<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1997
REGISTRATION NO. 333-15129
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NUMBER 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCOOP, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7375 33-0726608
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) No.)
</TABLE>
2540 RED HILL AVE., SUITE 100
SANTA ANA, CALIFORNIA 92705
(714) 225-6000
(Address and Telephone Number
of Principal Executive Offices)
DANIEL L. PELEKOUDAS
GENERAL COUNSEL
2540 RED HILL AVE., SUITE 100
SANTA ANA, CALIFORNIA 92705
(714) 225-6000
(Address and Telephone Number of Agent for Service)
------------------------
COPIES TO:
WILLIAM J. CERNIUS, ESQ. STEVEN J. INSEL, ESQ.
Latham & Watkins Jeffer, Mangels, Butler & Marmaro LLP
650 Town Center Drive, 20th Floor 2121 Avenue of the Stars, 10th Floor
Costa Mesa, California 92626 Los Angeles, California 90067
(714) 540-1235 (310) 203-8080
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
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, check the following box: /X/
(CONTINUED ON NEXT PAGE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
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. / /
Pursuant to Rule 416, there are also being registered hereby such additional
indeterminate number of shares of such Common Stock as may become issuable by
reason of stock splits, stock dividends and similar adjustments as set forth in
the provisions of the Representative Warrant and the Consultant Warrants.
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
2
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two Prospectuses.
The first Prospectus forming a part of this Registration Statement is to be
used in connection with the underwritten public offering of 1,450,000 shares of
the Registrant's Common Stock (excluding 217,500 shares of Common Stock subject
to the Underwriters' over-allotment option), and immediately follows this page.
The second Prospectus forming a part of this Registration Statement is to be
used in connection with the sale from time to time by certain selling security
holders of 1,199,481 shares of Common Stock which are currently outstanding and
200,000 shares of Common Stock issuable by the Company upon exercise of the
Consultant Warrants. The second Prospectus will consist of (i) pages SS-1 and
SS-2, the front cover page and inside front cover page of the second Prospectus,
(ii) pages 3 through 57 of the first Prospectus (other than the sections
entitled "Resale of Outstanding Securities" and "Underwriting") and pages F-1
through F-15 of the first Prospectus, (iii) pages SS-3 and SS-4 (which will
appear in place of the section entitled "Resale of Outstanding Securities"),
(iv) page SS-5 (which will appear in place of the section entitled
"Underwriting") and (v) page SS-6, the back cover page of the second Prospectus.
<PAGE>
PROSPECTUS 1,450,000 SHARES
SCOOP, INC.
[SCOOP LOGO]
COMMON STOCK
--------------------
All of the shares of common stock, par value $.001 per share (the "Common
Stock"), offered hereby are being offered by Scoop, Inc. (the "Company"). Prior
to this offering (the "Offering"), there has been no public market for the
Common Stock and there can be no assurance that such a market will exist after
the Offering. The initial public offering price of the shares of Common Stock
offered hereby was determined by negotiation between the Company and Shamus
Group, Inc. (the "Representative"), as representative of the several
underwriters (the "Underwriters"). See "Underwriting" for information relating
to the determination of the initial public offering price. The Common Stock has
been approved for quotation on The Nasdaq SmallCap Market under the symbol
"SCPI."
THE COMMON STOCK IS HIGHLY SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND
"DILUTION" BEGINNING ON PAGES 8 AND 21, RESPECTIVELY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE 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>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share..................................... $4.50 $0.42 $4.08
Total(3)...................................... $6,525,000 $603,600 $5,921,400
</TABLE>
(1) Does not include (a) a non-accountable expense allowance payable to the
Representative, or (b) the value of a five-year warrant granted to the
Representative to purchase up to 145,000 shares of Common Stock at 120% of
the initial public offering price per share of Common Stock (the
"Representative Warrant"). For indemnification and contribution arrangements
with the Underwriters, see "Underwriting."
(2) Before deducting Offering expenses payable by the Company estimated at
$750,000, including the Representative's non-accountable expense allowance.
See "Underwriting."
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to an aggregate of 217,500 additional shares of Common Stock, solely to
cover over-allotments, if any. See "Underwriting." If all such shares of
Common Stock are purchased, the Total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be approximately
$7,503,800, $694,100 and $6,809,700, respectively.
