaries 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, 1,300,000 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 195,000 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 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 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
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<PAGE> 9
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
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 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
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<PAGE> 10
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
cCompany 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 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
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<PAGE> 11
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.
(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, consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they 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
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<PAGE> 12
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 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.
(j) The Company will, promptly upon your
request, prepare and file with the Commission any amendments or supplements to
the Registration Statement,
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<PAGE> 13
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 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 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 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 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.
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<PAGE> 14
(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 and Robert D. Tracht shall be the President, Chief Operating Officer and
Chief Financial Officer and Jeff W. Walden and James E. Austin will each be the
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 and
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 execute and 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 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
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<PAGE> 15
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 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 Rule 10b-6 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.
(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 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) With respect to the Selling Stockholders,
the Company will send all post-effective amendments or prospectus supplements
disclosing actual price and selling terms to the NASD concurrently with the
filing thereof with the Commission. The Company will notify the Underwriter and
the NASD if the Company becomes aware that any 5% or greater stockholder of the
Company becomes an affiliated or associated person of an NASD member
participating in the distribution of this offering.
4. Conditions of Underwriter' Obligation. The
obligations of the Underwriter to purchase and pay for the Units which they have
respectively agreed to purchase
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<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 your knowledge 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 PC, 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,
with full 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 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 December 31, 1996 is as set forth
under "Capitalization" in the
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<PAGE> 17
Prospectus; all shares of 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; 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 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, 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
we 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);
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<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; at all times during the term of
the Warrants the shares of Class A Common Stock of
the Company issuable upon exercise of the Warrants
have been duly authorized and reserved for issuance
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;
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) 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, no stop order suspending the
effectiveness of the Registration Statement is in
effect, and no
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<PAGE> 19
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
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 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;
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<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;
(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 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.
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<PAGE> 21
(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,
together with copies thereof for each of the other Underwriter, 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 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 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
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<PAGE> 22
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 as Representative the
signed opinions of Troy & Gould PC 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 Section 4(f) 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.
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<PAGE> 23
(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.
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
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<PAGE> 24
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 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 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.
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<PAGE> 25
(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.
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
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<PAGE> 26
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.
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
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<PAGE> 27
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 $195,000 of which $40,000 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 $195,000.
(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.
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<PAGE> 28
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 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,
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<PAGE> 29
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 $.____, 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 130,000 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., 848 N. La
Cienega Boulevard, Suite 206, Los Angeles, California 90069.
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.
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<PAGE> 30
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
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<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
E. VENTURES, INC.
The undersigned certify that:
1. They are the president and the secretary, respectively, of E. VENTURES,
INC., a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
ONE: The name of this corporation is ON'VILLAGE COMMUNICATIONS, INC.
TWO: The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: This corporation is authorized to issue two classes of shares of
stock designated "Common Stock" and "Preferred Stock", respectively. The total
number of shares of stock which this corporation shall have authority to issue
is 25,200,000 shares, consisting of 20,200,000 shares of Common Stock and
5,000,000 shares of Preferred Stock. The Common Stock shall be all of one
class, and shall be divided into two series, consisting of Class A Common Stock
and Class B Common Stock. Upon the amendment of this Article to read as herein
set forth, each outstanding share of Common Stock is changed into and
reclassified as one share of Class B Common Stock.
A. Common Stock.
1. Except where otherwise provided by law, by these Restated
Articles of Incorporation, or by resolution of the Board of Directors pursuant
to this Article THREE, the holders of the Common Stock issued and outstanding
shall have and possess the exclusive right to notice of shareholders' meetings
and the exclusive voting rights and powers.
2. Of the 20,200,000 shares of Common Stock, 1,400,000 shares
are initially designated as shares of Class B Common Stock and 18,800,000
shares are initially designated as shares of Class A Common Stock.
3. The following is a statement of the powers, preferences, and
relative participating, optional or other special rights and qualifications,
limitations and restrictions of the Class A Common Stock and Class B Common
Stock:
(a) Except as otherwise set forth below in this Article
THREE, the powers, preferences and relative participating, optional or other
special rights and qualifications, limitations or restrictions of the Class A
Common Stock and Class B Common Stock shall be identical in all respects.
(b) Subject to the rights of the holders of the Preferred
Stock, and subject
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<PAGE> 2
to all other provisions of these Restated Articles of Incorporation, holders of
Class A Common Stock and Class B Common Stock shall be entitled to receive such
dividends and other distributions in cash, stock of any corporation or property
of this corporation as may be declared thereon by the Board of Directors from
time to time out of assets or funds of this corporation legally available
therefor and shall share equally on a per share basis in all such dividends and
other distributions. Neither the shares of Class A Common Stock nor the shares
of Class B Common Stock may be reclassified, subdivided or combined unless such
reclassification, subdivision or combination occurs simultaneously and in the
same proportion for each class.
(c) (i) At every meeting of the stockholders of this
corporation, every holder of Class A Common Stock shall be entitled to one vote
in person or by proxy for each share of Class A Common Stock standing in his or
her name on the transfer books of this corporation, and every holder of Class B
Common Stock shall be entitled to five votes in person or by proxy for each
share of Class B Common Stock standing in his or her name on the transfer books
of this corporation in connection with the election of directors and all other
matters submitted to a vote of stockholders. Except as may be otherwise
required by law or by this Article THREE, the holders of Class A Common Stock
and Class B Common Stock shall vote together as a single class, subject to any
voting rights which may be granted to holders of Preferred Stock, on all
matters submitted to a vote of the holders of Common Stock.
(ii) Every reference in these Restated Articles of
Incorporation to a majority or other proportion of shares of Common Stock,
Class A Common Stock or Class B Common Stock, shall refer to such majority or
other proportion of the votes to which such shares of Common Stock, Class A
Common Stock or Class B Common Stock are entitled.
(d) (i) In the event of any dissolution, liquidation or
winding up of the affairs of this corporation, whether voluntary or
involuntary, after payment in full of the amounts required to be paid to the
holders of Preferred Stock, the remaining assets and funds of this corporation
shall be distributed pro rata to the holders of Class A Common Stock and Class
B Common Stock as a single class.
(ii) In the event of any merger or consolidation of this
corporation with or into another company in connection with which shares of
Common Stock are converted into or exchangeable for shares of stock, other
securities or property (including cash), all holders of Common Stock,
regardless of class or series, will be entitled to receive the same kind and
amount of shares of stock and other securities and property (including cash).
(e) (i) All outstanding shares of Class B Common Stock
are convertible at the option of the holder thereof into an equal number of
fully paid and nonassessable shares of Class A Common Stock at any time. At the
time of a voluntary conversion, the holder of shares of Class B Common Stock
shall deliver to the office of this corporation or any transfer agent for the
Class B Common Stock (1) the certificate or certificates representing the
shares of Class B Common Stock to be converted, duly endorsed in blank or
accompanied by proper instruments of transfer, and (2) written notice to this
corporation stating that such holder elects to convert such share or shares and
stating the name and address in which each certificate for shares of Class A
Common Stock issued upon such conversion is to be issued. To the extent
permitted by law, such voluntary conversion shall be deemed to have been
effected at the close of business on the date when such delivery is made to
this corporation or such transfer agent of the shares to be converted, and the
person exercising such voluntary conversion shall be deemed to be the holder of
record of the number of shares of Class A Common Stock issuable upon such
conversion at such time. This corporation or its transfer agent, as the case
may be, shall promptly deliver certificates evidencing the appropriate number
of shares of Class A Common Stock to such person.
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<PAGE> 3
(ii) Except as provided in subparagraph (iii) below,
each share of Class B Common Stock shall automatically convert into one share
of Class A Common Stock upon the sale, assignment, conveyance, transfer or
other disposition of such shares if, after such transfer, such shares are not
beneficially owned by (1) the holder of such shares of Class B Common Stock
immediately prior to such transfer, or (2) another holder of Class B Common
Stock. For purposes of this paragraph (e)(ii), the term "beneficially owned"
with respect to shares of Class B Common Stock means ownership by a person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise controls the voting power (which includes the power
to vote or to direct the voting of) of such Class B Common Stock.
This corporation shall at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock and its issued Common Stock held in its
treasury for the purpose of effecting any conversion of the Class B Common
Stock pursuant to this paragraph (e)(ii), the full number of shares of Class A
Common Stock then deliverable upon any such conversion of all outstanding
shares of Class B Common Stock.
(iii) Upon the death of any holder of Class B Common
Stock, the shares of Class B Common Stock so held as of the date of death of
the deceased shareholder shall be automatically converted into an equal number
of fully paid and nonassessable shares of Class A Common Stock unless and to
the extent that any of such shares are purchased by another holder of Class B
Common Stock on or prior to 90 days from a date that a legal representative is
duly appointed by a court of competent jurisdiction, or 120 days from such date
if within such 90-day period another holder of Class B Common Stock has
exercised any right to purchase shares of Class B Common Stock held by such
legal representative. If there should be only one holder of Class B Common
Stock, effective immediately upon his death, the shares of Class B Common Stock
so held as of the date of death shall be automatically converted into an equal
number of fully paid and nonassessable shares of Class A Common Stock.
(iv) With respect to any shares of Class B Common Stock
converted into Class A Common Stock pursuant to subparagraphs (e)(ii) or
(e)(iii) above, until surrender as hereinafter provided, each outstanding
certificate, which prior to such conversion represented shares of Class B
Common Stock, shall be deemed for all purposes to evidence ownership of the
number of shares of Class A Common Stock into which the shares of Class B
Common Stock shall have been converted. Upon surrender to this corporation, or
its transfer agent, for cancellation of the certificate or certificates
representing such shares, the holder thereof shall be entitled to receive a
certificate or certificates representing the number of shares of Class A Common
Stock to which such holder is entitled.
(v) With respect to any shares of Class B Common Stock
converted into Class A Common Stock pursuant to subparagraphs (e)(i), (e)(ii)
or (e)(iii) above, such converted shares of Class B Common Stock shall, after
the date of conversion, have the status of authorized but unissued shares of
Class B Common Stock, but may not be reissued.
(vi) With respect to any shares of Class B Common Stock
reserved for issuance upon exercise of warrants outstanding as of the date this
Amendment becomes effective, upon the cancellation, conversion or retirement of
such warrants, such shares of Class B Common Stock shall, after the date of
cancellation, conversion or retirement of such warrants, have the status of
authorized but unissued shares of Class B Common Stock, but may not be issued.
(f) The Board of Directors shall not authorize the issuance
of additional shares of Class B Common Stock after the amendment of this
Article THREE to read as herein set forth, whether or not there are then
authorized but unissued shares of Class B Common Stock.
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<PAGE> 4
B. Preferred Stock.
The Preferred Stock may be divided into such number of series as
the Board of Directors may determine. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions, or any
of them, granted to or imposed upon any wholly unissued series of Preferred
Stock and to fix the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The Board of Directors,
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting any
series, may increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series subsequent to the
issue of shares of that series.
FOUR: The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permitted under California
law. This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Law) through bylaw provisions,
agreements with agents, vote of shareholders or disinterested directors or
otherwise, in excess of the indemnification otherwise permitted by Section 317
of the California Law, subject only to the applicable limits set forth in
Section 204 of the California Law with respect to actions for breach of duty to
the corporation and its shareholders. This corporation is authorized to
purchase and maintain insurance on behalf of its agents against any liability
asserted against or incurred by the agent in such capacity or arising out of
the agent's status as such from a company, the shares of which are owned in
whole or in part by this corporation, provided that any policy issued by such
company is limited to the extent required by applicable law. Any repeal or
modification of the foregoing provisions of this Article FOUR by the
shareholders of this corporation shall not adversely affect any right or
protection of an agent of this corporation existing at the time of that repeal
or modification.
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with
Section 902, California Corporations Code. The total number of outstanding
shares of the corporation is 1,199,996. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The
percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: December 27, 1996 /s/ Robert D. Tracht, President
----------------------------------
Robert D. Tracht, President
/s/ James E. Austin
----------------------------------
James E. Austin, Secretary
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
E. VENTURES, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The board of directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this state, and the corporation has one or more business offices
in this state, the board of directors shall fix and designate a principal
business office in the State of California.
Section 2. OTHER OFFICES. The board of directors or officers of the
corporation may at any time establish branch or subordinate offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
at any place within or outside the State of California designated by the board
of directors. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of shareholders shall
be held each year on a date and at a time designated by the board of directors.
At each annual meeting directors shall be elected, and any other proper business
may be transacted. The date so designated shall be within five (5) months after
the end of the fiscal year of the corporation, and within fifteen (l5) months
after the last annual meeting.
Section 3. SPECIAL MEETING. A special meeting of the shareholders
may be called at any time by the board of directors, or by the chairman of the
board, or by the president, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than l0% of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing,
<PAGE> 2
specifying the time of such meeting and the general nature of the business
proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
chairman of the board, the president, any vice president, or the secretary of
the corporation. The officer receiving the request shall cause notice to be
promptly given to the shareholders entitled to vote, in accordance with the
provisions of Sections 4 and 5 of this Article II, that a meeting will be held
at the time requested by the person or persons calling the meeting, not less
than thirty-five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after receipt of the
request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph of this section 3 shall be construed as
limiting, fixing or affecting the time when a meeting of shareholders called by
action of the board of directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings
of shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the articles of incorporation, pursuant to Section 902 of that
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of that Code, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, pursuant to Section 2007 of
that Code, the notice shall also state the general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
any meeting of shareholders shall be given either personally or by first-class
mail or telegraphic or other written communication, charges prepaid, addressed
to the shareholder at the address of that shareholder appearing on the books of
the corporation or given by the shareholder to the corporation for the purpose
of notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the
corporation's principal
<PAGE> 3
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the shareholder on
written demand of the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary,
or any transfer agent of the corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting of shareholders
shall constitute a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at that meeting, except as provided in Section 6 of
this Article II.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case the board of directors shall
set a new record date. Notice of any such adjourned meeting shall be given to
each shareholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 4 and 5 of this Article II. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
<PAGE> 4
Section 8. VOTING. The shareholders entitled to vote at any meeting
of shareholders shall be determined in accordance with the provisions of Section
11 of this Article II, subject to the provisions of Sections 702 to 704,
inclusive, of the Corporations Code of California (relating to voting shares
held by a fiduciary, in the name of a corporation, or in joint ownership). The
shareholders' vote may be by voice vote or by ballot; provided, however, that
any election for directors must be by ballot if demanded by any shareholder
before the voting has begun. On any matter other than elections of directors,
any shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal, but, if the
shareholder fails to specify the number of shares which the shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares that the shareholder is entitled to
vote. If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter (other than the
election of directors) shall be the act of the shareholders, unless the vote of
a greater number of voting by classes is required by California General
Corporation Law or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of shareholder's shares)
unless the candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes. If
any shareholder has given such a notice, then every shareholder entitled to vote
may cumulate votes for candidates in nomination and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which that shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates, as
the shareholder thinks fit. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS.
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though had
at a meeting duly held after regular call and notice, if a quorum be present
either in person or by proxy, and if, either before or after the meeting, each
person entitled to vote, who was not present in person or by proxy, signs a
written waiver of notice or a consent to a holding of the meeting, or an
approval of the minutes. The waiver of notice or consent need not specify either
the business to be transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section 4
of this Article II, the waiver of notice or consent shall
<PAGE> 5
state the general nature of the proposal. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than 66 2/3% of the votes that would be
necessary to authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. In the case of election
of directors, such a consent shall be effective only if signed by the holders of
all outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy on the
board of directors that has not been filled by the directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxy holders, or
a transferee of the shares or a personal representative of the shareholder or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 5 of this Article
II. In the case of approval of (i) contracts or transactions in which a director
has a direct or indirect financial interest, pursuant to Section 310 of the
Corporations Code of California, (ii) indemnification of agents of the
corporation, pursuant to Section 317 of that Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of that Code, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of that Code, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
<PAGE> 6
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of any
meeting or to vote or entitled to give consent to corporate action without a
meeting, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
any such meeting nor more than sixty (60) days before any such action without a
meeting, and in this event only shareholders of record on the date so fixed are
entitled to notice and to vote or to give consents, as the case may be,
notwithstanding any transfer or any shares on the books of the corporation after
the record date, except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, (i) when no
prior action by the board has been taken, shall be the date on which the first
written consent is given, or (ii) when prior action of the board has been taken,
shall be at the close of business on the date on which the board adopts the
resolution relating to that action, or the sixtieth (60th) day before the date
of such other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for directors or
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that is irrevocable shall be governed by the provisions of Sections
705(e) and 705(f) of the Corporations Code of California.
<PAGE> 7
Section 13. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office to act as inspectors of election at the meeting or its adjournment.
If no inspectors of election are so appointed, the chairman of the meeting may,
and on the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (l) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (l) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any shareholder or a shareholder's proxy shall, appoint a person
to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity, and effect
of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in
any way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
Section 14. NOMINATIONS FOR DIRECTOR; SHAREHOLDER PROPOSALS.
(a) Nomination of Directors. Nominations for election of
members of the Board of Directors may be made by the Board of Directors or by
any shareholder of any outstanding class of voting stock of the corporation
entitled to vote for the election of directors in accordance with this Section
14.
(b) Other Proposals. Any shareholder of the corporation
entitled to vote at any annual or special meeting of shareholders may make
nominations for the election of directors and other proposals for inclusion on
the agenda of any such meeting provided such shareholder complies with the
timely notice provisions set forth in this Section 14 (as well as any additional
requirements under any applicable law or regulation).
<PAGE> 8
(c) Timely Notice by Shareholders. A shareholder's notice
shall be delivered to or mailed and received at the principal executive offices
of the corporation (i) in the case of any special meeting and of the first
annual meeting held after the effective date of these Amended and Restated
Bylaws, not less than thirty (30) days nor more than sixty (60) days prior to
the meeting date specified in the notice of such meeting; provided, however,
that if less than forty (40) days' notice or prior public disclosure of the date
of such meeting is given or made to shareholders, notice by shareholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of such meeting was mailed or
such public disclosure was made, and (ii) in the case of any subsequent annual
meeting, not less than ninety (90) days prior to the day and month on which, in
the immediately preceding year, the annual meeting for such year had been held.
Such shareholder's notice shall set forth (A) as to each person whom the
shareholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, the class and number of
shares of the corporation which are beneficially owned by such person that are
required to be disclosed in solicitations of the proxies with respect to
nominees for election as directors, pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including, without limitation, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director, if elected); (B) as to each action item required to be
included on the agenda, a description, in sufficient detail, of the purpose and
effect of the proposal to the extent necessary to properly inform all
shareholders entitled to vote thereon prior to any such vote; and (C) as to the
shareholder giving the notice, (i) the name and address, as they appear on the
corporation's books, of such shareholder and the class and (ii) number of shares
of the corporation which are beneficially owned by such shareholder.
(d) Failure to Provide Timely Notice, Etc. No person
nominated by a shareholder shall be elected as a director of the corporation
unless nominated in accordance with the procedures set forth in this Section 14.
The Chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination or other proposal by a shareholder was not
properly brought before the meeting, and, if the Chairman shall so determine, he
shall so declare to the meeting and such nomination or other proposal shall be
disregarded.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California
General Corporation Law and any limitations in the articles of incorporation and
these bylaws relating to action
<PAGE> 9
required to be approved by the shareholders or by the outstanding shares, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
(a) Select and remove all officers, agents, and employees
of the corporation; prescribe any powers and duties for them that are consistent
with law, with the articles of incorporation, and with these bylaws; fix their
compensation; and require from them security for faithful service.
(b) Change the principal executive office or the
principal business office in the State of California from one location to
another; cause the corporation to be qualified to do business in any other
state, territory, dependency, or country and conduct business within or without
the State of California; and designate any place within or without the State of
California for the holding of any shareholders' meeting, or meetings, including
annual meetings.
(c) Adopt, make and use a corporation seal; prescribe
the forms of certificates of stock; and alter the form of the seal
and certificates.
(d) Authorize the issuance of shares of stock of the
corporation on any lawful terms, in consideration of money paid, labor done,
services actually rendered, debts or securities canceled, or tangible or
intangible property actually received.
(e) Borrow money and incur indebtedness on behalf of the
corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt and
securities.
Section 2. NUMBER OF DIRECTORS.
(a) The authorized number of directors shall be not less than
four nor more than seven. The exact number of directors shall be fixed from time
to time by resolution of the Board of Directors, except that in the absence of
any such designation, such number shall be four.
(b) The maximum or minimum authorized number of directors
may only be changed by an amendment of this Section approved by the vote or
written consent of a majority of the outstanding shares entitled to vote;
provided, however, that an amendment reducing the minimum number to a number
less than five shall not be adopted if the votes cast against its adoption at a
meeting (or the shares not consenting in the case of action by written consent)
exceed 16-2/3% of such outstanding shares; and
<PAGE> 10
provided further, that in no case shall the stated maximum authorized number of
directors exceed two times the stated minimum number of authorized directors
minus one.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall
be elected at each annual meeting of the shareholders to hold office until the
next annual meeting. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Section 4. VACANCIES. Vacancies in the board of directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, except that a vacancy created by the removal of a
director by the vote or written consent of the shareholders or by court order
may be filled only by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of a majority of the outstanding shares entitled to
vote. Each director so elected shall hold office until the next annual meeting
of the shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, of if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors is increased, or if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be voted for at that
meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary, or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
Section 5. PLACE OF MEETING AND MEETINGS BY TELEPHONE. Regular
meetings of the board of directors may be held at any place within or outside
the State of California that has been designated from time to time by resolution
of the board. In the absence of
<PAGE> 11
such a designation, regular meetings shall be held at the principal executive
office of the corporation. Special meetings of the board shall be held at any
place within or outside the State of California that has been designated in the
notice of the meeting or, if not stated in the notice or there is no notice, at
the principal executive office of the corporation. Any meeting, regular or
special, may be held by conference telephone or similar communication equipment,
so long as all directors participating in the meeting can hear one another, and
all such directors shall be deemed to be present in person at the meeting.
Section 6. ANNUAL MEETING. Immediately following each annual meeting
of shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the
board of directors shall be held without call at such time as shall from time to
time be fixed by the board of directors. Such regular meetings may be held
without notice.
Section 8. SPECIAL MEETINGS. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the chairman
of the board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the board of directors, subject to
the provisions of Section 310 of the Corporations Code of California (as to
approval of contracts or transactions in which a director has a direct of
indirect material financial interest), Section 311 of that Code (as to
appointment of committees), and
<PAGE> 12
Section 317(e) of that Code (as to indemnification of directors). A meeting at
which a quorum is initially present may continue to transaction business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for that meeting.
Section 10. WAIVER OF NOTICE. The transaction of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice of a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents, and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any director who
attends the meeting without protesting before or at its commencement, the lack
of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors present,
whether or not constituting a quorum, may adjourn any meeting to another time
and place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four (24) hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting, in the manner specified
in Section 8 of this Article III, to the directors who were not present at the
time of the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and effect
as a unanimous vote of the board of directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and
members of committees may receive such compensation, if any, for their services,
and such reimbursement of expenses, as may be fixed or determined by resolution
of the board of directors. This Section 14 shall not be construed to preclude
any director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
<PAGE> 13
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any committee, to the extent provided in
the resolution of the board, shall have all the authority of the board, except
with respect to:
(a) the approval of any action which, under the General
Corporation Law of California, also requires shareholder's approval
or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors
or in any committee;
(c) the fixing of compensation of the directors for
serving on the board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of
new bylaws;
(e) the amendment or repeal of any resolution of the
board of directors which by its express terms is not so amendable
or repealable;
(f) a distribution to the shareholders of the
corporation, except at a rate or in a periodic amount or within a
price range determined by the board of directors; or
(g) the appointment of any other committees of the board
of directors or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action
of committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action without
meeting), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members, except that the time or regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee; special meetings of the committees may also be called by
resolution of the board of directors; and notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not
<PAGE> 14
inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS AND EMPLOYEES
Section 1. OFFICERS. The officers of the corporation shall be a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article V. Any number of offices may be
held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the board of
directors, and each shall serve at the pleasure of the board, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The board of directors may appoint,
and may empower the president to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the bylaws or as
a board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an officer under any contract of employment, any officer may
be removed, either with or without cause, by the board of directors, at any
regular or special meeting of the board, or, except in case of an officer chosen
by the board of directors, by an officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointments to that
office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such
an officer be elected, shall be the chief executive
<PAGE> 15
officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the officers of
the Corporation. He shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the board of directors or prescribed by the
bylaws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the chief operating officer of the
Corporation and shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business of the Corporation.
He shall preside at all meetings of the shareholders and, in the absence of the
chairman of the board, or if there be none, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or by the bylaws, and the president, or the chairman of the
board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept,
at the principal executive office or such other place as the board of directors
may direct, a book of minutes of all meetings and actions of directors,
committees of directors, and shareholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice given,
the names of those present at directors' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required
<PAGE> 16
by the bylaws or by law to be given, and he shall keep the seal of the
corporation if one be adopted, in safe custody, and shall have such other powers
and perform such other duties as may be prescribed by the board of directors or
by the bylaws.
Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained earnings, and shares.
The books of account shall at all reasonable times be open to inspection by any
directors.
The chief financial officer shall deposit all monies and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the board of directors. He shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account of
all of his transactions as chief financial officer and of the financial
condition of the corporation, and shall have other powers and perform such other
duties as may be prescribed by the board of directors or the bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS, AND EXPENSES. For the purposes of
this Article, "agent" means any person who is or was a director, officer,
employee, or other agent of this corporation, or is or was serving at the
request of this corporation as a director, officer, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, or was a director, officer, employee, or agent of a foreign or
domestic corporation which was a predecessor corporation of this corporation or
of another enterprise at the request of such predecessor corporation;
"proceeding" means any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative, or investigative; and "expenses"
includes, without limitation, attorneys' fees and any expenses of establishing a
right to indemnification under Section 4 or Section 5(c) of this Article.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. Subject to the
provisions of Section 5, Section 8 and Section 9 of this Article, this
corporation shall indemnify any person who was or is a party, or is threatened
to be made a party, to any proceeding (other than an action by or in the right
of this corporation) by reason of the fact that such person is or was an agent
of this
<PAGE> 17
corporation, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceeding if that
person acted in good faith and in a manner that person reasonably believed to be
in the best interests of this corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of that person was
unlawful. The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of this
corporation or that the person had reasonable cause to believe that the person's
conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. Subject to the provisions of
Section 5, Section 8 and Section 9 of this Article, this corporation shall
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action by or in the right of this
corporation to procure a judgment in this favor by reason of the fact that
person is or was an agent of this corporation, against expenses actually and
reasonably incurred by that person in connection with the defense or settlement
of that action if that person acted in good faith, in a manner that person
believed to be in the best interests of this corporation and with such care,
including reasonable inquiry, as an ordinarily prudent person in a like position
would use under similar circumstances. No indemnification shall be made under
this Section 3:
(a) In respect of any claim, issue or matter as to which
that person shall have been adjudged to be liable to this corporation in the
performance of that person's duty to this corporation, unless and only to the
extent that the court in which that action was brought shall determine upon
application that, in view of all the circumstances of the case, that person is
fairly and reasonably entitled to indemnity for the expenses which the court
shall determine;
(b) Of amounts paid in settling or otherwise disposing
of a threatened or pending action, with or without court approval;
or
(c) Of expenses incurred in defending a threatened or
pending action which is settled of otherwise disposed of without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent
of this corporation has been successful on the merits in defense of any
proceeding referred to in Sections 2 or 3 of this Article, or in defense of any
claim, issue, or matter therein, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith.
<PAGE> 18
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of
this Article, any indemnification under this Article shall be made by this
corporation only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of this
Article, by:
(a) A majority vote of a quorum consisting of directors
who are not parties to the proceeding;
(b) Approval by the affirmative vote of a majority of the
shares of this corporation entitled to vote represented at a duly held meeting
at which a quorum is present or by the written consent of holders of a majority
of the outstanding shares entitled to vote. For this purpose, the shares owned
by the person to be indemnified shall not be considered outstanding or entitled
to vote thereon; or
(c) The court in which the proceeding is or was pending,
on application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney, or other person is opposed by this
corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this corporation before the final disposition of
the proceeding on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance unless it shall be determined ultimately that
the agent is entitled to be indemnified as authorized in this Article.
Section 7. OTHER CONTRACTUAL RIGHTS. Nothing contained in this
Article shall affect any right to indemnification to which persons other than
directors and officers of this corporation or any subsidiary hereof may be
entitled by contract or otherwise.
Section 8. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Section 4 or Section 5(c), in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
articles, a resolution of the shareholders, or an agreement in effect at the
time of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Section 9. INSURANCE. Upon and in the event of a determination by
the board of directors of this corporation to purchase such insurance, this
corporation shall purchase and
<PAGE> 19
maintain insurance on behalf of any agent of the corporation against any
liability asserted against or insured by the agent in such capacity or arising
out of the agent's status as such whether or not this corporation would have the
power to indemnify the agent against that liability under the provisions of this
section.
Section 10. FIDUCIARIES OF CORPORATION EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any trustee, investment
manager, or other fiduciary of an employee benefit plan in that person's
capacity as such, even though that person may also be an agent of the
corporation as defined in Section 1 of this Article. Nothing contained in this
Article shall limit any right to indemnification to which such a trustee,
investment manager, or other fiduciary may be entitled by contract or otherwise,
which shall be enforceable to the extent permitted by applicable law other than
this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive officer, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (I) inspect and copy the records of shareholders' names and
addresses and share holdings during usual business hours on five (5) days prior
written demand on the corporation, on written demand and on the tender of such
transfer agent's usual charges for such list, a list of the shareholders' names
and addresses, who are entitled to vote for the election of directors, and their
shareholders, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
This list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or the date
specified in the demand as the date as of which the list is to be compiled. The
record of shareholders shall also be open to inspect on the written demand of
any shareholder or holder of a voting trust certificate, at any time during
usual business hours, for a purpose reasonably related to the holder's interests
as a shareholder or as the holder of a voting trust certificate. Any inspection
and copying under this Section 1 may be made in person or by an agent or
attorney of the shareholder or holder of a voting trust certificate making the
demand.
<PAGE> 20
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California, at its principal business office in
this state, the original or a copy of the bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside the State
of California and the corporation has no principal business office in this
state, the Secretary shall, upon the written request of any shareholder, furnish
to that shareholder a copy of the bylaws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records and minutes of proceedings of the shareholders
and the board of directors and any committee or committees of the board of
directors shall be kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate, at any reasonable
time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney,
and shall include the right to copy and make extracts. These rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly dispensed with, but nothing herein shall be interpreted as
prohibiting the board of directors from issuing annual or other periodic reports
to the shareholders of the corporation as they consider appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each period, that has been prepared by the corporation shall be kept
on file in the principal executive office of the corporation for twelve (12)
months and each such statement shall be exhibited at all reasonable times to any
shareholder demanding an examination of any such
<PAGE> 21
statement or a copy shall be mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and a balance
sheet of the corporation as of the end of that period, the chief financial
officer shall cause that statement to be prepared, if not already prepared, and
shall deliver personally or mail that statement or statements to the person
making the request within thirty (30) days after the receipt of the request. If
the corporation has not sent to the shareholders its annual report for the last
fiscal year, this report shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
The corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation
shall, during the period specified below, file annually with the Secretary of
State of the State of California, on the prescribed form, a statement setting
forth the authorized number of directors, the names and complete business or
residence addresses of all incumbent directors, the names and complete business
or residence addresses of the chief executive officer, secretary, and chief
financial officer, the street address of its principal executive office or
principal business office in this state, and the general type of business
constituting the principal business activity of the corporation, together with a
designation of the agent of the corporation for the purpose of service of
process, all in compliance with Section 1502 of the Corporations Code of
California. Such filing of its original articles and annually thereafter during
the period ending on the last day of the calendar month in which its original
articles were filed and commencing on the first day of the fifth calendar month
next preceding the calendar month of such filing.
<PAGE> 22
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividend, distribution, or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60) day before the date of that action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the board of directors.
Section 3. CORPORATION CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
board of directors, except as otherwise provided in these bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and this
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the agency power of
an officer, no officer, agent, or employee shall have the power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates
for shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the board of directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the chairman of the board or vice chairman of the board or
the president or vice president and by the chief financial officer or an
assistant treasurer or the secretary of any assistant secretary, certifying the
number of shares and the
<PAGE> 23
class or series of shares owned by the shareholder. Any or all of the signatures
on the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent, or registrar
before that certificate is issued, it may be issued by the corporation with the
same effect as if that person were an officer, transfer agent, or registrar at
the date of issuance.
Section 5. LOST CERTIFICATES. Except as provided in this Section 5,
no new certificates for shares shall be issued to replace an old certificate
unless the latter is surrendered to the corporation and canceled at the same
time. The board of directors may, in case any share certificate or certificate
for any other security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft, or destruction of the certificate or the issuance of
the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
chairman of the board, the president, or any vice president, or any other person
authorized by resolution of the board of directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these officers
to vote or represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these bylaws may be amended or repealed by the vote or written consent of
holders of two-thirds of the outstanding shares entitled to vote except as
otherwise provided by law or by the Restated Articles of Incorporation.
<PAGE> 24
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section I of this Article IX, bylaws may be adopted,
amended, or repealed by the board of directors, provided, however, that any
alteration, amendment, supplement or repeal of the bylaws contained in Article
II, Section 14, Article III, Section 2, and this Article IX shall require the
affirmative vote of at least two-thirds of the outstanding shares entitled to
vote.
<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
1,495,000 units ("Units"), each unit consisting of one (1) share of the
Company's Class A Common Stock, ("Common Stock"), one (1) redeemable Class A
Warrant ("Class A Warrants") and one (1) redeemable Class B Warrant ("Class B
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
130,000 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 Class A
Warrants, the Company may issue up to 2,825,000 Class A Warrants and 1,625,000
Class B Warrants (the Class A Warrants and Class B Warrants may be collectively
referred to as "Warrants"); and
WHEREAS, each Class A Warrant initially entitles the
Registered Holder thereof to purchase one (1) share of Class A Common Stock and
one (1) Class B Warrant, and accordingly, the Company may issue up to an
additional 2,825,000 Class B Warrants; and
WHEREAS, each Class B Warrant initially entitles the
Registered Holder thereof to purchase one (1) share of Common Stock; 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:
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<PAGE> 2
(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) "Class A Aggregate Per Share Price" shall mean $6.50.
(c) "Class B Aggregate Per Share Price" shall mean $8.75.
(d) "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.
(e) "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.
(f) "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.
(g) "Initial Warrant Exercise Date" shall mean as to each
Class A Warrant and Class B Warrant __________, 1997.
(h) "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.
(i) "Purchase Price" shall mean the purchase price to be
paid upon exercise of each Class A Warrant or Class B Warrant in accordance with
the terms hereof, which price shall be $6.50 as to the Class A Warrants and
$8.75 as to the Class B Warrants, 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.
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<PAGE> 3
(j) "Redemption Price" shall mean the price at which the
Company may, at its option in accordance with the terms hereof, redeem the Class
A Warrants and/or Class B Warrants, which price shall be $0.05 per Warrant.
(k) "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.
(l) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(m) "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 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 Class A Warrant initially shall entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase one share of Class A Common Stock and one Class B Warrant upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) A Class B 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.
(c) The Class A Warrants and Class B 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. The
Class B Warrants will also be detachable and separately transferable immediately
from the shares of Class A Common Stock issued upon exercise of the Class A
Warrants.
(d) Upon execution of this Agreement, Warrant
Certificates representing the number of Class A Warrants and Class B 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
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<PAGE> 4
Assistant Secretary, the Warrant Certificates shall be countersigned, issued and
delivered by the Warrant Agent as part of the Units.
(e) 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 7,275,000 shares
of Class A Common Stock, subject to adjustment as described herein, upon the
exercise of Warrants in accordance with this Agreement.
(f) 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; (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(s) therefor made pursuant to
Section 8 hereof; and (vii) those Class B Warrants issued upon exercise of Class
A Warrants.
(g) Pursuant to the terms of the Unit Purchase Options,
Blair may purchase up to 130,000 Units, which include up to 130,000 Class A
Warrants and 260,000 Class B Warrants. Notwithstanding anything to the 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 as to the Class A Warrants and Exhibit B as
to the Class B Warrants (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 Class A Warrants or Class B
Warrants may be listed, or to conform to usage or to the requirements of Section
2(d). 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
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<PAGE> 5
numbered serially with the letters AW on Class A Warrants of all denominations
and the letters BW on Class B 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 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.
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<PAGE> 6
(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 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
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<PAGE> 7
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 or Class B
Warrants upon exercise of the Class A Warrants, or the issuance or delivery of
any shares upon exercise of the Class B Warrants; provided, however, that if the
shares of Class A Common Stock or Class B Warrants, as the case may be, 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.
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
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<PAGE> 8
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.
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 Class A Warrants or Class B 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.
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<PAGE> 9
SECTION 8. Redemption.
(a) Subject to the provisions of paragraph 2(g) 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 at the option of the Company, at a redemption price of $0.05 per
Warrant, provided the Market Price shall exceed $9.10 with respect to the Class
A Warrants and $12.25 with respect to the Class B Warrants (the "Target
Prices"), subject to adjustment as set forth in Section 8(f), below. All
Warrants of a class must be redeemed if any of that class 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".
During the first fifty-four (54) months of this Agreement, the Class B Warrant
Redemption Date may not be earlier than six months after the Class A Warrant
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.
(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
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<PAGE> 10
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 Prices 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.
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 Class A Warrant or the total number of shares of Common
Stock purchasable upon exercise of each Class B Warrant, as applicable, 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 Class A Aggregate Per Share Price or the Class B Aggregate Per
Share Price as applicable, 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.
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<PAGE> 11
(b) The Company may elect, upon any adjustment of the
Purchase Price hereunder, to adjust the number of Class A Warrants or Class B
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 each Class A Warrant outstanding after such adjustment shall
represent the right to purchase one share of Class A Common Stock and one Class
B Warrant, and each Class B Warrant 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
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
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<PAGE> 12
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 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
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<PAGE> 13
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 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.
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<PAGE> 14
(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 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
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<PAGE> 15
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
(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
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<PAGE> 16
(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 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
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<PAGE> 17
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 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
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<PAGE> 18
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 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
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<PAGE> 19
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 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.
-19-
<PAGE> 20
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 Class A or Class B
Warrants which are to be governed by this Agreement resulting from a subsequent
public offering of Company securities which includes Class A or Class B Warrants
having the same terms and conditions as the Class A or Class B Warrants,
respectively, 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; 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.
-20-
<PAGE> 21
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 848 N. La Cienega Boulevard, Suite 206, Los
Angeles, California 90069, 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.
-21-
<PAGE> 22
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
-22-
<PAGE> 23
EXHIBIT A
[FORM OF FACE OF CLASS A WARRANT CERTIFICATE]
No. AW ______ Class A Warrants
VOID AFTER ________ __, 2002
CLASS A WARRANT CERTIFICATE FOR PURCHASE
OF CLASS A COMMON STOCK AND REDEEMABLE CLASS B WARRANTS
ON'VILLAGE COMMUNICATIONS, INC.
This certifies that FOR VALUE RECEIVED __________________ or
registered assigns (the "Registered Holder") is the owner of the number of Class
A Warrants ("Class A Warrants") specified above. Each Class A 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"), and one Class B
Warrant of 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 Class A 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 and Class B Warrants subject to purchase upon the exercise of each Class A
Warrant represented hereby are subject to modification or adjustment.
Each Class A 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
A-1
<PAGE> 24
exercise of less than all the Class A Warrants represented hereby, the Company
shall cancel this Warrant Certificate 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 Class
A Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on ________ __, 2002 or such earlier date as the Class A 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 Class A 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 Class A Warrants are outstanding. The Class A 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 Class A Warrants, each of such new Warrant
Certificates to represent such number of Class A 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
Class A Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Class A 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 Class A 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 Class A Warrants represented hereby may be redeemed at the
option of the Company, at a redemption price of $0.05 per Class A 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 Class A Warrants represented hereby except to receive the
$0.05 per Class A Warrant upon surrender of this Warrant Certificate.
A-2
<PAGE> 25
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 each Class A 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 Class A 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> 26
[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 _______ Class A Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Class A 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 Class A Warrants shall not be all the Class A Warrants
evidenced by this Warrant Certificate, that a new Class A Warrant Certificate
for the balance of such Class A Warrants be registered in the name of, and
delivered to, the Registered Holder at the address stated below.
The undersigned represents that the exercise of the Class A
Warrants evidenced hereby was solicited by a member of the National Association
of Securities Dealers, Inc. If not
A-4
<PAGE> 27
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> 28
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 Class A 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> 29
EXHIBIT B
[FORM OF FACE OF CLASS B WARRANT CERTIFICATE]
No. BW __ Class B Warrants
VOID AFTER _______ ___, 2002
CLASS B WARRANT CERTIFICATE FOR
PURCHASE OF 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
Class B Warrants specified above. Each Class B 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 $8.75 (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 Class B 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 Class B Warrant represented
hereby are subject to modification or adjustment.
Each Class B Warrant represented hereby is exercisable at the
option of the Registered Holder, but no fractional shares of Class A Common
Stock will be issued. In the case of the exercise of less than all the Class B
Warrants represented hereby, the Company shall cancel this Warrant Certificate
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 Class B Warrants.
B-1
<PAGE> 30
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on _______________ or such earlier date as the Class B 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 Class B 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 Class B Warrants are outstanding. The Class B 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 Class B Warrants, each of such new Warrant
Certificates to represent such number of Class B 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 Class B 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 Class B 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 Class B Warrants represented hereby may be redeemed at the
option of the Company, at a redemption price of $.05 per Class B Warrant at any
time after _____________, provided the Market Price (as defined in the Warrant
Agreement) for the Class A Common Stock shall exceed $12.25 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 Class B Warrants represented hereby except to receive the $.05 per Class B
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 each Class B Warrant represented hereby
(notwithstanding any notations of ownership or writing
B-2
<PAGE> 31
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 Class B 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
B-3
<PAGE> 32
[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 Class B Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Class B 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 Class B Warrants shall not be all the Class B Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class B Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
The undersigned represents that the exercise of the Class B
Warrants evidenced hereby was solicited by a member of the National Association
of Securities Dealers, Inc. If not
B-4
<PAGE> 33
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.
------------------------------------
(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.
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________________________________ hereby sells, assigns and
transfers unto
B-5
<PAGE> 34
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
-------------------------------
-------------------------------
-------------------------------
-------------------------------
[please print or type name and address]
______________ of the Class B 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.
B-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 thirty thousand (130,000) Units ("Units"), each Unit consisting of
one share of the Company's Class A Common Stock, as now constituted ("Class A
Common Stock"), one Class A warrant ("Class A Warrants") and one Class B warrant
("Class B Warrants"). Each Class A Warrant is exercisable to purchase one share
of Common Stock and one Class B Warrant at an exercise price of $6.50 from
________ __, 1997 to _______ , 2002, and each Class B Warrant is exercisable to
purchase one share of Class A Common Stock at an exercise price of $8.75 until
_______, 2002. The Class A Warrants and Class B Warrants are herein collectively
referred to as the "Warrants."
The Units have been registered under a Registration Statement
on Form SB-2, (File No. 333-_______ ) 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 130,000 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 1,300,000 Units (the "Public Units") through the
Underwriter, in consideration of $130 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
<PAGE> 2
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 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 _______, 1999 to
_______, 1998 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 _______, 1999 and _______,2002
inclusive, the Holder shall have the option to
purchase Option Units hereunder at a price of
$_______ per Unit.
(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
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<PAGE> 3
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 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
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<PAGE> 4
for the twenty (20) business days ending on the last business
day prior to the Exchange Date; or
(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 date of issuance of this Option 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
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<PAGE> 5
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.
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
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<PAGE> 6
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 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. If
the Company determines to include securities to be sold by it in any
registration statement originally requested pursuant to this Section 6(b), such
registration shall instead be deemed to have been a registration under Section
6(a) and not under this Section 6(b).
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
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<PAGE> 7
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.
(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
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<PAGE> 8
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 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
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<PAGE> 9
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
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
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<PAGE> 10
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, 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
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<PAGE> 11
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.
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
OPTION EXCHANGE
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, no par, one Class A
Warrant to purchase one share of Common Stock and one Class B Warrant, and one
Class B Warrant and herewith makes payment of $_________ thereof.