The Common Stock is offered by the several Underwriters in a firm commitment
underwriting when, as and if delivered to and accepted by them and subject to
their right to withdraw, cancel or modify the Offering and reject any order in
whole or in part. It is expected that delivery of the certificates for the
shares of Common Stock will be made on or about April 14, 1997.
------------------------
[LOGO]
The date of this Prospectus is April 9, 1997
<PAGE>
[GRAPHICS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING SYNDICATE SHORT COVERING TRANSACTIONS, PENALTY BID
PROVISIONS AND OTHER SUCH TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by its independent auditors and such other periodic
reports as the Company may determine to be appropriate or as may be required by
law.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND FINANCIAL STATEMENTS AND RELATED
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED,
ALL INFORMATION IN THIS PROSPECTUS (I) REFLECTS THE MERGER OF THE COMPANY WITH
SCOOP, INC., A CALIFORNIA CORPORATION, ("SCOOP CALIFORNIA") EFFECTED IN MARCH
1997 IN ORDER TO REINCORPORATE SCOOP CALIFORNIA IN THE STATE OF DELAWARE (THE
"REINCORPORATION"), (II) REFLECTS THE 1,006.654-FOR-ONE STOCK SPLIT OF THE
COMMON STOCK EFFECTED IN MAY 1996 AND (III) ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION, THE REPRESENTATIVE WARRANT OR ANY OF THE
WARRANTS OR OPTIONS OUTSTANDING IMMEDIATELY PRIOR TO THE OFFERING. SEE
"DESCRIPTION OF CAPITAL STOCK--WARRANTS," "MANAGEMENT--STOCK INCENTIVE PLAN" AND
"UNDERWRITING." SINCE THE COMPANY WAS RECENTLY FORMED TO EFFECT THE
REINCORPORATION, REFERENCES IN THIS PROSPECTUS TO THE HISTORICAL ACTIVITIES OF
THE COMPANY ARE REFERENCES TO THE ACTIVITIES OF SCOOP CALIFORNIA AND NEWSMAKERS
INFORMATION SERVICES, INC., ITS WHOLLY-OWNED SUBSIDIARY WHICH WAS MERGED INTO
SCOOP CALIFORNIA IN NOVEMBER 1996.
THE COMPANY
Scoop, Inc. (the "Company") is in the process of developing SCOOP!, an
Internet-delivered business information service designed to enable customers to
efficiently satisfy their daily information needs. SCOOP! customers will have
access to an extensive array of well-recognized news and information sources
which the Company licenses from UMI Company ("UMI"), a wholly-owned subsidiary
of Bell & Howell Operating Company ("Bell & Howell") and one of the world's
leading aggregators of articles from newspapers, periodicals and other
information sources. SCOOP! is designed to provide users with three distinct
information tools: (i) a personalized electronic newspaper feature which
provides current information tailored to the individual user's preferences (the
"Alert" service), (ii) research tools for efficient retrieval of information
from the Company's licensed content databases and (iii) Web navigation tools for
accessing information available on the Internet's World Wide Web (the "Web").
The Company's proprietary Scoop SmartGuide-TM- ("SCOOP SMARTGUIDE")
technology, which is presently being developed, will be the foundation for the
SCOOP! business information service. The SCOOP SMARTGUIDE technology will enable
customers to structure profiles to track industry developments or obtain
information pertaining to companies, products or other topics of interest to the
customers. Based on these customer-defined profiles, the SCOOP SMARTGUIDE
technology will search a variety of dynamic databases and present customers with
customized Alert reports comprised of brief abstracts sorted in order of
relevancy. Customers will be able to skim the article abstracts, select articles
of interest and retrieve full-text versions for immediate review or storage on
their computers for later review. Customers also will be able to perform
additional research on companies or subjects of interest by searching deeper in
the Company's licensed content databases or through hyperlinks established by
the SCOOP SMARTGUIDE technology from the databases to specific information
sources, such as company home pages, publicly available on the Web.
If development is successful, the Company plans to introduce and proliferate
SCOOP! as a branded service to corporate, professional, small office/home office
("SOHO") and other users primarily through alliances with large,
well-established providers of Internet services. The Company intends to obtain
customers by accessing and attracting users from the existing customer bases of
its distribution partners. The Company believes that its partner distribution
strategy will provide the Company with a cost-effective marketing alternative to
the more capital intensive marketing programs aimed at individual users.