Dated: _________, 19__. 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, one Class A Warrant to purchase one share of Common Stock and
one Class B Warrant, 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: _______________, 19__
[Underwriter]
By: -------------------------------------
------------------------------------------
Address
In the presence of:
<PAGE> 1
EXHIBIT 4.4
WARRANT AGREEMENT
AGREEMENT, dated as of this 24th day of January, 1997, by and
among ON' VILLAGE COMMUNICATIONS, INC. a California corporation (the
"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 private placement (the
"Private Placement") of a minimum of twenty (20) and a maximum of forty (40)
units ("Units") each Unit consisting of $50,000 principal amount of 10%
Promissory Notes ("Notes"), and 25,000 Class A common stock purchase warrants
("Warrants"), each Warrant exercisable to purchase one share of the Company's
Class A Common Stock, (ii) a private placement in October and November, 1996 of
units, consisting of an aggregate of $200,000 principal amount of notes and
200,000 warrants, which warrants will automatically convert into 200,000
Warrants upon the initial closing of the Private Placement, the Company will
issue up to 1,200,000 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 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) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to participate
in the distributions of earnings and assets of the Company without limit as to
amount or percentage, which at the date hereof consists of 18,800,000
authorized shares of Class A Common Stock ("Class A Common Stock") and
1,400,000 authorized shares of Class B Common Stock.
(b) "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.
<PAGE> 2
(c) "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.
(d) "Initial Warrant Exercise Date" shall mean January
24, 1998.
(e) "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 $3.00 per share subject to (i) adjustment from time to time
pursuant to the provisions of Section 8 hereof or (ii) conversion of the
Warrants pursuant to the provisions of Section 9 hereof, and subject to the
Company's right to reduce the Purchase Price upon notice to all warrantholders.
(f) "Registered Holder" shall mean the person in whose
name any certificate representing Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(g) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(h) "Warrant Expiration Date" shall mean 5:00 P.M. (New
York time) on January 24, 1999; provided that if such date shall in the State
of New York be a holiday or a day on which banks are authorized to close, then
5:00 P.M. (New York time) on 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. Upon
notice to all warrantholders the Company shall have the right to extend the
Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant
Certificates.
(a) A Warrant shall initially 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 8.
(b) From time to time, up to the Warrant Expiration Date,
the Transfer Agent shall execute and deliver stock certificates in required
whole number denominations representing up to an aggregate of 1,200,000 shares
of Class A Common Stock, subject to adjustment as described herein, upon the
exercise of Warrants in accordance with this Agreement.
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<PAGE> 3
(c) From time to time, up to the Warrant Expiration Date,
the Warrant Agent shall execute 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; and (v) at the option of
the Company, in such form as may be approved by the its Board of Directors, to
reflect (a) any adjustment or change in the Purchase Price or the number of
shares of Class A Common Stock purchasable upon exercise of the Warrants, made
pursuant to Section 8 hereof and (b) other modifications approved by
Warrantholders in accordance with Section 16 hereof.
(d) In the event of an initial public offering of the
Company's securities, the provisions of Section 9 hereof will govern in certain
circumstances described therein.
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,
engraved or typed 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. 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. Warrants shall be numbered serially with the letter
W.
(b) Warrant Certificates shall be executed on behalf of
the Company by its Chairman of the Board, Chief Executive Officer, 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. In case any officer of the Company
who shall have signed any of the Warrant Certificates shall cease to be such
officer of the Company before the date of issuance of the Warrant Certificates
and issue and delivery thereof, such Warrant Certificates may nevertheless be
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company. After execution by the Company, Warrant Certificates shall be
delivered by the Warrant Agent to the Registered Holder.
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<PAGE> 4
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 upon
exercise thereof 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 promptly after clearance
of checks received in payment of the Purchase Price pursuant to such Warrants,
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 certificate for any remaining
unexercised Warrants of the Registered Holder). 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, certificates shall immediately be issued without 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 to the Company or as
the Company may direct in writing.
(b) If on the Exercise Date in respect of the exercise of
any Warrant, (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"), (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 receipt of the proceeds upon exercise of the Warrant(s)
so exercised shall pay from the proceeds received upon exercise of the
Warrant(s), a fee of 5% of the Purchase Price to Blair (of which up to 1% may
be reallowed to the dealer who solicited the exercise). Within five days after
exercise the Warrant Agent shall send 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). In
addition, Blair 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. Market price shall be determined in accordance with
the provisions of Section 10.
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
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<PAGE> 5
of shares of Class A 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 and payment
of the Purchase Price 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).
(b) The Company will use reasonable efforts to obtain
appropriate approvals or registrations under state "blue sky" securities laws
with respect to the exercise of the Warrants; provided, however, that the
Company shall not be obligated to file any general consent to service of
process or qualify as a foreign corporation in any jurisdiction. With respect
to any such securities laws, 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 required upon exercise of the
Warrants, and the Company will authorize the Transfer Agent to comply with all
such proper requisitions.
SECTION 6. Exchange and Registration of Transfer.
Subject to the restrictions on transfer contained in the
Warrant Certificates and the Subscription Agreements between the Company and
the purchasers of Units:
(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
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<PAGE> 6
of any Warrant Certificate at its 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 of 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, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) 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 of the 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.
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 bonafide 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. Adjustment of Exercise Price and Number of
Shares of Class A Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 8(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 current fair market value per share of the
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<PAGE> 7
Class A Common Stock on the date of the sale (determined as provided in Section
10 hereof) 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 8(f)(F) below), if any, for the issuance of such
additional shares would purchase at such current market price per share of
Class A Common Stock, 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.
Upon each adjustment of the Purchase Price pursuant
to this Section 8, the total number of shares of Class A Common Stock
purchasable upon the exercise of each Warrant shall (subject to the provisions
contained in Section 8(b) hereof) be such number of shares (calculated to the
nearest tenth) purchasable at the Purchase Price 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 each Warrant
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 8, 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
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<PAGE> 8
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
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<PAGE> 9
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 Class A 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 8. 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(c) hereof, continue to express the Purchase
Price per share and the number of shares purchasable thereunder as the Purchase
Price per share, and the number of shares purchasable were expressed in the
Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant
to this Section 8, the Company will promptly prepare a certificate signed by
the Chairman, Chief Executive Officer 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 (iii) a brief statement of the facts accounting for
such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent 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. The affidavit of an officer of the Warrant Agent or the Secretary
or an Assistant Secretary of the Company that such notice has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(f) For purposes of Section 8(a) and 8(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.
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<PAGE> 10
(B) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or
decrease of at least $.10 in such 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 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 convertible or exchangeable securities
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 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, 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 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 options) is less than the current market value of the Class
A Common Stock on the date of the issuance or sale of such
rights, warrants or options, 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 8(a) and 8(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
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<PAGE> 11
(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 current market value of the Class A Common Stock
on the date of the sale of such Convertible Securities, 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 8(a) and 8(b) hereof and shall be deemed
to have been sold for cash in an amount equal to such price
per share.
(E) If the exercise or purchase price provided
for in any right, warrant or option referred to in (C) above,
or the rate at which any Convertible Securities referred to in
(C) or (D) above are convertible into or exchangeable for
Common Stock, shall change at any time (other than under or by
reason of provisions designed to protect against dilution),
the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (1)
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, (2) had adjustments been made
on the basis of the Purchase Price as adjusted under clause
(1) 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, and
(3) had any such rights, warrants, options or Convertible
Securities then still outstanding been originally issued or
sold at the time of such change. On the expiration of any
such right, warrant or option or the termination of any such
right to convert or exchange any such Convertible Securities,
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.
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<PAGE> 12
(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) 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 grant or exercise of any other
options which may hereafter be granted or exercised under the
Plan or under any other employee benefit plan of the Company;
or
(iii) upon the sale or exercise of the Warrants or
any other Warrants issued by the Company; or
(iv) upon the issuance of any shares of Common
Stock or warrants sold to the public or the underwriter in the
Company's initial public offering, or upon exercise of
warrants comprising or underlying any Units sold in the
Company's initial public offering, including any shares or
warrants underlying the underwriter's warrants or unit
purchase option; or
(v) 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
(vi) 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; or
(vii) upon any amendment to or change in the terms
of any rights or warrants to subscribe for or purchase, or
options for the purchase of, Common
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<PAGE> 13
Stock or Convertible Securities or in the terms of any
Convertible Securities, including, but not limited to, any
extension of any expiration date of any such right, warrant or
option, any change in any exercise or purchase price provided
for in any such right, warrant or option, any extension of any
date through which any Convertible Securities are convertible
into or exchangeable for Common Stock or any change in the
rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock (other than rights, warrants,
options or Convertible Securities issued or sold after the
close of business on the date of the original issuance of the
Warrants (i) for which an adjustment in the Purchase Price
then in effect was theretofore made or required to be made,
upon the issuance or sale thereof, or (ii) for which such an
adjustment would have been required had the exercise or
purchase price of such rights, warrants or options at the time
of the issuance or sale thereof or the rate of conversion or
exchange of such Convertible Securities, at the time of the
sale of such Convertible Securities, or the issuance or sale
of rights or warrants to subscribe for or purchase, or options
for the purchase of, such Convertible Securities, been the
price or rate as changed, in which case the provisions of
Section 8(f)(E) hereof shall be applicable if, but only if,
the exercise or purchase price thereof, as changed, or the
rate of conversion or exchange thereof, as changed, consists
of cash or requires the payment of additional consideration,
if any, consisting of cash and the Company did not receive any
consideration other than cash, if any, in connection with such
change).
(h) As used in this Section 8, 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 Restated Articles 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 8(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 8, 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.
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<PAGE> 14
(j) If and whenever the Company shall declare any
dividends or distributions or grant to the holders of Common Stock, as such,
rights or warrants to subscribe for or to purchase, or any options for the
purchase of, Common Stock or securities convertible into or exchangeable for or
carrying a right, warrant or option to purchase Common Stock, the Company shall
notify each of the then Registered Holders of the Warrants of such event prior
to its occurrence to enable such Registered Holders to exercise their Warrants
and participate as holders of Common Stock in such event.
SECTION 9. Conversion of Warrants and Registration Under
The Securities Act of 1933.
(a) In the event the Company consummates an initial
public offering of its securities ("IPO") through the Placement Agent, and the
securities offered in the IPO include warrants which are exercisable to
purchase common stock ("Class A Warrants"), the Warrants will be automatically
converted on the closing date of the IPO with no action needed on the part of
the holder into Class A Warrants with the identical terms as the Class A
Warrants offered to the public, which may be redeemed by the Company under
certain conditions. On such closing date, this Warrant Agreement shall
terminate and the Class A Warrants into which the Warrants convert will be
governed by the warrant agreement covering the Class A Warrants sold in the
IPO.
(b) The Company agrees to register for resale (i) the
Class A Warrants into which the Warrants are exchangeable, (ii) the warrants
issuable upon exercise thereof, if any, (the "Class B Warrants") and the shares
of Class A Common Stock issued or issuable upon exercise of the Class A and
Class B Warrants under the Securities Act of 1933, as amended (the "Act")
contemporaneously with its initial public offering as more fully set forth in
Section IV of the Subscription Agreement between the Company and each of the
investors in the Private Placement, subject to certain contractual restrictions
applicable to the Holder.
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 8
hereof, the Company shall nevertheless 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 any exercise hereof, 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 listed for trading on the
Nasdaq National Market System ("NMS"), the current market
value shall be the last reported sale price of the Class A
Common Stock on such
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<PAGE> 15
exchange on the last business day prior to the date of
exercise of this Warrant or if no such sale is made on such
day or no closing sale price is quoted, the average of the
closing bid and asked prices for such day on such exchange or
system; or
(2) If the Class A Common Stock is listed in the
over-the-counter market (other than on NMS) or admitted to
unlisted trading privileges, the current market value shall be
the mean of the last reported bid and asked prices reported 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 Shareholders. No
holder of Warrants shall, as such, be entitled to vote or to receive dividends
or be deemed the holder of 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 shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders 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 Class A 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, on his own behalf and
for his own benefit, enforce against the Company his right to exercise his
Warrants for the purchase of shares of Class A 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
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<PAGE> 16
to the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company 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
the Company shall not 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
cancelled by it and retired. The Warrant Agent shall also cancel Common Stock
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, splitup, combination 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 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 account promptly to the Company with
respect to Warrants exercised and concurrently pay the Company, as provided in
Section 4, all moneys received by the Warrant Agent upon the exercise of such
Warrants. The Warrant Agent shall, upon request of the Company from time to
time, deliver to the Company such complete reports of registered ownership of
the Warrants and such complete records of transactions with respect to the
Warrants and the shares of Common Stock as the Company may request. The
Warrant Agent shall also make available to the Company and Blair for inspection
by their agents or employees, from time to time as either of them may request,
such original books of accounts and record (including original Warrant
Certificates surrendered to the Warrant Agent upon exercise of Warrants) as may
be maintained by the Warrant Agent in connection with the issuance and exercise
of Warrants hereunder, such inspections to occur at the Warrant Agent's office
as specified in Section 17, during normal business hours.
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 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
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<PAGE> 17
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, Chief Executive Officer, 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 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. 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
-17-
<PAGE> 18
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 may by supplemental agreement
make any changes or corrections in this Agreement (i) that it 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 an increase in the size of the Private Placement; or (iii) that
it 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;
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.
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 848 N.La Cienega Blvd.,
Suite 206, Los Angeles, CA 90069, Attention: Jack Tracht, Chief Executive
Officer; if to the Warrant Agent, at its Corporate Office and if to Blair, at
D.H. Blair Investment Banking Corp., 44 Wall Street, New York, New York 10005,
Attention: Martin A. Bell, Esq.
-18-
<PAGE> 19
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
on the earlier to occur of (i) the close of business on the Expiration Date of
all the Warrants; (ii) the closing date of an IPO which results in the
conversion of the Warrants; and (iii) the date upon which all Warrants have
been exercised.
SECTION 21. Counterparts. This Agreement may be executed
in 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 Tracht, Chief Executive Officer
D.H. BLAIR INVESTMENT BANKING CORP.
By: ____________________________________
Martin A. Bell, Vice Chairman and
General Counsel
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: ____________________________________
Authorized Officer
-19-
<PAGE> 20
THIS WARRANT AND ANY SHARES OF CLASS A COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY
ON'VILLAGE COMMUNICATIONS, INC. (THE "COMPANY") OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ON'VILLAGE COMMUNICATIONS, INC. TO THE EFFECT THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS.
No. Warrants
VOID AFTER JANUARY __, 1999
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 Warrants ("Warrants") specified above. Each Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this 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 commencing January __, 1998 and prior
to 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 an amount equal to $3.00 for each Warrant (the
"Purchase Price") in lawful money of the United States of America in cash or by
official bank or certified check made payable to the Company. The Company may,
at its election, reduce the Purchase Price.
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
January __, 1997 by and among the Company, the Warrant Agent and D.H. Blair
Investment Banking Corp.
<PAGE> 21
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 Class A 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 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 January __, 1999. If such date shall in the State of New York be a
holiday or a day on which the 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 may, at its election, extend the Expiration
Date.
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 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.
Prior to due presentment for registration of transfer hereof,
the Company may deem and treat the Registered Holder as the absolute owner
hereof and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) 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 this Warrant.
-2-
<PAGE> 22
This Warrant will automatically convert into a like number of
new warrants under certain circumstances in the event the Company completes an
initial public offering of its securities having the terms and conditions
specified in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
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: _____________, 1997
By ____________________________________
Jack Tracht, Chief Executive Officer
By ____________________________
James E. Austin, Secretary
[seal]
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By ___________________________________
Authorized Officer
-3-
<PAGE> 23
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.
The undersigned represents that the exercise of the within
Warrant 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.
______________________________________
(Name of NASD Member if other
than D.H. Blair Investment
Banking Corp.)
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<PAGE> 24
Dated: ______________________
X____________________________
_____________________________
Address
________________________________
Taxpayer Identification Number
_____________________________
Signature Guaranteed
_____________________________
-5-
<PAGE> 25
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
____________________________________________
____________________________________________
____________________________________________
____________________________________________
[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 COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
-6-
<PAGE> 1
EXHIBIT 4.5
ESCROW AGREEMENT
AGREEMENT, dated as of the 21st day of January, 1997 and
effective as of the Effective Date, as defined herein, by and among American
Stock Transfer & Trust Company, a New York corporation (hereinafter referred to
as the "Escrow Agent"), On'Village Communications, Inc., a California
corporation (the "Company"), and the stockholders of the Company who have
executed this agreement (hereinafter collectively called the "Stockholders").
WHEREAS, the Company contemplates a public offering ("Public
Offering") of Units ("Units"), each Unit consisting of one share of its Class A
Common Stock (the "Class A Common Stock") one redeemable Class A Warrant (the
"Class A Warrant") and one redeemable Class B Warrant ("Class B Warrant")
through D.H. Blair Investment Banking Corp. as underwriter (the "Underwriter")
pursuant to a Registration Statement (the "Registration Statement") on Form
SB-2 to be filed with the Securities and Exchange Commission ("SEC"); and
WHEREAS, the Stockholders have agreed to deposit in escrow an
aggregate of 800,000 shares of Class B Common Stock ("Class B Common Stock"
which, together with the Class A Common Stock, is referred to herein as the
"Common Stock"), upon the terms and conditions set forth herein.
In consideration of the mutual covenants and promises herein
contained, the parties hereto agree as follows:
1. The Stockholders and the Company hereby appoint
American Stock Transfer & Trust Company as Escrow Agent and agree that the
Stockholders will, prior to the
<PAGE> 2
Effective Date (as defined herein), deliver to the Escrow Agent to hold in
accordance with the provisions hereof, certificates representing an aggregate
of 800,000 shares of Class B Common Stock owned of record by the Stockholders
in the respective amounts set forth on Exhibit A hereto (the "Escrow Shares"),
together with stock powers executed in blank. The Escrow Agent, by its
execution and delivery of this Agreement hereby acknowledges receipt of the
Escrow Shares and accepts its appointment as Escrow Agent to hold the Escrow
Shares in escrow, upon the terms, provisions and conditions hereof.
2. This Agreement shall become effective upon the date
on which the Securities and Exchange Commission declares effective the
Registration Statement ("Effective Date") and shall continue in effect until
the earlier of (i) the date specified in paragraph 4(e) hereof or (ii) the
distribution by the Escrow Agent of all of the Escrow Shares in accordance with
the terms hereof (the "Termination Date"). The period of time from the
Effective Date until the Termination Date is referred to herein as the "Escrow
Period."
3. During the Escrow Period, the Escrow Agent shall
receive all of the money, securities, rights or property distributed in respect
of the Escrow Shares then held in escrow, including any such property
distributed as dividends or pursuant to any stock split, merger,
recapitalization, dissolution, or total or partial liquidation of the Company,
such property to be held and distributed as herein provided and hereinafter
referred to collectively as the "Escrow Property."
4. (a) The Escrow Shares are subject to release to
the Stockholders only in the event the conditions set forth herein are met.
The Escrow Agent, upon notice to such
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<PAGE> 3
effect from the Company as provided in paragraph 5 hereof, shall deliver the
Escrow Shares, together with stock powers executed in blank, and the Escrow
Property deposited in escrow with respect to such Escrow Shares, pro rata, to
the respective Stockholders, if, and only if, one of the following conditions
is met:
(i) 400,000 of the Escrow Shares and Escrow Property related to
such Escrow Shares will be released in the event that:
(A) the Company's net income before provision for
income taxes (the "Minimum Pretax Income")
equals or exceeds $3,000,000 for the fiscal
year ending December 31, 1998; or
(B) the Minimum Pretax Income equals or exceeds
$4,000,000 for the fiscal year ending
December 31, 1999; or
(C) the Minimum Pretax Income equals or exceeds
$5,000,000 for the fiscal year ending
December 31, 2000; or
(D) The Closing Price (as defined herein) of the
Company's Class A Common Stock shall average
in excess of $11.00 per share for any 30
consecutive business days during the period
commencing on the Effective Date and ending
18 months from the Effective Date; or
(E) The Closing Price (as defined herein) of the
Company's Class A Common Stock shall average
in excess of $15.00 per share for any 30
consecutive business days during the period
commencing on the 18th month after the
Effective Date and ending 36 months from the
Effective Date; or
(F) the Company is acquired by or merged into
another entity in a transaction in which
stockholders of the Company receive per share
consideration at least equal to the levels
set forth in (D) and (E) above during the
applicable time periods set forth in (D) and
(E) above.
(ii) the remaining 400,000 of the Escrow Shares and Escrow Property
related to such Escrow Shares will be released in the event
that:
-3-
<PAGE> 4
(A) the Company's Minimum Pretax Income equals or
exceeds $4,000,000 for the fiscal year ending
December 31, 1998; or
(B) the Minimum Pretax Income equals or exceeds
$5,300,000 for the fiscal year ending
December 31, 1999; or
(C) the Minimum Pretax Income equals or exceeds
$6,600,000 for the fiscal year ending
December 31, 2000; or
(D) The Closing Price (as defined herein) of the
Company's Class A Common Stock shall average
in excess of $12.50 per share for any 30
consecutive business days during the period
commencing on the Effective Date and ending
18 months from the Effective Date; or
(E) The Closing Price (as defined herein) of the
Company's Class A Common Stock shall average
in excess of $16.50 per share for any 30
consecutive business days during the period
commencing on the 18th month after the
Effective Date and ending 36 months from the
Effective Date; or
(F) the Company is acquired by or merged into
another entity in a transaction in which
stockholders of the Company receive per share
consideration at least equal to the levels
set forth in (D) and (E) above during the
applicable time periods set forth in (D) and
(E) above.
(b) As used in this Section 4, the term "Closing Price"
shall be subject to adjustments in the event of any stock dividend, stock
distribution, stock split or other similar event and shall mean:
(i) If the principal market for the Class A Common Stock
is a national securities exchange or the Nasdaq
National Market, the closing sales price of the Class
A Common Stock as reported by such exchange or
market, or on a consolidated tape reflecting
transactions on such exchange or market; or
(ii) if the principal market for the Class A Common Stock
is not a national securities exchange or the Nasdaq
National Market and the Class A Common Stock is
quoted on the Nasdaq SmallCap Market, the closing bid
price of the Class A Common Stock as quoted on the
Nasdaq SmallCap Market; or
-4-
<PAGE> 5
(iii) if the principal market for the Class A Common Stock
is not a national securities exchange or the Nasdaq
National Market and the Class A Common Stock is not
quoted on the Nasdaq SmallCap Market, the closing bid
for the Class A Common Stock as reported by the
National Quotation Bureau, Inc. ("NQB") or at least
two market makers in the Class A Common Stock if
quotations are not available from NQB but are
available from market makers.
(c) The determination of Minimum Pretax Income shall be determined
by the Company's independent public accountants in accordance with U.S.
generally accepted accounting principles provided that such determination is
calculated exclusive of any extraordinary earnings or charges (including any
charges incurred by the Company in connection with the release from escrow of
the Escrow Shares and any Escrow Property in respect thereof pursuant to the
provisions of this paragraph 4).
(d) In the event of any issuance (such issuance being herein
called a "Change of Shares") of additional shares of Common Stock (or
securities convertible into or exchangeable for Common Stock without the
payment of additional consideration, referred to as "Convertible Securities")
after the Effective Date, then each of the Minimum Pretax Income amounts set
forth in subparagraph (a) above shall be increased to an amount (the "Adjusted
Minimum Pretax Income") calculated in accordance with the formula set forth in
subparagraph (ii) below.
(i) For purposes of the foregoing paragraph, a Change of
Shares shall exclude (a) shares of Common Stock sold
in the Public Offering or (b) Common Stock or
Convertible Securities issued in connection with a
stock split or stock dividend or distribution or (c)
shares of Class A Common Stock issued in exchange for
shares of Class B Common Stock but shall include any
shares of Class A Common Stock or Convertible
Securities that are issued upon the exercise of the
Class A Warrants, the Class B Warrants or any other
options or warrants outstanding as of the Effective
Date or granted after the Effective Date by the
Company.
-5-
<PAGE> 6
(ii) Each Adjusted Minimum Pretax Income amount shall be
calculated by multiplying the applicable Minimum
Pretax Income amount prior to the Change of Shares by
a fraction, the numerator of which shall be the
weighted average number of shares of Common Stock
outstanding during the fiscal year for which the
determination is being made (including the Escrow
Shares and any shares of Common Stock issuable upon
conversion of any Convertible Securities, but
excluding treasury stock), and the denominator of
which shall be the sum of (x) the number of shares of
Common Stock outstanding on the Effective Date
(including the Escrow Shares and any shares of Common
Stock issuable upon conversion of Convertible
Securities outstanding immediately prior to the
Effective Date) plus (y) the number of shares of
Class A Common Stock sold by the Company pursuant to
the Prospectus included in the Registration
Statement, after adjustment for any stock dividends,
stock splits or similar events. The Adjusted Minimum
Pretax Income amounts shall be calculated
successively whenever such a Change of Shares occurs.
(e) If the Escrow Agent has not received the notice provided for
in Paragraph 5 hereof on or prior to the earlier of (i) the date of the closing
of a transaction referred to in Subparagraph 4(a)(i)(F) or 4(a)(ii)(F) or (ii)
April 15, 2001, the Escrow Agent shall deliver the certificates representing
all or the remaining Escrow Shares, together with stock powers executed in
blank, and any related Escrow Property to the Company to be placed in the
Company's treasury for cancellation thereof as a contribution to capital.
After such date, the Stockholders shall have no further rights as a stockholder
of the Company with respect to any of the cancelled Escrow Shares.
5. Upon the occurrence or satisfaction of any of the
events or conditions specified in Paragraph 4 hereof, the Company shall
promptly give appropriate notice to the Escrow Agent, the Underwriter (and if
the transfer agent of the Company's Common Stock is different from the Escrow
Agent, such transfer agent) and present such documentation as is reasonably
required by the Escrow Agent to evidence the satisfaction of such conditions.
-6-
<PAGE> 7
6. It is understood and agreed by the parties to this
Agreement as follows:
(a) The Escrow Agent is not and shall not be
deemed to be a trustee for any party for any purpose and is merely acting as a
depository and in a ministerial capacity hereunder with the limited duties
herein prescribed.
(b) The Escrow Agent does not have and shall not
be deemed to have any responsibility in respect of any instruction, certificate
or notice delivered to it or of the Escrow Shares or any related Escrow
Property other than faithfully to carry out the obligations undertaken in this
Agreement and to follow the directions in such instruction or notice provided
in accordance with the terms hereof.
(c) The Escrow Agent is not and shall not be
deemed to be liable for any action taken or omitted by it in good faith and may
rely upon, and act in accordance with, the advice of its counsel without
liability on its part for any action taken or omitted in accordance with such
advice. In any event, its liability hereunder shall be limited to liability
for gross negligence, willful misconduct or bad faith on its part.
(d) The Escrow Agent may conclusively rely upon
and act in accordance with any certificate, instruction, notice, letter,
telegram, cablegram or other written instrument believed by it to be genuine
and to have been signed by the proper party or parties.
(e) The Company agrees (i) to pay the Escrow
Agent's reasonable fees and to reimburse it for its reasonable expenses
including reasonable attorney's fees incurred in connection with duties
hereunder and (ii) to save harmless, indemnify and defend the Escrow Agent for,
from and against any loss, damage, liability, judgment, cost and expense
whatsoever,
-7-
<PAGE> 8
including reasonable counsel fees, suffered or incurred by it by reason of, or
on account of, any misrepresentation made to it or its status or activities as
Escrow Agent under this Agreement except for any loss, damage, liability,
judgment, cost or expense resulting from gross negligence, willful misconduct
or bad faith on the part of the Escrow Agent. The obligation of the Escrow
Agent to deliver the Escrow Shares to either the Stockholders or the Company
shall be subject to the prior satisfaction upon demand from the Escrow Agent,
of the Company's obligations to so save harmless, indemnify and defend the
Escrow Agent and to reimburse the Escrow Agent or otherwise pay its fees and
expenses hereunder.
(f) The Escrow Agent shall not be required to
defend any legal proceeding which may be instituted against it in respect of
the subject matter of this Agreement unless requested to do so by the
Stockholders and indemnified to the Escrow Agent's satisfaction against the
cost and expense of such defense by the party requesting such defense. If any
such legal proceeding is instituted against it, the Escrow Agent agrees
promptly to given notice of such proceeding to the Stockholders and the
Company. The Escrow Agent shall not be required to institute legal proceedings
of any kind.
(g) The Escrow Agent shall not, by act, delay,
omission or otherwise, be deemed to have waived any right or remedy it may have
either under this Agreement or generally, unless such waiver be in writing, and
no waiver shall be valid unless it is in writing, signed by the Escrow Agent,
and only to the extent expressly therein set forth. A waiver by the Escrow
Agent under the term of this Agreement shall not be construed as a bar to, or
waiver of, the same or any other such right or remedy which it would otherwise
have on any other occasion.
-8-
<PAGE> 9
(h) The Escrow Agent may resign as such hereunder
by giving 30 days written notice thereof to the Stockholders and the Company.
Within 20 days after receipt of such notice, the Stockholders and the Company
shall furnish to the Escrow Agent written instructions for the release of the
Escrow Shares and any related Escrow Property (if such shares and property, if
any, have not yet been released pursuant to Paragraph 4 hereof) to a substitute
Escrow Agent which (whether designated by written instructions from the
Stockholders and the Company jointly or in the absence thereof by instructions
from a court of competent jurisdiction to the Escrow Agent) shall be a bank or
trust company organized and doing business under the laws of the United States
or any state thereof. Such substitute Escrow Agent shall thereafter hold any
Escrow Shares and any related Escrow Property received by it pursuant to the
terms of this Agreement and otherwise act hereunder as if it were the Escrow
Agent originally named herein. The Escrow Agent's duties and responsibilities
hereunder shall terminate upon the release of all shares then held in escrow
according to such written instruction or upon such delivery as herein provided.
This Agreement shall not otherwise be assignable by the Escrow Agent without
the prior written consent of the Company.
7. The Stockholders shall have the sole power to vote
the Escrow Shares and any securities deposited in escrow under this Agreement
while they are being held pursuant to this Agreement.
8. (a) Each of the Stockholders agrees that during
the term of this Agreement he will not sell, transfer, hypothecate, negotiate,
pledge, assign, encumber or otherwise dispose of any or all of the Escrow
Shares set forth opposite his name on Exhibit A
-9-
<PAGE> 10
hereto, unless and until the Company shall have given the notice as provided in
Paragraph 5. This restriction shall not be applicable to transfers upon death,
by operation of law, to family members of the Stockholders or to any trust for
the benefit of the Stockholders, provided that such transferees agree to be
bound by the provisions of this Agreement.
(b) The Stockholders will take any action
necessary or appropriate, including the execution of any further documents or
agreements, in order to effectuate the transfer of the Escrow Shares to the
Company if required pursuant to the provisions of this Agreement.
9. Each of the certificates representing the Escrow
Shares will bear legends to the following effect, as well as any other legends
required by applicable law:
(a) "The sale, transfer, hypothecation, negotiation,
pledge, assignment, encumbrance or other disposition
of the shares evidenced by this certificate are
restricted by and are subject to all of the terms,
conditions and provisions of a certain Escrow
Agreement entered into among D.H. Blair Investment
Banking Corp., On'Village Communications, Inc. and
its Stockholders, dated as of January 22, 1997, a
copy of which may be obtained from On'Village
Communications, Inc. No transfer, sale or other
disposition of these shares may be made unless
specific conditions of such agreement are satisfied.
(b) "The shares evidenced by this certificate have not
been registered under the Securities Act of 1933, as
amended. No transfer, sale or other disposition of
these shares may be made unless a registration
statement with respect to these shares has become
effective under said act, or the Company is furnished
with an opinion of counsel satisfactory in form and
substance to it that such registration is not
required."
Upon execution of this Agreement, the Company shall direct the
transfer agent for the Company to place stop transfer orders with respect to
the Escrow Shares and to maintain such
-10-
<PAGE> 11
orders in effect until the transfer agent and the Underwriter shall have
received written notice from the Company as provided in Paragraph 5.
10. Each notice, instruction or other certificate
required or permitted by the terms hereof shall be in writing and shall be
communicated by personal delivery, fax or registered or certified mail, return
receipt requested, to the parties hereto at the addresses set forth below, or
at such other address as any of them may designate by notice to each of the
others:
(i) If to the Company, to:
On'Village Communications, Inc.
848 N. LaCienega Blvd.
Suite 206
Los Angeles, California 90069
Attention: Chief Executive Officer
(ii) If to the Stockholders to their respective addresses
as set forth on Exhibit A hereto.
(iii) If to the Escrow Agent, to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(iv) If to the Underwriter, to:
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
Att: Martin A. Bell, Esq.
Fax: 212-514-7837
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given
hereunder by the Escrow Agent shall be effective and deemed received upon
personal delivery or transmission by fax or, if mailed, five (5) calendar days
after mailing by the Escrow Agent.
-11-
<PAGE> 12
A copy of all communications sent to the Company, the
Stockholders or the Escrow Agent shall be sent by ordinary mail to Troy &
Gould, 1801 Century Park East, Suite 1600, Los Angeles, California 90067,
Attention: Lawrence Schnapp, Esq. A copy of all communications sent to the
Underwriter shall be sent by ordinary mail to Bachner, Tally, Polevoy & Misher
LLP, 380 Madison Avenue, New York, NY 10017, Attention: Alison S. Newman, Esq.
11. Except as set forth in paragraph 12 hereof, this
Agreement may not be modified, altered or amended in any material respect or
cancelled or terminated except with the prior consent of the holders of all of
the outstanding shares of Common Stock of the Company.
12. In the event that (i) the Registration Statement is
not declared effective by the SEC within one year from the date of the filing
of the Registration Statement with the SEC or (ii) the Public Offering is not
consummated within twenty-five (25) days of the Effective Date of the
Registration Statement, this Agreement shall terminate and be of no further
force and effect and the Escrow Agent, upon written notice from both the
Company and the Underwriter in accordance with paragraph 10 hereof of such
termination, will return the Escrow Shares and any Escrow Property in respect
thereof to the Stockholders.
13. This Agreement shall be governed by and construed in
accordance with the laws of New York and shall be binding upon and inure to the
benefit of all parties hereto and their respective successors in interest and
assigns.
14. This Agreement may be executed in several
counterparts, which taken together shall constitute a single instrument.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers on the day and year
first above written.
ON'VILLAGE COMMUNICATIONS, INC.
By: _____________________________________
Jack Tracht, Chief Executive Officer
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: _____________________________________
STOCKHOLDERS:
_____________________________
Jack B. Tracht
_____________________________
Robert D. Tracht
_____________________________
Jeff W. Walden
_____________________________
James E. Austin
-13-
<PAGE> 14
_____________________________
Howard Fites
_____________________________
James C. Neil
_____________________________
Ki T. Lee
_____________________________
James Goldberg
EXHIBIT A
STOCKHOLDERS' LIST
<TABLE>
<CAPTION>
Name and Address Stock
of Stockholder Certificate No. Number of Escrow Shares
- ---------------- --------------- -----------------------
<S> <C> <C>
Robert D. Tracht 10 176,061
16038 Valley Meadow Place
Encino, California 91436
Jeff W. Walden 12 176,061
60 W. Blue Ridge
P.O. Box 158
Tropic, Utah 84776
Jack B. Tracht 14 176,061
32370 Corte Santa Catalina
Temecula, California 92542
James E. Austin 16 176,061
5001 Canoga Avenue
Woodland Hills, California 91364
Howard Fites 18 37,066
</TABLE>
-14-
<PAGE> 15
<TABLE>
<S> <C> <C>
44739 Forest Court
Mendocino, California 95460
James C. Neil 20 18,533
819 Harrington Road 22 9,267
Glendale, California 91207
Ki T. Lee 24 18,895
24246 Park Granada
Calabasas, California 91302
James Goldberg 26 11,995
Novato, California
</TABLE>
____________________
* All stock numbers reflect a 6.94975-for-1 stock split effected in
October 1996.
-15-
<PAGE> 1
EXHIBIT 10.1
ON'VILLAGE COMMUNICATIONS, INC.
1997 STOCK OPTION PLAN
As adopted January 22, 1997
<PAGE> 2
1. PURPOSE OF PLAN
1.1 Purpose. The purpose of the Plan is to enable the Company to grant to
selected Eligible Persons a favorable opportunity to acquire Common Stock and,
thereby, to create an incentive for them to remain in the employ of or provide
services to the Company or any Affiliate and to contribute to its success.
1.2 Nature of Options. Options granted under the Plan may be Incentive
Options or Nonstatutory Options, as determined by the Administrator at the time
of grant.
1.3 Rule 701. At the time the Plan is being adopted, the Company is not
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
and is not an investment company registered or required to be registered under
the Investment Company Act of 1940. As such, the Company's offers and sales of
Common Stock under the Plan are, to the extent determined by the Administrator
in accordance with Applicable Laws, or any successor rule, intended to be exempt
from the registration requirements of the Securities Act under Rule 701 under
the Securities Act.
2. CERTAIN DEFINITIONS; CONSTRUCTION
2.1 Definitions. When used herein, the following terms shall have the
meaning indicated:
(a) "Administrator" means the Board or any Committee as shall be
administering the Plan.
(b) "Affiliate" means, with respect to any entity, any "parent" or
"subsidiary" of the entity as those terms are defined in sections 424(e) and
424(f), respectively, of the Code.
(c) "Applicable Laws" means the laws, rules and regulations relating to
the adoption, implementation and administration of stock option plans under
applicable state corporate laws, federal and state securities laws and the Code.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended, and
applicable Treasury Regulations promulgated thereunder.
(f) "Committee" means a committee appointed by the Board in accordance
with section 4.1 hereof.
1.
<PAGE> 3
(g) "Common Stock" means the Class A Common Stock of the Company.
(h) "Company" means On'Village Communications, Inc., a California
corporation.
(i) "Disability" means total and permanent disability as defined in
section 22(e)(3) of the Code.
(j) "Eligible Persons" means directors, officers and other employees of
the Company or of any Affiliate of the Company, as well as non-employee
consultants and advisors who may perform significant services for or on behalf
of the Company or any Affiliate.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(1) if the Common Stock is listed on an established stock exchange
or a national market system, including without limitation the Nasdaq National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(2) if the Common Stock is quoted on the NASDAQ System (but not on
the Nasdaq National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; and
(3) in the absence of an established trading market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(m) "Incentive Option" means an Option intended to qualify as an
incentive stock option within the meaning of section 422 of the Code.
2.
<PAGE> 4
(n) "Nonstatutory Option" means any Option other than an Incentive
Option.
(o) "Notice of Grant" means a written notice specifying certain terms
and conditions of an Option grant.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an Option, together with
any Notice of Grant relating to the Option.
(r) "Optionee" means an Eligible Person or permitted transferee who
holds an outstanding Option.
(s) "Plan" means this 1997 Stock Option Plan, as originally adopted and
as amended from time to time as herein provided.
(t) "Plan of Exchange" means any agreement, plan or arrangement under
which an outstanding Option may be surrendered in exchange for a newly granted
Option with a lower exercise price or other terms which differ from the terms of
the Option surrendered.
(u) "Section 16" means section 16 of the Securities Exchange Act of
1934.
(v) "Securities Act" means the Securities Act of 1933, as amended.
(w) "Termination of Employment" shall mean the date when any
employee-employer relationship between an Optionee and the Company is terminated
for any reason, including, but not by way of limitation, a termination by
resignation, discharge, death, disability or retirement, but excluding (1)
terminations where there is a simultaneous reemployment or continuing employment
of an Optionee by the Company, (2) at the discretion of the Administrator,
terminations which result in a temporary severance of the employee-employer
relationship, and (3) at the discretion of the Administrator, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company with the former employee. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment.
2.2 Construction. The Plan shall be construed in accordance with the
following provisions:
3.
<PAGE> 5
(a) the adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company. Nothing in the Plan shall be
construed to limit the right of the Company (1) to establish any other forms of
incentives or compensation for employees of the Company, or (2) to grant or
assume options or other rights otherwise than under the Plan in connection with
any proper corporate purpose, including, but not by way of limitation, the grant
or assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, partnership, firm or association;
(b) the existence of outstanding Options under the Plan shall not
affect the Company's right to effect adjustments, recapitalizations,
reorganizations or other changes in its or any other corporation's capital
structure or business, any merger or consolidation, any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting Common
Stock, the dissolution or liquidation of the Company's or any other
corporation's assets or business, or any other corporate act, whether similar to
the events described above or otherwise; and
(c) nothing in the Plan or in any Option Agreement shall confer upon
any Optionee any right to continue in the employ of the Company or shall
interfere with or restrict in any way the rights of the Company, which are
hereby expressly reserved, to discharge any Optionee at any time for any reason
whatsoever, with or without cause.
3. STOCK SUBJECT TO THE PLAN
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 shares or treasury shares.
The cumulative aggregate number of shares of Common Stock to be offered and
issued under the Plan shall not exceed 200,000, subject to adjustment as
provided in section 9 hereof.
3.2 Calculation of Shares. If an Option shall expire or terminate for any
reason without having been fully exercised, or is surrendered pursuant to a Plan
of Exchange or otherwise, the unpurchased shares subject thereto shall again be
available for the purposes of the Plan. Where the exercise price of an Option is
paid by means of the Optionee's surrender of previously owned shares of Common
Stock or the Company's withholding of shares otherwise issuable upon exercise of
the Option as permitted herein, only the net number of shares issued and which
remain outstanding in connection with such exercise shall be deemed "issued" and
no longer available for issuance under the Plan.
4.
<PAGE> 6
3.3 Reservation of Shares. The Company will at all times during the term of
the Plan reserve and keep available such number of shares of Common Stock as
shall be sufficient to satisfy the requirements of the Plan.
4. ADMINISTRATION
4.1 Administrator. The Plan shall be administered by the Board or, either
in its entirety or only insofar as it relates to Eligible Persons subject to
section 16 (if any), by a committee of the Board established for this purpose in
accordance with Applicable Laws. If necessary in order to comply with Rule 16b-3
under the Exchange Act as contemplated below, the Committee shall be comprised
solely of "non-employee directors" within the meaning of said Rule 16b-3. 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.
4.2 Rule 16b-3 Compliance. In the event, and for so long as, the Common
Stock is registered under the Exchange Act, the Plan shall be administered in
accordance with the requirements of Rule 16b-3 under the Exchange Act, or any
successor rule thereto, with the intention that transactions under the Plan by
Eligible Persons subject to Section 16, if any, comply with the applicable
requirements of Rule 16b-3, or any successor rule thereto. In this regard, to
the extent any provision of the Plan or action by the Administrator fails to so
comply, it shall, to the extent permitted by Applicable Laws and deemed
advisable by the Administrator, be deemed null and void. Notwithstanding the
above, it shall remain the sole responsibility of Optionees, not of the Company
or the Administrator, to comply with applicable requirements of Section 16; and
neither the Company nor the Administrator shall be liable if the Plan or any
transaction under the Plan fails to comply with the applicable conditions of
Rule 16b-3 or any successor rule thereto, or if any Optionee incurs any
liability under Section 16 by reason of any transaction under the Plan.
4.3 Expenses; Exculpation. All expenses and liabilities which members of
the Administrator incur in connection with the administration of this Plan shall
be borne by the Company. The Administrator may employ attorneys, consultants,
accountants, appraisers, brokers or other persons. The Administrator, the
Company and the Company's directors, officers and other employees shall be
entitled to rely upon the advice, opinions or valuations of any such persons. No
member of the Administrator shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan.
5.
<PAGE> 7
4.4 Powers of Administrator. Subject to the provisions of the Plan, and in
the case of a Committee, subject to the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(a) to determine whether and to what extent Options are granted
hereunder;
(b) to select from among Eligible Persons those individuals to whom
Options shall be granted hereunder;
(c) to determine the number of shares of Common Stock to be covered by
each Option granted hereunder;
(d) to approve forms of Option Agreements and other instruments for use
under the Plan;
(e) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Option granted hereunder, the exercise price, the time
or times when the Option may be exercised (which may be based on performance or
other criteria), any vesting, acceleration or waiver of forfeiture restrictions,
and any restriction or limitation regarding the Option or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(f) to determine the Fair Market Value of Common Stock;
(g) to reduce the exercise price of any Option to the then current Fair
Market Value if the Fair Market Value of Common Stock covered by such Option
shall have declined since the date the Option was granted;
(h) to construe and interpret the terms and provisions of the Plan and
of any Option Agreement and all Options granted under the Plan;
(i) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans established for
the purpose of qualifying for preferred tax treatment under foreign tax laws;
(j) to modify or amend each Option (subject to section 12.2 hereof),
including the discretionary authority to extend the post-termination
exercisability period of any Option longer than is otherwise provided for in the
Plan;
(k) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant or exercise of an Option authorized
by the Administrator;
6.