Although the Company has initiated discussions with several prospective
strategic distribution partners, to date there are no agreements between the
Company and any such parties. No assurances can be given that the Company will
be successful in entering into any such agreements or implementing its
distribution strategy or that the Company will be successful in its efforts to
attract and retain customers of its distribution partners. See "Risk
Factors--Dependence on Potential Strategic Distribution Partners."
3
<PAGE>
Through SCOOP! the Company will offer customers access to content from a
broad range of worldwide news and information sources, including well-recognized
publications such as THE WASHINGTON POST, FORBES, WIRED and THE NEW ENGLAND
JOURNAL OF MEDICINE. The Company anticipates that over 3,000 worldwide news and
information sources will be available through SCOOP!, including national and
regional domestic newspapers, international newspapers, magazines, financial
journals, industry journals, trade publications, general business publications,
newswires and press release services. The SCOOP! information sources will be
comprised of selections from UMI's database, which includes approximately 11
million proprietary abstracts and rights to full text and full image content
from over 7,000 newspapers, 18,000 periodicals and 1.2 million dissertations and
other materials, including company profiles. The Company expects that a
substantial portion of its news sources (e.g., newswires) will be continuously
updated, enabling SCOOP! users to obtain current information on a timely basis
through customized Alert reports.
The Company initially will derive all of its content from its license
agreement with UMI. See "Risk Factors--Dependence on UMI Content." The UMI
license agreement gives the Company the right to resell through SCOOP! the vast
majority of the "current" content (i.e., content less than six months old) which
is available for electronic distribution through UMI and its subsidiaries,
including DataTimes Corporation. The Company has limited exclusive third-party
reselling rights with respect to the distribution of certain UMI content via
specified alert-based Internet delivery systems. The Company intends to explore
additional areas for enhancing its strategic relationship with UMI, including
technology sharing, joint product development and co-marketing efforts. In
connection with entering into the UMI license agreement, the Company issued Bell
& Howell a three-year warrant to acquire a significant interest in the Company.
Under the warrant, Bell & Howell has the right to purchase 550,000 shares of
Common Stock at any time through October 1999 at prices ranging from $6.50 to
$15.00 per share and Bell & Howell may purchase up to an additional 200,000
shares of Common Stock if it exercises part of the warrant by September 1997.
See "Business--UMI Relationship," "Principal Stockholders" and "Description of
Capital Stock--Warrants."
The Company intends to initially launch an electronic mail version of the
SCOOP! information service in the summer of 1997. The Company currently plans to
launch the Internet version of SCOOP! in the fall of 1997. Following commercial
launch, the Company expects to generate revenue from SCOOP! primarily through
transaction-based fees, such as fees customers will be charged to obtain full
text versions of articles. The Company believes its transaction-based pricing
structure will encourage corporate decision makers and other professionals to
use the SCOOP! service because customers will be charged only for the
information they select to satisfy their needs. The Company may also generate
revenue in the future by selling advertising targeted to reach customers based
on their individualized search profiles. No assurance can be given that the
Company will be successful in completing development of SCOOP!, in operating the
SCOOP! service or in generating revenue from SCOOP!. Any significant failure by
the Company in developing or marketing SCOOP! in a timely manner or in operating
the SCOOP! service will have a material adverse effect on the Company's
business, results of operations and financial condition. See "Risk Factors--Lack
of Operating History; Unproven Business Strategy," "--Failure to Develop Service
or Obtain Market Acceptance," "--History of Operating Losses; Anticipation of
Continuing Losses" and "--Ability to Continue as a Going Concern."
As the Company pursues the development and marketing of SCOOP!, the Company
also intends to continue to expand and generate sales from its NewsMakers
business information product line. The NewsMakers product line promotes the
reproduction, re-use and re-sale of articles from newspapers, magazines and
on-line publications. NewsMakers products include customized media reprints,
FAMEFRAME wall displays and lucite NEWSCUBE desk displays of published articles.