<PAGE> 8
(l) to institute from time to time a Plan of Exchange; and
(m) to make all other determinations it deems necessary or advisable
for administering the Plan or any Option Agreement or Option.
The Administrator's decisions, determinations and interpretations shall
be final and binding on all Optionees and other persons.
5. PARTICIPATION
Eligible Persons shall be eligible for selection to participate in the Plan
upon approval by the Administrator; provided, however, that only "employees"
(within the meaning of section 3401(c) of the Code) of the Company shall be
eligible for the grant of Incentive Options. An individual who has been granted
an Option may, if otherwise eligible, be granted additional Options if the
Administrator shall so determine. No Eligible person is entitled to participate
in the Plan by matter of right; only those Eligible Persons who are selected by
the Administrator in its discretion shall participate in the Plan.
6. OPTION AGREEMENT; TERMS OF OPTIONS
6.1 Option Agreement. Each Option shall be evidenced by an Option
Agreement, which shall be subject to the terms and conditions of the Plan and
shall contain such other terms and conditions that are not inconsistent with the
Plan as the Administrator may deem appropriate in each case. In the event of a
conflict between the terms or conditions of an Option Agreement and the terms
and conditions of the Plan, the terms and conditions of the Plan shall govern.
Failure of an Optionee to execute an Option Agreement shall not invalidate or
render void the grant of an Option hereunder.
6.2 Exercise Price. The exercise price of each Incentive Option shall be
determined by the Administrator, but shall not be less than 100% of the Fair
Market Value of Common Stock on the date of grant. If an Incentive Option is
granted to an employee who at the time of grant owns (within the meaning of
section 424(d) of the Code) more than 10% of the total combined voting power of
all classes of capital stock of the Company, the Option exercise price shall be
at least 110% of the Fair Market Value of Common Stock on the date of grant. The
exercise price of each Nonstatutory Option also shall be determined by the
Administrator, but shall not be less than 85% of the Fair Market Value of Common
Stock on the date of grant. The status of each Option granted under the Plan as
either an Incentive Option or a Nonstatutory Stock Option shall be determined by
the Administrator at the time the
7.
<PAGE> 9
Administrator acts to grant the Option, and shall be designated as such in the
related Option Agreement.
6.3 "Reload" Options. At the time of grant or at any time thereafter, the
Administrator may determine that an Optionee who has paid the exercise price of
an Option by surrendering previously owned shares of Common Stock or by the
Company's withholding of shares otherwise issuable upon exercise of the Option
shall automatically receive a new Option hereunder to purchase additional shares
of Common Stock equal to the number of shares so surrendered or withheld and may
specify the terms and conditions of such "reload" options.
6.4 Payment of Exercise Price. Except as provided below, payment in full
shall be made for all shares of Common Stock purchased at the time written
notice of exercise of an Option is given to the Company, either in cash or by
delivery by the Optionee of Common Stock already owned by the Optionee, for all
or part of the aggregate exercise price of the shares as to which the Option is
being exercised, provided that the Fair Market Value of such Common Stock is
equal on the date of exercise to the aggregate exercise price of the shares as
to which the Option is being exercised. At the time an Option is granted or
exercised, the Administrator, in the exercise of its discretion, may authorize
one or more of the following additional methods of payment:
(a) acceptance of the Optionee's full recourse promissory note for a
portion of the aggregate exercise price of the shares as to which the Option is
being exercised, payable on such terms and bearing such interest as determined
by the Administrator, which promissory note may be either secured or unsecured
in such manner as the Administrator shall approve (including, without
limitation, by a security interest in the shares of Common Stock so acquired);
provided, however, that not less than the aggregate par value of the shares of
Common Stock to be issued shall be paid in cash;
(b) any other property, so long as such property constitutes valid
consideration under Applicable Laws for the shares as to which the Option is
being exercised and is surrendered in good form for transfer; and
(c) subject to section 422 of the Code, by means of so-called cashless
exercises as permitted under applicable rules and regulations of the Securities
and Exchange Commission and the Federal Reserve Board.
6.5 Withholding. Irrespective of the form of payment of the exercise price
of an Option, the delivery of shares pursuant to the exercise of an Option shall
be conditioned upon payment by the Optionee to the Company of amounts sufficient
to enable the Company to pay all federal, state,
8.
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and local withholding taxes applicable, in the Company's judgment, to the
exercise. In the discretion of the Administrator, such payment to the Company
may be effected through (a) the Company's withholding from the number of shares
of Common Stock that would otherwise be delivered to the Optionee by the Company
on exercise of the Option a number of shares of Common Stock equal in value (as
determined by the Fair Market Value of Common Stock on the date of exercise) to
the aggregate withholding taxes, (b) payment by the Optionee to the Company of
the aggregate withholding taxes in cash, (c) withholding by the Company from
other amounts contemporaneously owed by the Company to the Optionee, or (iv) any
combination of these three methods, as determined by the Administrator in its
discretion.
6.6 Vesting and Exercise.
(a) Each Option granted under the Plan shall become exercisable and the
total number of shares subject thereto shall be purchasable, in a lump sum or in
such installments, which need not be equal, as the Administrator shall
determine; provided, however, that each Option shall become exercisable in full
no later than five years after such option is granted, and each Option shall
become exercisable as to at least 20% of the shares of Common Stock covered
thereby on each anniversary of the date such option is granted; and provided,
further, that if an Optionee shall not in any given installment period purchase
all of the shares which such Optionee is entitled to purchase in such
installment period, such Optionee's right to purchase any shares not purchased
in such installment period shall continue until the expiration or sooner
termination of the Optionee's Option. The Administrator may, at any time after
grant of an Option and from time to time, increase the number of shares
purchasable in any installment, subject to the total number of shares subject to
the Option and the limitations set forth in paragraph (f) of this section 6.6.
At any time and from time to time prior to the time when any exercisable Option
or exercisable portion thereof becomes unexercisable under the Plan or the
applicable Option Agreement, such Option or portion thereof may be exercised in
whole or in part; provided, however, that the Administrator may, by the terms of
the Option Agreement, require any partial exercise to be with respect to a
specified minimum number of shares. No Option or installment thereof shall be
exercisable except with respect to whole shares. Fractional share interests
shall be disregarded, except that they may be accumulated as provided above and
except that if such a fractional share interest constitutes the total shares of
Common Stock remaining available for purchase under an Option at the time of
exercise, the Optionee shall be entitled to receive on exercise a certified or
bank cashier's check in an amount equal to the Fair Market Value of such
fractional share of stock.
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(b) To the extent that the aggregate Fair Market Value (determined on
the date of grant) of Common Stock with respect to which an Incentive Option
granted hereunder (together with any Incentive Options granted the Optionee
under all other plans of the Company) are exercisable for the first time by an
Optionee in any calendar year under the Plan exceeds $100,000, such Option shall
be treated as a Nonstatutory Option to the extent required by section 422 of the
Code. The rule set forth in the preceding sentence shall be applied by taking
Options into account in the order in which they were granted.
(c) Exercising an Option in any manner shall decrease the number of
shares thereafter available for purposes of the Plan, and for sale under the
Option, by the number of shares as to which the Option is exercised.
(d) The Administrator may, at any time, extend the exercise period of
an Option as stated in the relevant Option Agreement for any period not
exceeding the original expiration date of the Option on such terms and
conditions as it may determine.
(e) Notwithstanding any provision of this section 6.6, in no event
shall any Option be exercised after the expiration date of the Option set forth
in the applicable Option Agreement.
(f) If Common Stock acquired upon exercise of any Incentive Option is
disposed of in a disposition that, under section 422 of the Code, disqualifies
the Optionee from the application of section 421(a) of the Code, the holder of
the Common Stock immediately before the disposition shall comply with any
requirements imposed by the Company in order to enable the Company to secure the
related income tax deduction to which it is entitled in such event.
7. TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY
7.1 Termination of Employment. Upon Termination of Employment of an
Optionee, other than upon the Optionee's death or Disability, the Optionee may
exercise his or her Option, but only within such period of time as is specified
in the Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration date of the Option set forth in the applicable Option Agreement). In
the case of an Incentive Option, such period of time for exercise shall not
exceed three months from the date of termination. In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for three
months following Termination of Employment of the Optionee. If, on the date of
termination, the Optionee is not entitled to exercise the Optionee's entire
Option, the shares covered by the
10.
<PAGE> 12
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified by the Administrator, the Option shall terminate, and the Shares
covered by the Option shall revert to the Plan.
7.2 Disability. In the event of a Termination of Employment of an Optionee
as a result of the Optionee's Disability, the Optionee may exercise his or her
Option at any time within twelve months from the date of such termination, but
only to the extent that the Optionee was entitled to exercise it at the date of
such termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option also shall revert to the Plan.
7.3 Death. The Option may be exercised at any time within twelve months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance. If, after an Optionee's death, the Optionee's estate or a person
who acquired the right to exercise the Option by bequest or inheritance is not
entitled to exercise the entire Option, the shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
7.4 Leave of Absence. Unless otherwise provided in the applicable
Option Agreement, and to the extent permitted by section 422 of the Code, an
Optionee's employment shall not be deemed to terminate by reason of sick leave,
military leave or other leave of absence approved by the Company if the period
of any such leave does not exceed a period approved by the Company, or such
longer period, if any, for which the Optionee's right to reemployment by the
Company is guaranteed either contractually or by statute; provided, however,
that, with respect to Incentive Options, a leave of absence or other change in
the employee-employer relationship shall constitute a Termination of Employment
if, and to the extent that, such leave of absence or other change interrupts
employment for the purposes of section 422(a)(2) of the Code and the
then-applicable regulations and revenue rulings under said section. Unless
otherwise determined by the Administrator in its
11.
<PAGE> 13
discretion, vesting of options shall be suspended during a
leave of absence.
8. TRANSFERABILITY OF OPTIONS
8.1 Options Generally Nontransferable. Except as provided in section 8.2
hereof, each Option shall, by its terms, be nontransferable by the Optionee
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee or by his or her
guardian or legal representative. More particularly, but without limiting the
generality of the immediately preceding sentence, an Option may not be assigned,
transferred, pledged or hypothecated (whether by operation of law or otherwise),
and shall not be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition of
any Option contrary to the provisions of the Plan and the applicable Option
Agreement, and any levy of any attachment or similar process upon an Option,
shall be null and void, and otherwise without effect, and the Administrator may,
in its sole discretion, upon the happening of any such event, terminate such
Option forthwith.
8.2 Permitted Transfers. In the discretion of the Administrator and subject
to Applicable Laws, a Nonstatutory Option may be transferred by the Optionee (a)
by gift or otherwise to the Optionee's spouse or other immediate relative, or to
a trust or estate in which the Optionee or his or her spouse or other immediate
relative has a substantial beneficial interest, or (b) pursuant to a qualified
domestic relations order (as defined by the Code). However, any Nonstatutory
Option so transferred shall continue to be subject to all the terms and
conditions contained in the Option Agreement evidencing such Option.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET
SALE
9.1 Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon surrender or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of considera-
12.
<PAGE> 14
tion by the Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Administrator,
whose determination in this respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
9.2 Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, to the extent that an Option has not been previously
exercised, it will terminate immediately prior to the consummation of such
proposed action. The Administrator may, in the exercise of its sole discretion
in such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Common Stock covered thereby, including shares as
to which the Option would not otherwise be exercisable.
9.3 Merger or Sale of Assets. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option shall be assumed or an equivalent option
substituted by the successor corporation or any Affiliate of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the Option, the Optionee shall have the right to exercise the
Option as to all of the shares covered thereby, including shares as to which it
would not otherwise be exercisable. If an Option is exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be fully
exercisable for a period of less than 15 days from the date of such notice, and
the Option shall terminate upon the expiration of the period specified in such
notice.
9.4 Fractional Shares. No fractional share of Common Stock shall be issued
under the Plan on account of any adjustment under any provision of this section
9.
10. DATE OF GRANT AND EXERCISE
10.1 Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination to grant
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
13.
<PAGE> 15
10.2 Date of Exercise. An Option shall be deemed to be exercised when the
Secretary of the Company receives written notice from the Optionee of such
exercise, payment of the exercise price determined pursuant to section 6.4
hereof and set forth in the Option Agreement, and all representations,
indemnifications and documents reasonably requested by the Administrator.
10.3 Issuance of Share Certificates. The Company shall not be required to
issue or deliver any certificate or certificates for shares of Common Stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) the admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) the completion of any registration or other qualification of such
shares under any state or federal law, or under the rules or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Administrator shall, in its absolute discretion, deem necessary or
advisable;
(c) the obtaining of any approval or other clearance from any state or
federal governmental agency which the Administrator shall, in its absolute
discretion, determine to be necessary or advisable;
(d) the lapse of such reasonable period of time following the exercise
of the option as the Administrator may establish from time to time solely for
reasons of administrative convenience; and
(e) the receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
10.4 Rights of Optionees and Beneficiaries. The Company shall pay all
amounts payable hereunder only to the Optionee or beneficiaries entitled thereto
pursuant to the Plan. The Company shall not be liable for the debts, contracts
or engagements of any Optionee or his or her beneficiaries, and rights to cash
payments under the Plan may not be taken in execution by attachment or
garnishment, or by any other legal or equitable proceeding while in the hands of
the Company.
10.5 Government Regulations. The Plan, and the grant hereunder and exercise
of Options and the issuance and delivery of shares of Common Stock subject to
Options, shall be subject to compliance with all applicable federal and state
laws, rules and regulations (including but not limited to state and federal
securities law) and federal margin
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<PAGE> 16
requirements and to such approvals by any listing, regulatory or governmental
authority as may, in the opinion of counsel for the Company, be necessary or
advisable in connection therewith. Any securities delivered under the Plan shall
be subject to such restrictions, and the person acquiring such securities shall,
if requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements.
11. LIABILITY OF COMPANY
11.1 Absence of Authority. The inability of the Company to obtain authority
from any regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any shares
of Common Stock hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such shares as to which such requisite authority
shall not have been obtained.
11.2 Grants in Excess of Available Shares. If shares of Common Stock
covered by an Option exceeds, as of the date of grant, the number of shares
which may be issued under the Plan without additional stockholder approval, such
Option shall be void with respect to such excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares subject to
the Plan is timely obtained in accordance with section 12.2(c) hereof.
12. EFFECTIVE DATE; AMENDMENT AND TERMINATION
12.1 Effective Date. The Plan shall be effective as of the date of its
approval by the stockholders of the Company within twelve months before or after
the date of the Board's adoption of the Plan. Options may be granted but not
exercised prior to stockholder approval of the Plan. If any Options are so
granted and stockholder approval shall not have been obtained within twelve
months of the date of adoption of this Plan by the Board, such Options shall
terminate retroactively as of the date they were granted.
12.2 Amendment.
(a) The Plan shall terminate automatically as of the earlier of (1) the
sale of all shares available for issuance under the Plan, (2) the close of
business on the day preceding the tenth anniversary date of its adoption by the
Board, or (3) earlier as provided below.
(b) The Administrator may at any time suspend, amend or terminate the
Plan and may, with the consent of an Optionee, make such modifications of the
terms and conditions
15.
<PAGE> 17
of such Optionee's Option as it shall deem advisable. No Option may be granted
during any suspension of the Plan or after such termination. The amendment,
suspension or termination of the Plan shall not, without the consent of the
Optionee affected thereby, alter or impair any rights or obligations under any
Option theretofore granted under the Plan. No Option may be granted during any
period of suspension nor after termination of the Plan.
(c) The Company shall obtain stockholder approval of any Plan amendment
to the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act or section 422 of the Code (or any successor rule or statute or
other Applicable Law, including the requirements of any exchange or quotation
system on which the Common Stock is listed or quoted). Such stockholder
approval, if required, shall be obtained in such a manner and to such a degree
as the Administrator determines is required by Applicable Laws.
13. MISCELLANEOUS
13.1 Privileges of Stock Ownership; Investment Intent. An Optionee shall
not be entitled to the privilege of stock ownership as to any shares of Common
Stock not actually issued to the Optionee. Upon exercise of an Option at a time
when there is not in effect under the Securities Act a Registration Statement
relating to the Common Stock issuable upon exercise or payment therefor and
available for delivery a Prospectus meeting the requirements of section 10(a)(3)
of the Securities Act, the Optionee shall represent and warrant in writing to
the Company that the shares purchased are being acquired for investment and not
with a view to the distribution thereof.
13.2 Reports to Optionees. The Company shall furnish to each Optionee under
the Plan the Company's annual report and such other periodic reports, if any, as
are disseminated by the Company in the ordinary course to its stockholders.
13.3 Legend Conditions.
(a) In order to enforce any restrictions imposed upon Common Stock
issued upon exercise of an Option or to which such Common Stock may be subject,
the Administrator may cause a legend or legends to be placed on any share
certificates representing such Common Stock, which legend or legends shall make
appropriate reference to such restrictions, including, but not limited to, a
restriction against sale of such Common Stock for any period of time as may be
required by Applicable Laws. If any restriction with respect to which a legend
was placed on any certificate ceases to apply to Common Stock represented by
such certificate, the owner of the Common Stock represented by such certificate
may require the Company
16.
<PAGE> 18
to cause the issuance of a new certificate not bearing the
legend.
(b) Additionally, and not by way of limitation, the Administrator may
impose such restrictions on any Common Stock issued pursuant to the Plan as it
may deem advisable, including, without limitation, restrictions under the
requirements of any stock exchange upon which Common Stock is then traded.
13.4 Use of Proceeds. Proceeds realized pursuant to the exercise of Options
shall constitute general funds of the Company.
13.5 Governing Law. The Plan shall be governed by, and construed in
accordance with the laws of the State of California (without giving effect to
conflicts of law principles).
* * *
17.
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of January
24, 1997, by and between On'Village Communications, Inc., a California
corporation (the "Company"), and Jack Tracht ("Employee") with reference to the
following facts:
A. Employee is one of the founders of the Company and has served as the
Company's Chief Executive Officer since May 1, 1996.
B. The Company currently is contemplating an initial public offering of
its securities (the "Company's IPO").
C. The Company has requested that Employee enter into an agreement to
serve on the terms and conditions set forth herein as the Company's Chief
Executive Officer in the event the Company's IPO is consummated, and Employee is
willing to serve in those capacities on the terms and conditions set forth
herein.
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 hereinafter set forth. The term of
Employee's employment under this Agreement shall commence on the date of the
closing of the Company's IPO and shall expire on the end of the 37th month after
such date but may be extended from time to time by mutual agreement between
Company and Employee. The term of Employee's employment under this Agreement
also may be sooner terminated as hereinafter provided, in which case Employee
shall be entitled to such compensation, reimbursable expenses and benefits as
are set forth in the relevant sections of this Agreement. All references herein
to the "term" of this Agreement shall mean the original terms as such term may
have been shortened pursuant to this Agreement, except where the context
otherwise requires.
2. Duties. Employee agrees to serve the Company as its Chief Executive
Officer. Employee's duties will be those of similar officers for a company
similar to the Company and such other duties as are specified by the Board of
Directors of the Company. 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 Company. Notwithstanding the foregoing, Employee shall
be permitted to serve as a director of one or more other companies, provided
that such
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<PAGE> 2
companies do not compete in any manner with the business of
the Company as now or hereafter conducted.
3. Salary and Benefits.
(a) Salary. For the first 13 months of this Agreement, Company shall
pay Employee a salary at the annual rate of $92,500 per year payable biweekly
and subject to payroll deductions as may be necessary or customary in respect of
Company's salaried employees in general. For each successive 12-month period of
this 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.
(b) Vacations. Employee shall be entitled to four weeks paid vacation
per calendar year during 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 as deemed appropriate by the
Board of Directors of the Company. Employee shall also be entitled to
participate in all annual bonus, incentive, stock option, savings and retirement
plans, practices, policies and programs applicable generally to other senior
executives 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 senior executives of the Company, including but
not limited to directors' and officers' liability insurance.
(e) 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 senior executives of the Company.
(f) 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 senior executives of the Company.
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 automatically terminate upon death or disability, as the case
may be. "Disability" shall mean any physical or mental illness that
2
<PAGE> 3
renders Employee unable to perform his agreed-upon services under this Agreement
for 180 consecutive days or an aggregate of 240 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.
Company shall also maintain a long-term disability policy covering
Employee.
5. Termination for Cause. By majority vote of the Board (with Employee
abstaining) 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 subpara-
graph (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.
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<PAGE> 4
In the event of termination for "good cause," Employee's salary
hereunder 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. If 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 this Agreement plus a continuation of the disability and
health insurance policies provided for in this Agreement.
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 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
4
<PAGE> 5
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, any 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
5
<PAGE> 6
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 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 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 MIGHT 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.
/s/ JACK TRACHT By:/s/ ROBERT TRACHT
- --------------------------- ---------------------------
Jack Tracht Robert Tracht
President and
Chief Operating 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
6
<PAGE> 7
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
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.
7
<PAGE> 8
12.8 Effectiveness of this Agreement. This Agreement shall not be
binding upon the parties and shall be void and of no effect in the event the
closing of the Company's IPO has not occurred on or before October 1, 1997.
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/ JACK TRACHT By:/s/ ROBERT TRACHT
- --------------------------- ---------------------------
Jack Tracht Robert Tracht
President and
Chief Operating Officer
Address: 32370 Corte Santa Catalina
Temecula, California 92592
8
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of January
24, 1997, by and between On'Village Communications, Inc., a California
corporation (the "Company"), and Robert Tracht ("Employee") with reference to
the following facts:
A. Employee is one of the founders of the Company and has served as the
Company's President and Chief Financial Officer since November 1995 and as the
Company's Chief Operating Officer since May 1, 1996.
B. The Company currently is contemplating an initial public offering of
its securities (the "Company's IPO").
C. The Company has requested that Employee enter into an agreement to
serve on the terms and conditions set forth herein as the Company's President,
Chief Financial Officer and Chief Operating Officer in the event the Company's
IPO is consummated, and Employee is willing to serve in those capacities on the
terms and conditions set forth herein.
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 hereinafter set forth. The term of
Employee's employment under this Agreement shall commence on the date of the
closing of the Company's IPO and shall expire on the end of the 37th month after
such date but may be extended from time to time by mutual agreement between
Company and Employee. The term of Employee's employment under this Agreement
also may be sooner terminated as hereinafter provided, in which case Employee
shall be entitled to such compensation, reimbursable expenses and benefits as
are set forth in the relevant sections of this Agreement. All references herein
to the "term" of this Agreement shall mean the original terms as such term may
have been shortened pursuant to this Agreement, except where the context
otherwise requires.
2. Duties. Employee agrees to serve the Company as its President, Chief
Financial Officer and Chief Operating Officer. Employee's duties will be those
of similar officers for a company similar to the Company and such other duties
as are specified by the Board of Directors of the Company. 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 Company. Notwithstanding
the foregoing, Employee shall be permitted to serve as a
1
<PAGE> 2
director of one or more other companies, provided that such companies do not
compete in any manner with the business of the Company as now or hereafter
conducted.
3. Salary and Benefits.
(a) Salary. For the first 13 months of this Agreement, Company shall
pay Employee a salary at the annual rate of $92,500 per year payable biweekly
and subject to payroll deductions as may be necessary or customary in respect of
Company's salaried employees in general. For each successive 12-month period of
this 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.
(b) Vacations. Employee shall be entitled to four weeks paid vacation
per calendar year during 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 as deemed appropriate by the
Board of Directors of the Company. Employee shall also be entitled to
participate in all annual bonus, incentive, stock option, savings and retirement
plans, practices, policies and programs applicable generally to other senior
executives 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 senior executives of the Company, including but
not limited to directors' and officers' liability insurance.
(e) 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 senior executives of the Company.
(f) 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 senior executives of the Company.
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 automatically terminate upon death or disability, as the case
may be.
2
<PAGE> 3
"Disability" shall mean any physical or mental illness that renders Employee
unable to perform his agreed-upon services under this Agreement for 180
consecutive days or an aggregate of 240 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.
Company shall also maintain a long-term disability policy covering
Employee.
5. Termination for Cause. By majority vote of the Board (with Employee
abstaining) 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 subpara-
graph (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.
3
<PAGE> 4
In the event of termination for "good cause," Employee's salary hereunder
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. If 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 this Agreement plus a continuation of the disability and
health insurance policies provided for in this Agreement.
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 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
4
<PAGE> 5
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, any 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
5
<PAGE> 6
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 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 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 MIGHT 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.
/s/ ROBERT TRACHT By: /s/ JACK TRACHT
- ----------------------------- -----------------------------
Robert Tracht 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
6
<PAGE> 7
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 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.
12.8 Effectiveness of this Agreement. This Agreement shall not be
binding upon the parties and shall be void and of no effect in the event the
closing of the Company's IPO has not occurred on or before October 1, 1997.
7
<PAGE> 8
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/ ROBERT TRACHT By: /s/ JACK TRACHT
- ----------------------------- -----------------------------
Robert Tracht Jack Tracht
Address: 16038 Valley Meadow Place
Encino, California 91436
8
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of January
24, 1997, by and between On'Village Communications, Inc., a California
corporation (the "Company"), and James Austin ("Employee") with reference to the
following facts:
A. Employee is one of the founders of the Company and has served as a
Vice President of the Company since November 1995.
B. The Company currently is contemplating an initial public offering of
its securities (the "Company's IPO").
C. The Company has requested that Employee enter into an agreement to
serve on the terms and conditions set forth herein as the Company's Senior Vice
President of Sales in the event the Company's IPO is consummated, and Employee
is willing to serve in such capacity on the terms and conditions set forth
herein.
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 hereinafter set forth. The term of
Employee's employment under this Agreement shall commence on the date of the
closing of the Company's IPO and shall expire on the end of the 37th month after
such date but may be extended from time to time by mutual agreement between
Company and Employee. The term of Employee's employment under this Agreement
also may be sooner terminated as hereinafter provided, in which case Employee
shall be entitled to such compensation, reimbursable expenses and benefits as
are set forth in the relevant sections of this Agreement. All references herein
to the "term" of this Agreement shall mean the original terms as such term may
have been shortened pursuant to this Agreement, except where the context
otherwise requires.
2. Duties. Employee agrees to serve the Company as its Senior Vice
President of Sales. Employee's duties will be those of similar officers for a
company similar to the Company and such other duties as are specified by the
Board of Directors of the Company. 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 Company. Notwithstanding the foregoing, Employee shall
be permitted to serve as a director of one or more other companies, provided
1
<PAGE> 2
that such companies do not compete in any manner with the business of the
Company as now or hereafter conducted.
3. Salary and Benefits.
(a) Salary. For the first 13 months of this Agreement, Company shall
pay Employee a salary at the annual rate of $92,500 per year payable biweekly
and subject to payroll deductions as may be necessary or customary in respect of
Company's salaried employees in general. For each successive 12-month period of
this 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.
(b) Vacations. Employee shall be entitled to four weeks paid vacation
per calendar year during 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 as deemed appropriate by the
Board of Directors of the Company. Employee shall also be entitled to
participate in all annual bonus, incentive, stock option, savings and retirement
plans, practices, policies and programs applicable generally to other senior
executives 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 senior executives of the Company, including but
not limited to directors' and officers' liability insurance.
(e) 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 senior executives of the Company.
(f) 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 senior executives of the Company.
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 automatically terminate upon death or disability, as the case
may be. "Disability" shall mean any physical or mental illness that
2
<PAGE> 3
renders Employee unable to perform his agreed-upon services under this Agreement
for 180 consecutive days or an aggregate of 240 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.
Company shall also maintain a long-term disability policy covering
Employee.
5. Termination for Cause. By majority vote of the Board (with Employee
abstaining) 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 subpara-
graph (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.
3
<PAGE> 4
In the event of termination for "good cause," Employee's salary
hereunder 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. If 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 this Agreement plus a continuation of the disability and
health insurance policies provided for in this Agreement.
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 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
4
<PAGE> 5
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, any 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
5
<PAGE> 6
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 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 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 MIGHT 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.
/s/ JAMES AUSTIN By: /s/ ROBERT TRACHT
- ---------------------------- ----------------------------
James Austin Robert Tracht
President and
Chief Operating 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
6
<PAGE> 7
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
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.
7
<PAGE> 8
12.8 Effectiveness of this Agreement. This Agreement shall not be
binding upon the parties and shall be void and of no effect in the event the
closing of the Company's IPO has not occurred on or before October 1, 1997.
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/ JAMES AUSTIN By: /s/ ROBERT TRACHT
- ---------------------------- ----------------------------
James Austin Robert Tracht
President and
Chief Operating Officer
Address: 5001 Canoga Avenue
Woodland Hills, California 91364
8
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of January
24, 1997, by and between On'Village Communications, Inc., a California
corporation (the "Company"), and Jeff Walden ("Employee") with reference to the
following facts:
A. Employee is one of the founders of the Company and has served as a
Vice President of the Company since November 1995.
B. The Company currently is contemplating an initial public offering of
its securities (the "Company's IPO").
C. The Company has requested that Employee enter into an agreement to
serve on the terms and conditions set forth herein as the Company's Senior Vice
President of Marketing in the event the Company's IPO is consummated, and
Employee is willing to serve in such capacity on the terms and conditions set
forth herein.
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 hereinafter set forth. The term of
Employee's employment under this Agreement shall commence on the date of the
closing of the Company's IPO and shall expire on the end of the 37th month after
such date but may be extended from time to time by mutual agreement between
Company and Employee. The term of Employee's employment under this Agreement
also may be sooner terminated as hereinafter provided, in which case Employee
shall be entitled to such compensation, reimbursable expenses and benefits as
are set forth in the relevant sections of this Agreement. All references herein
to the "term" of this Agreement shall mean the original terms as such term may
have been shortened pursuant to this Agreement, except where the context
otherwise requires.
2. Duties. Employee agrees to serve the Company as its Senior Vice
President of Marketing. Employee's duties will be those of similar officers for
a company similar to the Company and such other duties as are specified by the
Board of Directors of the Company. 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 Company. Notwithstanding the foregoing, Employee shall
be permitted to serve as a director of one or more other companies, provided
1
<PAGE> 2
that such companies do not compete in any manner with the business of the
Company as now or hereafter conducted.
3. Salary and Benefits.
(a) Salary. For the first 13 months of this Agreement, Company shall
pay Employee a salary at the annual rate of $92,500 per year payable biweekly
and subject to payroll deductions as may be necessary or customary in respect of
Company's salaried employees in general. For each successive 12-month period of
this 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.
(b) Vacations. Employee shall be entitled to four weeks paid vacation
per calendar year during 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 as deemed appropriate by the
Board of Directors of the Company. Employee shall also be entitled to
participate in all annual bonus, incentive, stock option, savings and retirement
plans, practices, policies and programs applicable generally to other senior
executives 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 senior executives of the Company, including but
not limited to directors' and officers' liability insurance.
(e) 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 senior executives of the Company.
(f) 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 senior executives of the Company.
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 automatically terminate upon death or disability, as the case
may be. "Disability" shall mean any physical or mental illness that
2
<PAGE> 3
renders Employee unable to perform his agreed-upon services under this Agreement
for 180 consecutive days or an aggregate of 240 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.
Company shall also maintain a long-term disability policy covering
Employee.
5. Termination for Cause. By majority vote of the Board (with Employee
abstaining) 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 subpara-
graph (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.
3
<PAGE> 4
In the event of termination for "good cause," Employee's salary hereunder
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. If 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 this Agreement plus a continuation of the disability and
health insurance policies provided for in this Agreement.
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 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
4
<PAGE> 5
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, any 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
5
<PAGE> 6
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 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 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 MIGHT 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.
/s/ JEFF WALDEN By: /s/ ROBERT TRACHT
- ---------------------------- ----------------------------
Jeff Walden Robert Tracht
President and
Chief Operating 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
6
<PAGE> 7
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
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.
7
<PAGE> 8
12.8 Effectiveness of this Agreement. This Agreement shall not be
binding upon the parties and shall be void and of no effect in the event the
closing of the Company's IPO has not occurred on or before October 1, 1997.
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/ JEFF WALDEN By: /s/ ROBERT TRACHT
- ---------------------------- ----------------------------
Jeff Walden Robert Tracht
President and
Chief Operating Officer
Address: 60 W. Blue Ridge
P.O. Box 158
Tropic, Utah 84776
8
<PAGE> 1
EXHIBIT 10.6
ON'VILLAGE COMMUNICATIONS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of
__________, 1997 by and between On'Village Communications, Inc., a California
corporation (the "Company") and ____________________, a director and/or officer
of the Company (the "Indemnitee").
RECITALS
A. The Company and the Indemnitee recognize that the present state of the
law is too uncertain to provide the Company's directors and officers with
adequate and reliable advance knowledge or guidance with respect to the legal
risks and potential liabilities to which they may become personally exposed as a
result of performing their duties for the Company;
B. The Company and the Indemnitee are aware of the growth in the number
of lawsuits filed against corporate directors and officers in connection with
their activities in such capacities and by reason of their status as such;
C. The Company and the Indemnitee recognize that the cost of defending
against such lawsuits, whether or not meritorious, is often beyond the financial
resources of most directors and officers of the Company;
D. The Company and the Indemnitee recognize that the legal risks and
potential liabilities, and the threat thereof, associated with proceedings filed
against the directors and officers of the Company bear no reasonable
relationship to the amount of compensation received by the Company's directors
and officers;
E. The Company, after reasonable investigation prior to the date hereof,
has determined that the liability insurance coverage available to the Company as
of the date hereof is inadequate, unreasonably expensive or both. The Company
believes, therefore, that the interest of the Company's shareholders would be
best served by a combination of (i) such liability insurance as the Company may
reasonably obtain pursuant to the Company's obligations hereunder and (ii) a
contract with its directors and officers, including the Indemnitee, to indemnify
them to the fullest extent permitted by law (as in effect on the date hereof,
or, to the extent any amendment may expand such permitted indemnification, as
hereafter in effect) against personal liability for actions taken in the
performance of their duties to the Company;
F. The Company's Amended and Restated Bylaws authorize the
indemnification of corporate agents of the Company, subject to the limitations
set forth in Section 317 of the California Corporations Code;
G. The Board of Directors of the Company has concluded that, to retain
and attract talented and experienced individuals to serve as directors and
officers of the Company and to encourage such individuals to take the business
risks necessary for the success of the Company, it is necessary for the Company
to contractually indemnify its directors and officers to the fullest extent
permitted by law, and to assume for itself liability for expenses and damages in
connection with
1.
<PAGE> 2
claims against such directors and officers in connection with
their service to the Company, and has further concluded that the failure to
provide such contractual indemnification could result in great harm to the
Company and its shareholders;
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director and/or officer of the Company, free from undue
concern for the risks and potential liabilities associated with such services to
the Company; and
I. The Indemnitee is willing to serve, or continue to serve, the Company,
provided, and on the expressed condition, that he or she is furnished with the
indemnification provided for herein.
AGREEMENT
NOW, THEREFORE, the Company and the Indemnitee agree as follows:
1. Definitions.
(a) "Expenses" means, for the purposes of this Agreement, all direct
and indirect costs of any type or nature whatsoever (including, without
limitation, any fees and disbursements of the Indemnitee's counsel, accountants
and other experts and other out-of-pocket costs) actually and reasonably
incurred by the Indemnitee in connection with the investigation, preparation,
defense or appeal of a Proceeding; provided, however, that Expenses shall not
include judgments, fines, penalties or amounts paid in settlement of a
Proceeding.
(b) "Proceeding" means, for the purposes of this Agreement, any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (including an action brought by or in the right
of the Company) in which the Indemnitee may be or may have been involved as a
party or otherwise, by reason of the fact that the Indemnitee is or was a
director and/or officer of the Company, by reason of any action taken by him or
her or of any inaction on his or her part while acting as such director and/or
officer or by reason of the fact that he or she is or was serving at the request
of the Company as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director and/or officer of the foreign or domestic corporation or
association which was a predecessor to the Company or of another enterprise at
the request of such predecessor whether or not he or she is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided under this Agreement.
2. Agreement to Serve. In consideration of the protection afforded by
this Agreement, if the Indemnitee is a director, he or she agrees to serve to
the best of his or her abilities until the earlier of (i) the time when the
Indemnitee fails to be reelected to the Board and qualified or (ii) such time as
he or she tenders his or her resignation in writing. If the Indemnitee is an
officer, he or she agrees to serve to the best of his or her abilities at the
will of the Company or under separate contract, if such contract exists, for so
long as the Indemnitee is duly appointed or employed or until such time as he or
she tenders his or her resignation in writing. Nothing contained in this
Agreement is intended to create in the Indemnitee any right to continued
employment or any requirement of a continuing relationship.
2.
<PAGE> 3
3. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify the
Indemnitee against Expenses, judgments, fines, penalties or amounts paid in
settlement actually and reasonably incurred by the Indemnitee in connection with
a Proceeding (other than a Proceeding by or in the right of the Company) if the
Indemnitee acted in good faith and in a manner the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
the Indemnitee's conduct was unlawful. The termination of any Proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the Indemnitee
did not act in good faith and in a manner which the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal Proceeding, had reasonable cause to believe that the
Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify the Indemnitee against Expenses and amounts paid in settlement,
actually and reasonably incurred by the Indemnitee in connection with a
Proceeding by or in the right of the Company to procure a judgment in its favor
if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company and its
shareholders. Notwithstanding the foregoing, no indemnification shall be made in
respect of any claim, issue or matter as to which the Indemnitee shall have been
adjudged liable to the Company in the performance of the Indemnitee's duty to
the Company and its shareholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, the Indemnitee
is fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine proper.
(c) Scope. Notwithstanding any other provision of this Agreement, the
Company shall indemnify the Indemnitee to the fullest extent permitted by law,
notwithstanding that such indemnification is not specifically authorized by
other provisions of this Agreement, the Company's Articles of Incorporation, the
Company's Bylaws or by statute.
4. Determination of Right to Indemnification. Upon receipt of a written
claim addressed to the Board of Directors for indemnification pursuant to
Section 3, the Company shall indemnify the Indemnitee with respect to such
written claim to the full extent permitted by law and in the manner specified by
Section 317 of the California Corporation Code. If a claim under Section 3 is
not paid in full by the Company within thirty (30) days after such written claim
has been received by the Company, the Indemnitee may at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim and,
unless such action is dismissed by the court as frivolous or brought in bad
faith, the Indemnitee shall be entitled to be paid the expense of prosecuting
such claim. Neither the failure of the Company (including its Board of
Directors, independent legal counsel, or its shareholders) to make a
determination prior to the commencement of such action that indemnification of
the Indemnitee is proper in the circumstances because the Indemnitee has met the
applicable standard of conduct under applicable law, nor an actual determination
by the Company (including its Board of Directors, independent legal counsel or
its shareholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct. The Company shall have the burden of proof
concerning whether the Indemnitee has or has not met the applicable standard of
conduct.
5. Advancement and Repayment of Expanses. The Expenses incurred by the
Indemnitee in defending and investigating any Proceeding shall be paid by the
Company in advance of the final disposition of such Proceeding within 30 days
after receiving from the Indemnitee the copies of
3.
<PAGE> 4
invoices presented to the Indemnitee for such Expenses, if the Indemnitee shall
provide an undertaking to the Company to repay such amount to the extent it is
ultimately determined that the Indemnitee is not entitled to indemnification. In
determining whether or not to make an advance hereunder, the ability of the
Indemnitee to repay shall not be a factor. Notwithstanding the foregoing, in a
Proceeding brought by the Company directly, in its own right (as distinguished
from an action brought derivatively or by any receiver or trustee), the Company
shall not be required to make the advances called for hereby if the Board of
Directors determines, in its sole discretion, that it does not appear that the
Indemnitee has met the standards of conduct which make it permissible under
applicable law to indemnify the Indemnitee and the advancement of Expenses would
not be in the best interests of the Company and its shareholders.
6. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification or advancement by the Company of
some or a portion of any Expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, penalties, and amounts paid in
settlement) incurred by him or her in the investigation, defense, settlement or
appeal of a Proceeding, but is not entitled to indemnification or advancement of
the total amount thereof, the Company shall nevertheless indemnify or pay
advancements to the Indemnitee for the portion of such Expenses or liabilities
to which the Indemnitee is entitled.
7. Notice to Company by the Indemnitee. The Indemnitee shall notify the
Company in writing of any matter with respect to which the Indemnitee intends to
seek indemnification hereunder as soon as reasonably practicable following the
receipt by the Indemnitee of written notice thereof, provided that any delay in
so notifying the Company shall not constitute a waiver by the Indemnitee of his
or her rights hereunder. The written notification to the Company shall be
addressed to the Board of Directors and shall include a description of the
nature of the Proceeding and the facts underlying the Proceeding and be
accompanied by copies of any documents filed with the court in which the
Proceeding is pending. In addition, the Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
the Indemnitee's power.
8. Maintenance of Liability Insurance.
(a) The Company hereby agrees that so long as the Indemnitee shall
continue to serve as a director and/or officer of the Company and thereafter so
long as the Indemnitee shall be subject to any possible Proceeding, the Company,
subject to Section 8(b), shall use its best efforts to obtain and maintain in
full force and effect directors' and officers' liability insurance ("D&O
Insurance") which provides the Indemnitee the same rights and benefits as are
accorded to the most favorably insured of the Company's directors, if the
Indemnitee is a director; or of the Company's officers, if the Indemnitee is not
a director of the Company but is an officer.
(b) Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of the Company.
(c) Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 7 hereof, the Company has D&O Insurance in effect,
the Company shall give prompt notice of the commencement of such Proceeding to
the insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or
4.
<PAGE> 5
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such Proceeding in accordance with the terms of
such policies.
9. Defense of Claim. In the event that the Company shall be obligated
under Section 5 hereof to pay the Expenses of any Proceeding against the
Indemnitee and the Company or any other person entitled to indemnification by
the Company is a party to the Proceeding, the Company shall be entitled to
assume the defense of such Proceeding, with counsel approved by the Indemnitee,
which approval shall not be unreasonably withheld, upon the delivery to the
Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by the Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to the Indemnitee under
this Agreement for any fees of counsel subsequently incurred by the Indemnitee
with respect to the same Proceeding, provided that (i) the Indemnitee shall have
the right to employ his or her counsel in any such Proceeding at the
Indemnitee's expense; and (ii) if (A) the employment of counsel by the
Indemnitee has been previously authorized by the Company, or (B) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of such defense or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
Proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.
10. Attorneys' Fees. In the event that the Indemnitee or the Company
institutes an action to enforce or interpret any terms of this Agreement, the
Company shall reimburse the Indemnitee for all of the Indemnitee's reasonable
fees and expenses in bringing and pursuing such action or defense, unless as
part of such action or defense, a court of competent jurisdiction determines
that the material assertions made by the Indemnitee as a basis for such action
or defense were not made in good faith or were frivolous.
11. Continuation of Obligations. All agreements and obligations of the
Company contained herein shall continue during the period the Indemnitee is a
director and/or officer of the Company, or is or was serving at the request of
the Company as a director, officer, fiduciary, employee or agent of a
corporation, partnership, joint venture, trust or other enterprise, and shall
continue thereafter so long as the Indemnitee shall be subject to any possible
proceeding by reason of the fact that the Indemnitee served in any capacity
referred to herein.
12. Successors and Assigns. This Agreement establishes contract rights
that shall be binding upon, and shall inure to the benefit of, the successors,
assigns, heirs and legal representatives of the parties hereto.
13. Non-exclusivity.
(a) The provisions for indemnification and advancement of expenses
set forth in this Agreement shall not be deemed to be exclusive of any other
rights that the Indemnitee may have under any provision of law, the Company's
Restated Articles of Incorporation or Amended and Restated Bylaws, the vote of
the Company's shareholders or disinterested directors, other agreements or
otherwise, both as to action in his or her official capacity and action in
another capacity while occupying his or her position as a director and/or
officer of the Company.
(b) In the event of any changes, after the date of this Agreement, in
any applicable law, statute, or rule which expand the right of a California
corporation to indemnify its officers and directors, the Indemnitee's rights and
the Company's obligations under this Agreement shall be expanded to the full
extent permitted by such changes. In the event of any changes in any applicable
law, statute or rule, which narrow the right of a California corporation to
indemnify a
5.