NewsMakers has been the exclusive provider of reproduction and reprint services
for Investors Business Daily since August 1995 and recently entered into an
exclusive agreement to provide the same services for The Motley Fool, an
Internet-based investment-oriented publication. The Company's license agreement
with UMI also enables NewsMakers to utilize certain UMI content for media
reprints and other NewsMakers products. NewsMakers products
4
<PAGE>
generated net sales of approximately $1,395,900 during the year ended December
31, 1996, a 44.1% increase over the prior year. Currently, the Company derives
all of its sales of business information products through its NewsMakers
department. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The predecessor to the Company, Scoop California, was incorporated in
California in May 1990. The Company was incorporated in the State of Delaware on
October 11, 1996 as part of the Reincorporation. The Company's offices are
located at 2540 Red Hill Avenue, Suite 100, Santa Ana, California 92705 and its
telephone number is (714) 225-6000. The Company's Web site is accessible via
"http:// www.scoopnews.com" Information on the Company's Web site is not a part
of this Prospectus.
NewsMakers and FAMEFRAME are registered trademarks of the Company. SCOOP!,
SCOOP SMARTGUIDE, SCOOP INFORMATION SERVICES, the SCOOP logo, MEDIAALERT, HEALTH
ALERT, and NEWSCUBE are also trademarks of the Company. All other company or
product names included in this Prospectus are trademarks or registered
trademarks of their respective owners.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 1,450,000 shares
Common Stock Outstanding After the
Offering................................... 5,202,497 shares (1)
Use of Proceeds by the Company............... For working capital and other general
corporate purposes including product
development, sales and marketing expenses,
repayment of debt, capital expenditures,
initiation of SCOOP! operations center and to
fund anticipated operating losses.
Nasdaq SmallCap Symbol....................... SCPI
Risk Factors................................. An investment in the Common Stock is highly
speculative and involves a high degree of
risk and immediate substantial dilution. The
Company has a history of operating losses and
anticipates continuing losses. See "Risk
Factors" and "Dilution."
Common Stock Being Registered for the Account
of Selling Security Holders................ 1,199,481 shares of outstanding Common Stock
and 200,000 shares of Common Stock issuable
by the Company upon the exercise of warrants
issued to certain consultants of the Company
(the "Consultant Warrants") are being
registered and may be sold by certain selling
security holders (the "Selling Security
Holders"). The 1,399,418 shares of Common
Stock registered on behalf of the Selling
Security Holders are sometimes collectively
referred to herein as the "Selling Security
Holders' Shares." The Selling Security
Holders' Shares are not being underwritten in
this Offering and the Company will not
receive any proceeds from the sale of the
Selling Security Holders' Shares. The Selling
Security Holders have agreed that their
Selling Security Holders' Shares may not be
sold, pledged or otherwise transferred during
the twelve-month period following the date of
this Prospectus without the prior written
consent of the Representative, except for
114,969 Selling Security Holders' Shares
which are subject to a 90-day lock-up period.
Approximately 451,000 additional shares of
outstanding Common Stock which are not
subject to lock-up agreements also will be
eligible for sale commencing 90 days after
the date of this Prospectus under Rule 144 of
the Securities Act of 1933, as amended. See
"Underwriting," "Risk Factors--Possible
Adverse Effect of Future Sales of Securities
on Market Price," "Resale of Outstanding
Shares" and "Shares Eligible for Future
Sale."
</TABLE>
- ------------------------
(1) Excludes 622,500 shares of Common Stock issuable upon the exercise of stock
options outstanding at December 31, 1996 under the Company's Stock Incentive
Plan.