<PAGE> 6
director or officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder.
14. Subrogation. In the event of any payment under this Agreement by the
Company to or on behalf of the Indemnitee, the Company shall be subrogated to
the extent of such payment to all of the rights of recovery of the Indemnitee,
who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the Company effectively to bring suit to enforce such
rights.
15. Severability. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or refrain from doing any act
in violation of applicable law, rule or regulation. The Company's inability,
pursuant to court order, to perform its obligations under this Agreement or the
modification of this Agreement by any regulatory agency through administrative
action shall not constitute a breach of this Agreement. The provisions of this
Agreement shall be severable as provided in this Section 15. If this Agreement
or any portion hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Company shall nevertheless indemnify the
Indemnitee to the full extent permitted by any applicable portion of this
Agreement that shall not have been invalidated, and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its terms.
16. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California. To the extent permitted by
applicable law, the parties hereby waive any provisions of law which render any
provision of this Agreement unenforceable in any respect.
17. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
19. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
6.
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year set forth above.
ON'VILLAGE COMMUNICATIONS, INC.
By:
----------------------------------
Title:
-------------------------------
Address: 848 N. La Cienega Boulevard
Suite 206
Los Angeles, California 90069
INDEMNITEE:
- -------------------------------
(Signature)
- -------------------------------
(Address)
7.
<PAGE> 1
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
EXHIBIT 10.7
NETSCAPE COMMUNICATIONS CORPORATION
NET SEARCH PROGRAM--
DISTINGUISHED PROVIDER
OBJECTIVE: To enable users of the Netscape Navigator client software product to
find content on the Internet by providing them with access to established
Internet search and directory services.
TERMS AND CONDITIONS:
1. DISTINGUISHED PROVIDER. The entity named on the signature page
hereto is referred to in this agreement ("Agreement") as the "Distinguished
Provider" for the HTML page accessible by the public via the Internet at the
Universal Resource Locator ("URL") http://www.onvillage.com (the Page), or such
other URL, as Netscape Communications Corporation ("Netscape") may designate
from time to time in writing, which 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 ("Netscape's U.S. English-language Web
Site"). The Page may also be accessed by pressing or "clicking" on the Net
Search button of the U.S. English-language version of the Netscape Navigator.
(Netscape may, in the future, change the name of the Net Search Button. The
Page may also be accessed from other locations on Netscape's U.S.
English-language Web Site referring to the Net Search service.)
2. DISTINGUISHED PERIOD. Netscape will maintain the Distinguished
Listing (as defined below) on the Page for the following period ("Distinguished
Period"):
From: September 4, 1996
Until: March 31, 1997
(The parties may, upon mutual written agreement no less than thirty (30) days
prior to the end of the then current Distinguished Period, extend the term of
this Agreement for an additional (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. Distinguished Provider will supply Netscape with text
describing Distinguished Provider's search or directory service ("Distinguished
Text"), which shall be no more than fifty (50) words in length, and HTML and/or
GIF files, or files of such other format as may be designated from time to time
in writing by Netscape, which conform to the specifications in Exhibit A for
Distinguished Provider's search or directory service ("Distinguished Logo").
(The Distinguished Logo and Distinguished Text are herein collectively referred
to as the "Distinguished Listing.") During the Distinguished Period, Netscape
will place Distinguished Provider's name in the Distinguished Provider portion
of the Page (below the logos of any Premier Provider participating in
Netscape's Net Search Program), and the Distinguished Listing will appear in
rotation with the Distinguished Listings of the other Distinguished Providers
in the Distinguished Listing portion of the Page, as further described in
Exhibit A. Distinguished Logo (including the copyright ownership thereof), and
Distinguished Provider hereby grants Netscape a royalty-free worldwide license
to use,
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Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
display, perform, reproduce and distribute the Distinguished Listing and
Distinguished Logo, and such other licenses with respect to the Distinguished
Listing and Distinguished Logo necessary to fulfill the intention of this
Agreement. The specifications of the Distinguished Listing and Distinguished
Logo and their 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 Logo or 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 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
Logo and Distinguished Listing which conform 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 Logo or a hypertext link embedded on
the Distinguished Listing, the end user's Netscape Navigator will access
("Distinguished Link") Distinguished Provider's applicable HTML page located at
the applicable Universal Resource Locator (as supplied by Distinguished
Provider) for such page on Distinguished Provider's Web site ("Distinguished
URL").
c. Netscape will use reasonable commercial efforts to promptly
remedy any material misplacement of the Distinguished Listing or Distinguished
Logo 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 $171,666 (the "Payment") as follows:
(1) $21,666 within thirty (30) days after full
execution of this Agreement;
(2) $25,000 within thirty (30) calendar days of each
of the following days during the Distinguished Period; 10/1, 11/1, 12/1, 1/1,
2/1, 3/1 (The three-month period beginning 10/1 and ending 12/31 is referred to
herein as the "First Full Quarter", and the three-month period beginning 1/1 and
ending 3/31 is referred to as the "Second Full quarter." The period beginning
9/4 and ending 9/31 is referred to herein as the "Initial 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. Netscape with provide Distinguished Provider * * * * *
with * * * * * "Platinum Ad (Basic Service)", as such Platinum Ad is described
on Netscape's current Rate Card as of the date of this Agreement, on
Netscape's U.S. English-language Web Site, (or such
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*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
advertisement's equivalent, in Netscape's reasonable discretion) during the
Distinguished Period. The Platinum Ad shall begin on a date 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 and
Netscape shall schedule the placement of the Platinum Ad for the Distinguished
Period no later than 12/31.
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
Distinguished Provider's home page on its Web site and/or on each page of
Distinguished Provider's Web site which may be accessed directly from the home
page of Distinguished Provider's Web site 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), and Distinguished
Provider will produce the page such that when an end user presses or "clicks" on
the Netscape Now button, the end user's Internet client software will access the
applicable HTML page located at a URL supplied by Netscape. * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * Distinguished Provider will use reasonable
commercial efforts to promptly remedy any misplacement of the Netscape Now
button on its home page 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.
b. Use * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * *
c. * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
for display with those Internet
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*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
software clients capable of displaying the * * * on (i) the * * * of
Distinguished Provider's Web site, and, if different, (ii) the * * *
* * * * * * * * (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 the * * * * as high in
such directory tree structure as possible), and, where appropriate, on all
other HTML pages of Distinguished Provider's primary 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.
d. Distinguished Provider will include in the home page of
Distinguished Provider's Web site, and, if different, in the HTML page located
at the Distinguished URL a "mailto" 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.
7. Usage Reports.
a. Netscape and Distinguished Provider will each provide the
other, 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 cover the * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * and
shall be delivered within * * * * following the end of the applicable time
period. The parties may, by mutual written agreement, alter the content and
format of the Usage Reports.
b. NETSCAPE AND DISTINGUISHED PROVIDER WILL USE REASONABLE
EFFORTS TO ENSURE THE ACCURACY OF THE USAGE REPORTS, BUT NEITHER PARTY WARRANTS
THAT THE USAGE REPORTS WILL CONFORM TO ANY PUBLISHED NUMBERS AT ANY GIVEN TIME.
NEITHER PARTY SHALL BE HELD LIABLE FOR ANY CLAIMS AS THEY RELATE TO SAID 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. Distinguished Provider may
terminate this Agreement at the end of the * * * * * * or * * * * * *
by providing notice to Netscape no less than sixty days prior to the end of the
applicable quarter. 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 Distinguished Listing. If Netscape, in its sole discretion,
at any time determines that 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
and/or the Distinguished Logo in the Page, and/or (ii) immediately terminate
this Agreement if Distinguished Provider has not revised to Netscape's
reasonable satisfaction 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
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*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
Page any Distinguished Listing or Distinguished Logo 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 (i) the
Distinguished Listing, the Distinguished Logo, and/or (ii) * * * * * * * * *
* * * * * * * . Distinguished Provider represents and warrants that it holds
the necessary rights to permit the use of the Distinguished Text, the
Distinguished Logo, the Distinguished URL and the Distinguished Link by Netscape
for the purpose of this Agreement; and that the permitted use, reproduction,
distribution, or transmission of the Distinguished Logo, the Distinguished
Listing and any material to which users can link through the Distinguished Logo
or 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. Any notice or reports required or permitted to be given
under this Agreement shall be in English and given in writing and shall be
delivered by personal delivery, by internationally recognized express courier,
by facsimile transmission confirmed by telephone, by confirmed email, or by
certified or registered mail, postage prepaid, return receipt requested and
shall be deemed given upon personal delivery, two (2) days after deposit with
express courier, five (5) days after deposit in the mail, or upon
acknowledgment of receipt of facsimile or email. Notices shall be sent to a
party at its address set forth below or such other address as that party may
specify in writing pursuant to this Section.
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 by each party hereunder shall be deemed
5
[100296/esw]
Net Search Program - Distinguished Provider Rev. 030596
CONFIDENTIAL and PROPRIETARY [STANDARD]
<PAGE> 6
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
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 C 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. The
parties acknowledge that, with respect to the participation of Distinguished
Provider in the Net Search Program during the Distinguished Period described
herein, this Agreement shall supersede any agreement between Netscape and
Distinguished Provider regarding Distinguished Provider's participation in any
comparable program for any period prior to the commencement of the
Distinguished Period described herein. 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 NETSCAPE COMMUNICATIONS
- ----------------------------- CORPORATION
By: /s/ ROBERT D. TRACHT By: /s/ BARBARA J. GORE
------------------------- -------------------------
Print Name: Robert D. Tracht Print Name: Barbara J. Gore
----------------- -----------------
Title: President Title: Publisher
---------------------- ----------------------
Date: 12/20/96 Date: 12/22/96
---------------------- ----------------------
6
[100296/esw]
Net Search Program - Distinguished Provider Rev.030596
CONFIDENTIAL and PROPRIETARY [STANDARD]
<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:
ON'VILLAGE COMMUNICATIONS 501 East Middlefield Road
- ---------------------------------
848 N. LA CIENEGA BLVD., #206 Mountain View, CA 94043
- ---------------------------------
LOS ANGELES, CA 90069
- ---------------------------------
Attention: JACK TRACHT Attention: Barbara Gore
----------------------
Facsimile: 310 659-4717 Facsimile: (415) 428-4070
- ---------------------------------
Email: [email protected] Email: [email protected]
7
[100296/esw]
Net Search Program - Distinguished Provider Rev.030596
CONFIDENTIAL and PROPRIETARY [STANDARD]
<PAGE> 8
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
EXHIBIT A
[NETSCAPE LOGO] DESTINATIONS
NET SEARCH
[PICTURE]
To select a Search Sampler, click on one of the names below.
EXCITE YAHOO INFOSEEK LYCOS MAGELLAN
[YAHOO! LOGO] Search
SITE SAMPLE Got Yahoo! - News Headlines -Sports News/Scores -
Stock Quotes - Net Events
Click on this icon to
keep a Site Sampler o ARTS o GOVERNMENT o MUSIC o SCIENCE
on your desktop for o BUSINESS o HEALTH o NEWS o SOCIETY
quick searches. o COMPUTERS o INTERNET o RECREATION o SPORTS
Note: This feature o EDUCATION o INVESTING o REFERENCE o TRAVEL
works best with o ENTERTAINMENT o MOVIES o REGIONAL o WEATHER
Netscape Navigator
3.0. My Yahoo! - Yahoo! L.A. - Yahoo! SF Bay
Yahooligans! for Kids - Yahoo! Japan - Yahoo! Canada
Download
Navigator 3.0 now.
WHY? WorldNet
(are you paying for every [AT&T LOGO] Service
hour you spend on the Web?)
<TABLE>
<S> <C> <C> <C> <C>
OTHER SERVICES: INFOSEEK LYCOS MAGELLAN
More great search and EXCITE YAHOO! OPENTEXT INDEX [MAGELLAN LOGO]
directory services are THE ELECTRIC SHAREWARE.COM ACCUFIND
listed here. Each of LIBRARY HOTBOT 100HOT WEB SITES Magellan,
these sites uses a ALTAVISTA DISINFORMATION BIGBOOK Home of the Green
unique technology to IBM INFOMARKET WHOWHERE? ON'VILLAGE Light Sites.
find what you're FOUR11 BIGFOOT
looking for. GTE
SUPERPAGES
</TABLE>
SEARCH CATEGORIES: WEB GUIDES Search or browse categorized sites with
Don't miss the these Web guides.
additional search and
directory companies SPECIALIZED GUIDES Find a home or a piece of
included in these shareware with these topic-specific sites.
categories. For
example, real GLOBAL SEARCH These tools will conduct a Web-wide
information junkies search for a single word.
can find newsgroup
topic of their WHITE PAGES Online whitepages to help locate people
choice in Newsgroups. on the Internet.
YELLOW PAGES Searchable listings for businesses and
services in the U.S.
NEWSGROUPS Find a newsgroup on any topic with these
guides to ongoing online discussions.
<PAGE> 9
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
Destinations French / German / Italian
Japanese / Spanish
go
If this feature does not seem to be working, you should download the JavaScript
Enabled Netscape Navigator.
NETSCAPE DOWNLOAD CUSTOMER TECHNICAL SEARCH & WEB SITE
HOME SOFTWARE SERVICE SUPPORT CONTENTS ADVERTISING
Corporate Sales: 415/937-2555; Personal Sales: 415/937-3777;
Federal Sales: 415/937-3678
If you have any questions, please visit Customer Service
Copyright (c) 1996 Netscape Communications Corporation
<PAGE> 10
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
EXHIBIT B
OF THE NET SEARCH
AND NET DIRECTORY DISTINGUISHED PROVIDER AGREEMENT
Within fifteen (15) days following the end of each month of the Distinguished
Period, Distinguished Provider will provide Netscape with a report that shows
(1) the * * * * * * * * * * *
(2) the * * * * * * * * * * *(1).
Sample Usage Statistics Report for Distinguished Provider by Netscape --
Date: * * * * *
Date Impressions
* * * * * *
<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> 1
EXHIBIT 10.8
October 24, 1995
LETTER OF AGREEMENT BETWEEN
e. ventures, Los Angeles, Ca. and Network Publishing, Inc., Provo, Ut.
THE FOLLOWING POINTS HAVE BEEN AGREED UPON BY THE ABOVE
COMPANIES INVOLVED IN AN INTERNET YELLOW PAGES PROJECT:
o from the day Network Publishing receives database from e. ventures each
company agrees to work diligently for a minimum period of one year to make this
project successful.
o based upon meeting it's one-year requirement Network Publishing will receive
an annuity where it will obtain one percent of e. ventures revenues in the
future even if Network Publishing chooses no longer to continue providing
"services", and e. ventures will continue to use the credit - "developed in
association with Network Publishing, Inc., a Compuserve company".
o after the one-year period each company will give a minimum 90 days notice to
the other company before terminating this agreement.
o e. ventures will be responsible for editorial content, databases, marketing,
selling and promoting for a Yellow Pages product. Additional, e. ventures will
provide those administrative and customer service functions necessary to
support sales people, advertisers and end users.
o Network Publishing will be responsible for the "services" of building and
maintaining, in a timely manner, databases and content provided by e. ventures.
This activity includes the building of software programs which support a search
engine and other functions of this Internet service.
o e. ventures will make advances against future earned revenue to Network
Publishing for the purpose of additional hardware purchases. Advances will be
based on a mutually agreed need for additional hardware and upon meeting
proposed sales plan.
p. 1 of 3
<PAGE> 2
o e. ventures will develop its own trademarks and copyrights for the Yellow
Pages project, as well as various other trademarks and copyrights to be used as
part of the project.
o Network Publishing will receive a percentage of revenues for their on going
"services" for the project. (see attached page 3 of 3)
o e. ventures will own the database and all software developed for use in the
project, once Network Publishing has received either a percentage of revenues
or cash payment to the costs incurred in their development of the database and
software. Although if this agreement is terminated by Network Publishing, e.
ventures will still receive the database and software, but will not be
responsible for covering those development costs.
o Each Web Page developed will carry the copyrights of:
1995 e. ventures, Inc.,
developed in association with Network Publishing, Inc.,
a Compuserve company.
o e. ventures is in the Incorporation process in the State of California, and
all agreements, liabilities, etc. will be assigned to the new Corporation.
o name Robert Tracht
--------------------------
o signature /s/ Robert Tracht
--------------------------
o company e. ventures
--------------------------
o date 10/30/95
--------------------------
o name [SIG]
__________________________
o signature [SIG]
--------------------------
o company Network Publishing, Inc.
--------------------------
o date 11/1/95
--------------------------
p. 2 of 3
<PAGE> 3
GRADUATED PAYMENT PLAN TO NETWORK PUBLISHING, INC.
===============================================================================
PERCENTAGE LEVELS BASED ON REVENUE
5% to $7,499,999
6% $7,499,999 - $9,499,999
7% $9,499,999 - $12,499,999
7.5% $12,500,000+
===============================================================================
<TABLE>
<CAPTION>
$ VOLUME 5% 6% 7% 7.50%
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WORST CASE $3,425,000 $171,250
- ---------------------------------------------
OK CASE $5,000,000 $250,000
- ------------------------------------------
$6,000,000 $300,000
- ---------------------------------------------
PLAN $7,600,000 $456,000
- ------------------------------------------------------------
$10,000,000 $700,000
-----------------------------------------------------------
$12,500,000 $937,500
----------------------------------------------------------------------------
2ND YEAR PLAN $25,000,000 $1,875,000
- ---------------------------------------------------------------------------------------------
3RD YEAR PLAN $50,000,000 $3,750,000
- ---------------------------------------------------------------------------------------------
</TABLE>
PAYMENTS ARE MADE MONTHLY ON INVOICES PAID IN THE PREVIOUS MONTH
p. 3 of 3
<PAGE> 1
EXHIBIT 10.9
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
LICENSE AGREEMENT
This AGREEMENT dated December 1, 1995 between Pro CD, Inc. (Pro CD) located at
222 Rosewood Drive, Danvers, MA 01923-4520 and e. Ventures, Inc. (e. ventures)
located at 848 North La Cienega Boulevard, Suite 206, Los Angeles, CA 90069,
provides for the following:
DEFINITIONS
"Information" shall mean the names, addresses, phone numbers and other
information or materials provided to e. ventures by Pro CD under the terms of
this Agreement.
"Value Added File Resale" shall mean the use of Pro CD data and technology as a
component for an e. ventures product and service.
"Project" shall be defined as an internet service utilizing the information as
the backbone of the internet yellow pages component of the service focused on
helping consumers access information and advertising about companies. The use
of the information shall be limited to display in a directory format and shall
not be resold or made available for resale or reuse in any other context by
end-users. Final form of end-user license is subject to Pro CD review and
approval and license shall be for personal and recreational use only.
RESPONSIBILITIES
Pro CD Shall provide Business telephone directory information derived
from Phone Book Listings in the USA. Pro CD will be responsible
for providing and maintaining, on a quarterly basis, the U.S.
business listing necessary to support the e. ventures online
Internet project, "ON VILLAGE", hereinafter to be referred to as
the "Project". These activities include the submission of this
data to e. ventures on 4 mm DAT tape and the quarterly updating
of this data.
Specifically to include:
--Business Name
--Street Address (when available)
--City, State and Zip code and ZIP plus four
when available
--Publish date of phone book
--SIC code (on Yellow Page listings)
--Phone Numbers
An initial file of 15 million or more records will be provided
on 4 mm DAT tape with quarterly updates.
Pro CD will apprise e. ventures of their methods used for data
collection, their quality control standards, and will guarantee
to e. ventures their maintenance of those quality standards.
e. ventures Will be marketing, selling and promoting the project, which will
derive revenue from sales of advertising. Additionally, e.
ventures will provide those administrative and customer service
functions necessary to support sales people, advertisers and end
users for the Project as e. ventures shall determine
appropriate.
e. ventures will have rights to the unlimited use of the Pro CD
database for different online functions as it relates to the
Project only, although not including the resale of these
databases.
<PAGE> 2
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
LICENSE AGREEMENT
PAGE TWO
e. ventures will develop its own trademarks and copyrights for
this Project, as well as various other trademarks and copyrights
to be used as part of the Project.
Each web page developed for the yellow page based listings
directory will state:
Data provided by Pro CD, Inc. (This will not include
advertisers who pay for their own web pages.)
e. ventures will provide 50 electronic advertising billboards
free of charge to Pro CD while specified advertising categories
are still available or unsold to advertisers.
e. ventures will allow Pro CD to use e. ventures' consumer
database strictly for the purpose of selling Pro CD's CD-ROM
products, but Pro CD will not resell the database or use it for
any other purposes.
It is understood, from correspondence received from Network
Publishing Inc. (NPI) dated November 10, 1995, that NPI will be
maintaining the Pro CD database of approximately 15 million business
directory listings for e. ventures. It is also understood within the
terms of this contract, that NPI understands and agrees that it will
have no license rights to use or ownership of the said database provided
by Pro CD to e. ventures, and that the only rights granted by Pro CD
will be to e. ventures and pursuant to the license agreement between Pro
CD and e. ventures. (Correspondence from NPI attached to end of
agreement.)
RESTRICTIONS
The Information will be sold only as a component of the e. ventures Internet
Project to be marketed and supported by e. ventures.
e. ventures shall not use the Information as part of any CD-ROM product or
resell the data or technology in any way except as a component of this specific
Internet Project.
e. ventures will not knowingly allow its customers to use the Information as
part of any interactive on-line, CD-ROM, or as part of any derivative product.
e. ventures will establish reasonable precautions to prevent such unauthorized
use, provided, however, e. ventures shall not be in breach of this agreement
provided it reports to Pro CD any unauthorized use which it becomes aware of
and reasonably cooperates with Pro CD to prevent any further unauthorized use.
A statement regarding copyright and unauthorized use will be included in the
"legal" section of the Internet Project.
The Information is only to be licensed to e. ventures, and neither e. ventures
nor its customers shall have the right to distribute the Information, or any
subset thereof as part of the Project as described in this agreement.
<PAGE> 3
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b) (4)
200.83 and
230.406
LICENSE AGREEMENT
PAGE THREE
E. Ventures will have the following options regarding screen display and
downloading:
e. ventures will limit the number of records to be displayed to twenty
per screen. e. ventures will limit the number of records to be
downloaded to twenty per screen,
or
e. ventures will allow 500 records to be displayed and downloaded, but
these records will exclude phone number and zip code. When the
advertising sold for a category exceeds 500 all advertisers will be
allowed to be displayed. In either instance, a viewer will be able to
see a full record (business name, street address, city, state, zip code,
category heading/SIC code, area code and phone number), but only one
record at a time.
If e. ventures violates any of these restrictions, Pro CD shall give written
notice thereof to e. ventures. In the event e. ventures does not cure the
violation within thirty (30) days, Pro CD may by further written notice
terminate this agreement upon not less than thirty (30) days prior notice. In
the event of termination of this agreement, e. ventures will return all 4 mm DAT
tapes to Pro CD immediately and erase all telephone directory listings which
were derived from Pro CD databases within forty-five (45) days after
termination.
FINANCIAL
e. ventures shall pay Pro CD an annual minimum royalty of $ * , or * % of
net advertising revenues for the Project, whichever is greater. Net advertising
revenues refers to gross advertising revenues less trade discounts,
chargebacks, and account receivable bad debts from the Project. Net
advertising revenues shall be defined as strictly those revenues derived from
the sale of advertising space for the Project. The following payment schedule
will be applied for the contract year 1996 which will begin February 1st:
A one time $ * payment immediately upon the execution of this
contract.
$ * or * % of cumulative net advertising revenues, for the months
of December 1995 through July 1996, whichever number is greater
will be due on August 1, 1996.
$ * or * % of cumulative net advertising revenues for the months of
August, September, and October, whichever number is greater will
be due November 1, 1996.
The following payment schedule will be applied for contract years 1997 through
2000:
$ * or * % of cumulative net advertising revenues for the months of
November, December, and January, whichever number is greater
will be due February 1st.
$ * or * % of cumulative net advertising revenues for the months of
February, March, and April, whichever number is greater will
be due May 1.
$ * or * % of cumulative net advertising revenues for the months of
May, June, and July, whichever number is greater will
be due August 1.
$ * or * % of cumulative net advertising revenues for the months of
August, September, and October, whichever number is greater will
be due November 1.
The last payment made to Pro CD in terms of this agreement, will be
$ * or * % of cumulative net advertising revenues for the
months of November, December, and January, whichever is greater
and will be paid on February 1, 2001.
<PAGE> 4
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b) (4)
200.83 and
230.406
LICENSE AGREEMENT
PAGE FOUR
e. ventures shall reconcile and make payment to Pro CD quarterly by the last day
of the calendar month following each quarter. e. ventures will pay the
quarterly minimum amount each quarter. Royalties that would be due based
upon * % of actual net revenues will be credited against such quarterly
minimum amounts, on a cumulative basis, so that royalties in excess of the
quarterly minimum payment will become payable once the cumulative actual-revenue
royalty exceeds the cumulative quarterly minimums. To the extent any quarterly
payment exceeds the minimum quarterly amount, such excess may be carried
forward and credited against any subsequent quarter's minimum during the same
calendar year.
Pro CD shall have the right, to be exercised not more than twice per calendar
year and after not less than five (5) working days prior written notice to e.
ventures, to examine and copy the books, records and accounts of e. ventures
relating to e. ventures' sale or license of the Database for the Project, for
the sole purpose of verifying proper payment to Pro CD hereunder. e. ventures
shall keep such books and records as necessary to establish Customer
identities and advertising revenue details and the royalty payments due to Pro
CD hereunder. The entire direct cost and expenses for the inspection set forth
in this section shall be borne by Pro CD.
CONFIDENTIALITY
All information regarding e. ventures' business received or derived in any form
as a result of such examinations and this agreement shall be considered to be e.
ventures' confidential information, shall be held in confidence and is subject
to the confidentiality provisions herein contained. Such information may not be
used by Pro CD, or any of its employees or agents, during the Term of this
Agreement or thereafter, for any purpose except to verify that it has received
proper payment under this Agreement, and may not during the Term of this
Agreement or thereafter, be disclosed to any third party for any purpose
whatsoever.
All information regarding Pro CD's business received or derived in any form as
a result of this agreement shall be considered to be Pro CD's confidential
information, shall be held in confidence and is subject to the confidentiality
provisions herein contained. Such information may not be used by e. ventures,
or any of its employees or agents, during the Term of this Agreement or
thereafter, for any purpose, and may not during the Term of this Agreement or
thereafter, be disclosed to any third party for any purpose whatsoever.
TERM
This license agreement will be for the duration of five (5) years. e. ventures
reserves the right to terminate this agreement beginning with the beginning of
year two by giving notice thirty (30) days prior to the end of the existing
year. Pro CD reserves the right to terminate this Agreement on or after
January, 1, 1998 by giving six (6) months prior written notice if it becomes
unable to, or if it becomes impractical to continue to supply the data. Each
part must inform the other in writing of their intention regarding extension of
the existing agreement 180 days prior to the end of the fifth year.
During this term e. ventures agrees not to acquire or provide any other
vendor's U.S. yellow pages database in addition to the one provided by Pro CD
during the five (5) year period as long as Pro CD continues to provide
quarterly updates of the database to e. ventures. Pro CD will provide updated
U.S. business phone directory listings within (6) months of the publication
date of any U.S. published phone directory. If e. ventures finds an area with
data older then eighteen months old from the listed publication date, e.
ventures shall notify Pro CD in writing and Pro CD will update that area within
six (6) months or Pro CD will provide a reasonable explanation for not updating
the database.
<PAGE> 5
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
LICENSE AGREEMENT
PAGE FIVE
LIMITED WARRANTY ON MEDIA
Pro CD warrants the 4 mm DAT tapes on which the Software and Listings are
recorded to be free from defects in materials and workmanship under normal use
for a period of ninety (90) days from the date of delivery. Pro CD's entire
liability and e. ventures' exclusive remedy will be the replacement of the 4 mm
DAT tapes not meeting Pro CD's limited warranty and which are returned to Pro
CD. Pro CD will have the responsibility to provide the data as they are
obligated by this agreement and in the event of problems with their product,
they will take reasonable measures to correct them. e. ventures will be
responsible for the cost of replacing all 4 mm DAT tapes damaged by accident,
abuse or misapplication by e. ventures at a cost of $100 per tape. PRO CD
WARRANTS THAT THE PRODUCT WILL OPERATE IN AN ERROR FREE MANNER. EXCEPT AS
PROVIDED ABOVE, PRO CD MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, WITH RESPECT TO THE PRODUCT, INCLUDING ITS QUALITY, PERFORMANCE,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE WARRANTY SET FORTH
ABOVE IS EXCLUSIVE AND IN LIEU OF ALL OTHERS, ORAL, WRITTEN, EXPRESS OR
IMPLIED. NO PRO CD DEALER, DISTRIBUTOR, AGENT OR EMPLOYEE IS AUTHORIZED TO MAKE
ANY MODIFICATIONS OR ADDITION TO THIS WARRANTY. IN NO EVENT WILL PRO CD BE
LIABLE FOR DIRECT, INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE THE PRODUCT,
WHETHER BASED UPON CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SPECIFICALLY, PRO CD IS NOT
RESPONSIBLE FOR ANY COSTS, INCLUDING BUT NOT LIMITED TO, THOSE INCURRED AS THE
RESULT OF LOST PROFITS OR REVENUE, LOSS OF USE OF YOUR COMPUTER, LOSS OF DATA,
THE COST OF RECOVERING SUCH SYSTEMS OR DATA, THE COST OF ANY SUBSTITUTE
PROGRAMS OR DATA, CLAIMS BY THIRD PARTIES, OR FOR OTHER SIMILAR COSTS.
INDEMNIFICATION
A. Pro CD will, at its expense, indemnify and defend (e. ventures), Licensee
against any claim or action brought against Licensee based on, as a result of,
or in connection with: (1) any claim that any material and/or information
furnished hereunder by Pro CD and used within the scope of this Agreement by
Licensee infringes any patent, copyright, or other rights of any third party.
Pro CD will pay any costs, damages, attorneys fees awarded against or incurred
by Licensee with respect to any such claim or action, provided that Licensee
notifies Pro CD promptly and in writing of such claim or action and permits Pro
CD to participate fully in the defense and/or settlement thereof.
B. Licensee will at its expense indemnify and defend Pro CD against any claim
or action brought against Pro CD based on, as a result of, or in connection
with: (1) any claim that Licensee hardware and/or software, or representations
of by Licensee representatives caused damage to any third parties and
Licensee will pay any costs, damages, attorneys fees awarded against or
incurred by Pro CD with respect to any such claim or action, provided Pro CD
notifies Licensee promptly and in writing of such claim or action and permits
Licensee to participate fully in the defense and/or settlement thereof.
C. Except as described in A and B, immediately above, neither party hereto
shall be liable to the other party for special, incidental, exemplary, punitive
or consequential damages even if advised of the possibility thereof.
<PAGE> 6
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b) (4)
200.83 and
230.406
LICENSE AGREEMENT
PAGE SIX
FORCE MAJEURE
Neither party shall be liable or be deemed to be in default for a delay or
failure in performance under this Agreement due to an act of God, an act of
civil or military authority, fire, labor dispute, flood, epidemic, war, riot, or
any other act beyond the reasonable control of that party. If any force majeure
condition occurs, the party not affected by the force majeure condition (the
"Performing Party") shall receive immediate notice from the party affected by
the force majeure condition (the "Non-Performing Party"). In the event that a
force majeure condition exists for thirty (30) continuous days, the Performing
Party shall have the right to terminate this Agreement on not less than ten
(10) days' written notice to the Non-Performing Party. In the event that the
Non-Performing Party is Pro CD, then e. ventures will have the right (but not
the obligation) to continue to use the information without any further Updates.
In all events (i.e., whether or not e. Ventures elects to terminate the
Agreement or chooses to continue for the term of the Agreement), the quarterly
minimum payments and royalties shall be reduced, retroactive to the first day
of the force majeure condition, as a function of time (i.e. on a basis which
recognizes that, the longer the data exists without an Update, the less it is
worth to e. Ventures), to new levels which shall be negotiated in good faith
and fairly.
MISCELLANEOUS
This Agreement constitutes the entire agreement between the parties and
supersedes any and all other agreements, either oral or written, between e.
ventures and Pro CD with respect to the Information provided hereunder. Any
changes or modifications must be in writing and signed by both parties. No
verbal communication or other representation shall be binding or modify this
Agreement.
No waiver by either party of any provision of this License Agreement will be
effective unless made in writing and signed by an authorized representative of
e. ventures and Pro CD and shall be effective only as to the specifically stated
waiver.
Any dispute between e. ventures and Pro CD pertaining to this Agreement shall
be resolved by binding arbitration subject to the rules and procedures of the
American Arbitration Association subject to the following conditions:
(1) The site of the arbitration shall be Massachusetts.
(2) Arbitration shall commence by the written demand of any party, served upon
the other party as notice is required to be served under this Agreement.
(3) A single arbitrator selected by e. ventures and Pro CD shall conduct the
arbitration. If Agreement to the designation of an arbitrator cannot be
reached within thirty (30) days of a demand for arbitration by either party,
then the American Arbitration Association shall, pursuant to its customer
procedures, designate a member of said Association to serve as arbitrator.
(4) The arbitrator shall be bound to follow the terms of this Agreement and to
apply and follow the laws of the State of Massachusetts as they exist by
statute, court decisions and otherwise.
(5) The arbitrator shall be empowered to award attorneys fees, costs and
expenses of arbitration to any party as it deems reasonable and appropriate.
(6) Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
<PAGE> 7
*Confidential Treatment
Requested under 17 C.F.R.
Sections 200.80(b)(4)
200.83 and 230.406
LICENSE AGREEMENT
PAGE SEVEN
Pro CD shall not have the right or the power to assign this Agreement or any
part thereof to another without the prior written consent of e. ventures and
such consent shall not be unreasonably withheld.
e. ventures shall not have the right or the power to assign this Agreement or
any part thereof to another without the prior written of Pro CD and such
consent shall not be unreasonably withheld.
This Agreement shall be binding upon the successors and assigns of e ventures
and upon the successors and assigns of Pro CD.
Wherever possible, each provision of this Agreement will be interpreted in such
a manner and to such an extent as to be effective and valid under applicable
law. If any provision is prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of such prohibition or
invalidity.
No right or remedy set forth in this Agreement is exclusive of any other right
or remedy but shall be in addition to every other right and remedy given under
this Agreement or existing now or hereafter at law or equity.
I have read and agree to all the terms, conditions, restrictions and fees of
this Agreement.
Agreed and Accepted:
Pro CD, Inc. e. ventures, Inc.
/s/ GREG ANDREWS /s/ JACK TRACHT
- ------------------------------- -------------------------------
Signature Signature
Chief Financial Officer Vice President
- ------------------------------- -------------------------------
Title Title
12/6/95 12/6/95
- ------------------------------- -------------------------------
Date Date
<PAGE> 1
EXHIBIT 10.10
- -------------------------------------------------------------------------------
ON'VILLAGE Communications
848 N. La Cienega Blvd., Ste. 206
Los Angeles, CA 90069
Tel: 310.652.8850 / Fax: 310.659.4717
www.onvillage.com
- -------------------------------------------------------------------------------
ON'VILLAGE publishes and maintains a premier online Internet national yellow
pages directory and related services for businesses and end users.
Reseller is engaged in the business of publishing specialized and localized
print yellow pages and related advertising sales through its own sales force
and desires to procure ON'VILLAGE Internet products for resale to Reseller's
advertising customers as hereinafter provided.
-----------------------------
QUANTITY RESELLER
COST
- -------------------------------------------------------------
QuickStart product as attached -$0-
--------------
all additional -$ -
- -------------------------------------------------------------
- -------------------------------------------------------------------------------
Reseller agrees to pay for additional ON'VILLAGE products, including Quick
Start Products, within 30 days of posting to the ON'VILLAGE database.
- -------------------------------------------------------------------------------
Term of this agreement is for 12 months from date of signing. Reseller agrees to
bundle _____ QuickStart ads with an equal number of Reseller's print ads for
Reseller's advertisers at no cost for the first year. All _____ QuickStart
Products must be used by Reseller within the term of this agreement for
Reseller's customer from date of signing.
QuickStart product for Reseller's customer is for a period of 12 months from
date of posting to ON'VILLAGE database.
For option to renew up to ______ QuickStart products at $__ with 90 days prior
written notice, circle option years requested. 1998 1999
Reseller agrees it will not represent or sell the products of any other online
or Internet based yellow pages or similar directory or Internet web services and
will give ON'VILLAGE their best efforts to sell additional ON'VILLAGE products.
ON'VILLAGE shall provide reasonable support to Reseller regarding the
ON'VILLAGE Products, marketing methods and sales support to assist Reseller in
properly selling the ON'VILLAGE Products. ON'VILLAGE will provide training in
the proper use of ON'VILLAGE software for the inputting of data and Web pages
in the ON'VILLAGE system, including support materials. ON'VILLAGE will provide
at least one training session at Reseller's facilities within 30 days.
ON'VILLAGE agrees to provide Reseller with co-branded Web exposure, and to
provide links from the ON'VILLAGE QuickStart product to the co-branded, local
ON'VILLAGE Web page. Reseller agrees to provide at no charge to ON'VILLAGE full
display ads in each directory published by Reseller equaling a total of at
least 1 full page per directory. ON'VILLAGE shall provide camera ready artwork
to Reseller for such ads in a format consistent with Reseller's normal
requirements.
Reseller agrees to publish with each ad in its directories the INTERNET
NICKNAME (URL address) provided with a QuickStart Product to that advertiser.
Reseller agrees to include reference to ON'VILLAGE in its local advertising
campaigns that refer to Internet services and to include in any web home page
it maintains (whether or not provided by ON'VILLAGE) a link to the ON'VILLAGE
size and a search field for the ON'VILLAGE yellow pages.
Reseller may not use ON'VILLAGE's trademarks, tradenames or other symbols
without prior and written approval of ON'VILLAGE and agrees not to register any
trademarks, tradenames or symbols of ON'VILLAGE (or which are confusingly
similar to those of ON'VILLAGE).
Reseller name:------------------------- Phone:------------- Fax:---------------
Reseller address:---------------------- City:--------- State:------- Zip:------
ON'VILLAGE signature:------------------ Reseller signature:--------------------
Print name:---------------------------- Print name:----------------------------
Date signed:--------------------------- Date signed:---------------------------
<PAGE> 2
ON'VILLAGE MAKES NO WARRANTIES HEREUNDER, EITHER EXPRESS OR IMPLIED (INCLUDING
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ON'VILLAGE
DOES NOT REPRESENT OR WARRANT THAT ITS SERVICES WILL BE UNINTERRUPTED OR
ERROR-FREE, AND THE PARTIES UNDERSTAND AND ACKNOWLEDGE THAT FOR MAINTENANCE
PURPOSES OR FOR OTHER CAUSE WHETHER INTENTIONAL OR ACCIDENTAL THE WEB SITE AND
DATABASE MAINTAINED BY ON'VILLAGE MAY BE INACCESSIBLE OR UNUSABLE FROM TIME TO
TIME.
IN NO EVENT SHALL ON'VILLAGE BE LIABLE TO RESELLER OR TO ANY END-USER FOR LOSS
OF PROFITS, LOSS OF BUSINESS, LOSS OF DATA, INDIRECT, INCIDENTAL, SPECIAL,
CONSEQUENTIAL OR OTHER SIMILAR DAMAGES ARISING OUT OF THE FAILURE OF ON'VILLAGE
TO MEET ITS OBLIGATIONS UNDER THIS AGREEMENT.
In the event a customer's advertising data in the ON'VILLAGE system contains
errors or omissions, Reseller shall input the correct or additional data, but
upon receipt of written notice from Reseller or the customer, ON'VILLAGE will
take reasonable steps to correct such errors or omissions.
This Agreement has been entered into with Reseller on the basis of ON'VILLAGE's
investigation of Reseller's own abilities, and may not be assigned, transferred
or encumbered by Reseller without the prior written consent of ON'VILLAGE,
which ON'VILLAGE shall not unreasonably withhold in the case of a sale of all
or a substantial part of Reseller's business. Any assignment or transfer made
without consent shall be null and void and unenforceable against ON'VILLAGE.
Reseller is not an employee of ON'VILLAGE for any purpose whatsoever, but an
independent contractor. ON'VILLAGE is interested only in the results obtained
by the Reseller, who shall have control over the manner and means of performing
under this agreement subject to the provisions herein. Reseller does not have,
nor shall it hold itself out as having, any right, power or authority to create
any contract or obligation, either express or implied, on behalf of, in the
name of, or binding upon ON'VILLAGE. Reseller shall have the right to appoint
or otherwise designate suitable employees, salespersons, or subagents, and
Reseller shall be solely responsible for their acts. ON'VILLAGE shall have no
right or authority to commit Reseller in any matter, cause or thing without the
prior written consent of Reseller.
Each party shall save the other harmless from and against and shall indemnify
the other party for any liability, loss, costs, expenses, or damages howsoever
caused by reason of any injury (whether to body or property) sustained by any
person or to any person or to property by reason of any act, neglect, default,
or omission of it or any of its agents, employees, or other representatives. If
either party is sued in any court for damages by reason of any of the acts of
the other party referred to in this section, such other party shall defend such
action (or cause the same to be defended) at its own expense and shall pay and
discharge any judgment that may be rendered in any such action; if such other
party fails or neglects to so defend said action, the party sued may defend the
same and any expenses, including reasonable attorneys' fees, which it may pay
or incur in defending said action and the amount of any judgment which it may
be required to pay shall be promptly reimbursed on demand. Except as otherwise
specifically provided in this Agreement, nothing herein is intended to nor
shall it relieve either party from liability for its own act, omission or
negligence.
In the performance of this Agreement, a party and its employees and agents may
have access to private or confidential information owned by the other party
relating to its systems, data, software, specifications, business plans, and
pricing and marketing strategies, and such information may contain proprietary
details and disclosures. All confidential information or data acquired by a
party or its employees or agents under this Agreement or in contemplation
thereof shall be and shall remain the disclosing party's exclusive property,
and the receiving party shall keep, or have its employees and agents keep, any
and all such confidential information and data confidential, and shall not
copy, publish, or disclose it to others, without the disclosing party's prior
written approval, and shall return such confidential information and data to
the disclosing party at its request. Nothing herein shall limit a party's use
or dissemination or information not actually derived from the other party or
any information that was or subsequently has been made public by the disclosing
party.
This agreement shall be subject to and shall be enforced and construed in
accordance with the laws of the State of California. If any provision of this
agreement is held to be invalid, void or unenforceable, the remainder of the
provisions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. In the event of litigation, the prevailing
party may recover court costs and reasonable attorneys' fees.
<PAGE> 1
EXHIBIT 11.1
ON'VILLAGE COMMUNICATIONS, INC.
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
<TABLE>
<CAPTION>
NOVEMBER 13, YEAR
1995 (INCEPTION) ENDED
TO DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- -----------------
<S> <C> <C>
Weighted Average Common Stock Outstanding(1).............. 311,962 352,117
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
Assumed buyback of public shares(3)..................... (739,952) (739,952)
--------- ---------
506,382 506,382
--------- ---------
Weighted Average Common Shares Outstanding................ 818,344 858,499
========= =========
</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 caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Los Angeles, California
March 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENTS OF OPERATIONS AND THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,518
<SECURITIES> 0
<RECEIVABLES> 24,006
<ALLOWANCES> 3,671
<INVENTORY> 0
<CURRENT-ASSETS> 56,441
<PP&E> 12,745
<DEPRECIATION> 1,405
<TOTAL-ASSETS> 240,786
<CURRENT-LIABILITIES> 578,744
<BONDS> 0
0
0
<COMMON> 152,940
<OTHER-SE> (490,898)
<TOTAL-LIABILITY-AND-EQUITY> 240,786
<SALES> 65,548
<TOTAL-REVENUES> 65,548
<CGS> 114,052
<TOTAL-COSTS> 114,052
<OTHER-EXPENSES> 514,281
<LOSS-PROVISION> 3,671
<INTEREST-EXPENSE> 11,667
<INCOME-PRETAX> (578,123)
<INCOME-TAX> 0
<INCOME-CONTINUING> (578,123)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (578,123)
<EPS-PRIMARY> (.67)
<EPS-DILUTED> (.67)
</TABLE>