6
<PAGE>
SUMMARY FINANCIAL DATA
The following Summary Financial Data is derived from and should be read in
conjunction with the Company's financial statements and the related Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------------
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net Sales(1)........................................................... $ 943,500 $ 968,600 $ 1,395,900
Cost of Sales.......................................................... 412,000 534,100 833,200
------------ ------------ -------------
Gross Profit......................................................... 531,500 434,500 562,700
Operating Expenses:
Research and development............................................. 64,300 186,600 601,700
Selling and marketing................................................ 69,600 175,100 396,500
General and administrative........................................... 597,600 637,900 1,710,300
------------ ------------ -------------
Total Operating Expenses........................................... 731,500 999,600 2,708,500
------------ ------------ -------------
Operating loss......................................................... (200,000) (565,100) (2,145,800)
Interest expense, net.................................................. 18,600 36,000 21,500
------------ ------------ -------------
Loss before provision for income taxes................................. (218,600) (601,100) (2,167,300)
Provision for income taxes............................................. 1,600 1,600 1,600
------------ ------------ -------------
Net loss............................................................... $ (220,200) $ (602,700) $ (2,168,900)
------------ ------------ -------------
------------ ------------ -------------
Net loss applicable to common stock(2)................................. $ (2,283,900)
Net loss per common share(2)......................................... . $ (.04) $ (.13) $ (.64)
------------ ------------ -------------
------------ ------------ -------------
Weighted average common shares outstanding(2).......................... 5,385,000 4,756,000 3,566,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------
AS
ACTUAL PRO FORMA ADJUSTED(3)
------------- ----------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 262,400 $ 262,400 $ 5,433,800
Working capital......................................................... (402,600) (402,600) 4,768,800
Total assets............................................................ 971,800 971,800 6,143,200
Current liabilities..................................................... 983,800 983,800 983,800
Long term obligations................................................... 139,000 139,000 139,000
Redeemable Shares(4).................................................... 2,302,500 -- --
Stockholders' (deficit) equity(4)....................................... (2,453,500) (151,000) 5,020,400
</TABLE>
- ------------------------------
(1) The Company currently derives all of its net sales from its NewsMakers
product line. To date, no revenue has been derived from the Company's SCOOP!
service. See "Risk Factors--Lack of Operating History; Unproven Business
Strategy," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 1 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for information concerning the
calculation of net loss applicable to common stock and net loss per share.
(3) Adjusted to give effect to (i) the sale of 1,450,000 shares of Common Stock
offered hereby at the initial public offering price of $4.50 per share, and
the application of the net proceeds therefrom as described under "Use of
Proceeds" and (ii) the termination of the mandatory redemption rights
associated with the certain shares of Common Stock (the "Redeemable Shares")
upon the closing of the Offering. See Note 5 to Notes to Financial
Statements.
(4) Pro forma stockholders' equity assumes the termination of the mandatory
redemption rights associated with the Redeemable Shares upon the closing of
the Offering. See Notes 1 and 5 of Notes to Financial Statements.
7
<PAGE>
RISK FACTORS
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL PURCHASERS IN
EVALUATING AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS OF OPERATIONS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK
FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
LACK OF OPERATING HISTORY; UNPROVEN BUSINESS STRATEGY. Since the Company
commenced business operations in 1990, substantially all of the Company's
revenue has been generated from sales of NewsMakers business information
products. During the past year, the Company has focused considerable time and
effort and expended significant financial resources on developing its SCOOP
SMARTGUIDE technology and the related SCOOP! service. Although the Company
intends to continue to generate revenue from the NewsMakers product line, the
Company's principal business strategy is to pursue the development and marketing
of its SCOOP! service. The Company is not presently generating any revenue from
SCOOP! because it has not yet been commercially released, and no assurances can
be given that the Company will be successful in marketing SCOOP! when it is
commercially released. The Company has no operating history relating to
Internet-delivered business information services upon which an evaluation of the
Company and its prospects in such area of business can be based. The Company and
its prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in the new and rapidly evolving
market for Internet products and services. To address these risks, the Company
must, among other things, complete the development of its SCOOP SMARTGUIDE
technology and SCOOP! service in a timely manner, implement and execute its
principal sales and marketing strategy, attract strategic distribution partners,
attract and motivate qualified personnel, respond to competitive developments,
constantly upgrade its technologies and commercialize products and services
incorporating such technologies. There can be no assurance that the Company will
successfully address such risks or implement its business plan.
HISTORY OF OPERATING LOSSES; ANTICIPATION OF CONTINUING LOSSES. The Company
reported net losses of approximately $602,700 and $2,168,900 for 1995 and 1996,
respectively. See "Selected Financial Data." In addition, at December 31, 1995
and 1996, the Company had an accumulated deficit of approximately $928,900 and
$3,374,100, respectively, and a stockholder deficit of approximately $914,400
and $2,453,500, respectively. The Company also had a working capital deficit of
approximately $955,000 and $402,600 at December 31, 1995 and 1996, respectively.
See the Company's financial statements and related Notes thereto included
elsewhere in this Prospectus. The Company has continued to realize losses since
December 31, 1996 and has significantly increased, and expects to continue to
increase, its operating expenses before it will have any significant increase in
its operating revenue. As a result of the foregoing factors, the Company expects
to continue to incur significant losses unless and until it is able to
successfully launch and market its SCOOP! service. Finally, the Company's cash
flow has been principally the result of financing activities rather than
operating activities. There can be no assurance that the Company will ever
achieve significant revenue or profitable operations. See "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and the Company's Financial Statements and related Notes thereto
included elsewhere in this Prospectus.
ABILITY TO CONTINUE AS A GOING CONCERN. In light of the Company's
continuing losses, the Company's ability to continue as a going concern is
dependant upon future events, including the successful development and market
acceptance of its products and services and its ability to secure additional
sources of financing. The Company's independent auditor has stated in its
opinion that these factors raise substantial doubt about the Company's ability
to continue as a going concern. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Financial
Statements and related Notes thereto included elsewhere in this Prospectus.
8
<PAGE>
NEED FOR FUTURE FINANCING; RISK OF FUTURE DILUTION. The Company estimates
that the net proceeds of the Offering, in conjunction with other financial
resources, will be sufficient to satisfy the Company's anticipated working
capital and capital expenditure requirements for the next nine months. The
Company's operating plan anticipates that at the end of such nine-month period,
the Company will likely require substantial additional capital. Moreover, if the
Company experiences unanticipated cash requirements during the nine-month period
or experiences delays in the development and marketing of its SCOOP! business
information service, the Company will require additional capital to fund its
operations, continue research and development programs, and commercialize any
products that may be developed. Thereafter, the Company may be required from
time to time to seek additional financing to fund operating losses and finance
its business strategy, including product development, expansion of sales and
marketing and capital expenditures. The Company may attempt to meet its capital
requirements by incurring indebtedness, issuing debt or equity securities, or a
combination thereof, any of which could result in substantial dilution to the
Company's existing stockholders. There can be no assurance, however, that funds
will be available on terms favorable to the Company, that such funds will be
available when needed, or that the Company will have adequate cash flows from
operations for such requirements. Incurrence of debt or issuance of equity
securities could have an adverse effect on the price of the Common Stock, could
restrict the Company's ability to pay dividends and could result in further
dilution to existing investors. See "--History of Operating Losses; Anticipation
of Continuing Losses" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
DEPENDENCE ON POTENTIAL STRATEGIC DISTRIBUTION PARTNERS. The Company's
principal marketing strategy is to market its products primarily through
alliances which the Company will attempt to establish with large,
well-established strategic distribution partners with existing customer bases.
The Company has not yet entered into any definitive agreements relating to the
establishment of any strategic distribution relationship and no assurance can be
given that the Company will be able to attract any such prospective strategic
distribution partners. Even if the Company establishes contractual relationships
with one or more strategic distribution partners, the Company will need to
attract users of the SCOOP! service from the existing customer bases of such
strategic distribution partners. The failure of the Company to enter into
strategic distribution partnership relationships or to attract and retain
customers from the existing customer bases of any strategic distribution partner
would materially adversely affect the Company and its financial condition,
results of operation and future prospects. Moreover, if the Company's marketing
arrangements and activities with any company with which it hereafter enters into
an alliance or other strategic distribution partnership arrangement were
subsequently to be lessened, curtailed or otherwise modified, the Company may
not be able to replace or supplement such marketing efforts alone or with other
companies. If any of such companies were to reduce their joint marketing
activities with the Company, develop and market their own business information
service, market business information products developed by competitors of the
Company or cease to jointly market the Company's business information service,
the Company's business, results of operations and financial condition would be
materially adversely effected. See "Business--Sales and Marketing Strategy."
FAILURE TO DEVELOP SERVICE OR OBTAIN MARKET ACCEPTANCE. The Company
believes that its future success will be largely dependent upon its ability to
develop its SCOOP! service and deliver high quality, uninterrupted access to its
service on the Internet. The Company's SCOOP SMARTGUIDE technology, which will
be the foundation of the SCOOP! service, is currently being developed and there
can be no assurance that the SCOOP SMARTGUIDE technology will prove to actually
perform as it has been conceptualized and designed. There can be no assurance
that the Company will not experience difficulties that could delay or prevent
the introduction and marketing of its SCOOP! service or that SCOOP! will meet
the requirements of the Internet marketplace and achieve or maintain market
acceptance. If the Company is unable to develop its SCOOP! service as
conceptualized on a timely basis, to operate the service to support any actual
usage, or if its SCOOP! service does not achieve or maintain market acceptance,
the Company's business, operating results and financial condition will be
materially adversely affected.
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RISK OF SYSTEM FAILURE. In connection with the establishment of the SCOOP!
service, the Company will be required to expand its network, integrate new and
emerging technologies and equipment, and will experience growth in data traffic.
As a result, there will be increased stress placed upon the Company's network
hardware and traffic management systems and therefore an increased risk of
system failure. The Company's network will also be vulnerable to damage from
fire, earthquakes, power loss, telecommunications failures and similar events.
There can be no assurance that the Company will not experience partial or total
failures of its network. Significant or prolonged system failures could damage
the reputation of the Company and result in the loss of customers or its
information content licenses either of which would have a material adverse
effect on the Company.
DEPENDENCE ON UMI CONTENT. The success of the Company's business plan is
dependent on its ability to provide customers with access to a wide variety of
information sources. The Company's right to provide such access will be based on
license agreements between the Company and information content providers. The
Company will initially derive all of its content from UMI. The Company's
agreement with UMI, which presently expires in October 1999, provides for
automatic renewal for one-year periods unless notice of termination is provided
before the end of the term or any extension thereof by either party. The
Company's agreement with UMI may also be terminated if the Company fails to
fulfill its obligations under such agreement. Such obligations include
guaranteed minimum annual royalty payments of approximately $296,000 in 1997,
$570,000 in 1998 and $652,500 in 1999. In addition, in order to maintain the
Company's limited exclusive third-party reselling rights with respect to the
distribution of certain UMI content, the Company must make additional minimum
royalty payments of at least $200,000 in year one, $400,000 in year two, and
$600,000 in year three of the contract. UMI and other content providers compete,
or may in the future compete, with one another and, to some extent, with the
Company for customers. Termination or non-renewal of the Company's license with
UMI, or with any other significant information providers with which the Company
may contract in the future, would significantly decrease the news and
information which the Company could offer its customers and would have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, fees payable to UMI and any other future
information content providers will constitute a significant portion of the
Company's cost of sales. If the Company is required to increase the fees payable
to UMI or any other future information providers, such increased fee payments
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--UMI Relationship."
IMMEDIATE SUBSTANTIAL DILUTION. At the initial public offering price of
$4.50 per share, purchasers of the shares of Common Stock offered hereby will
experience immediate substantial dilution of approximately 78.9% or $3.55 per
share of Common Stock from the initial public offering price. New investors in
the Company will have contributed approximately 68.3% of the total consideration
paid for Common Stock of the Company but will own only approximately 27.9% of
the Common Stock outstanding at the consummation of the Offering. As a result,
new investors in the Company will bear most of the risk of loss. See "Dilution."
ESTABLISHED COMPETITORS AND INTENSE COMPETITION. The market for business
information services, including Internet information products and services, is
intensely competitive and rapidly changing. Participants in this market range
from extremely large and well-capitalized companies to smaller competitors as
there are no substantial barriers to entry into such market. The Company's
direct competitors for its Internet and Web-based business information service
will include Individual, Inc., DeskTop Data, and M.A.I.D. Plc. The Company may
also compete, directly or indirectly, for customers and/or information content
sources with the following categories of companies: (i) connectivity providers
of telephone, cable, wireless and/or other means of accessing the Internet, (ii)
large, well-established news and other information providers, such as Dow Jones
& Company, Inc., Knight-Ridder, Inc. ("Knight-Ridder"), Pearson Plc, Reed
Elsevier Plc. ("Lexis/Nexis"), Reuters America, Inc., and Thompson Financial
Networks, Inc., (iii) traditional print media companies that are increasingly
searching for opportunities for providing news online, including through the
establishment of Web sites on the Internet, (iv) providers of network-based
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software systems such as Lotus Development Corporation and Microsoft
Corporation, which have allied, or may in the future ally, with competing news
and other information providers, (v) third party providers of software which
allows PC users to aggregate and filter a variety of news feeds, (vi) consumer
online services such as America Online, GEnie CompuServe and Prodigy, (vii)
Internet-based news distributors such as ClariNet Communications Corp., Marimba
Inc.'s Castanet and the PointCast Network, (viii) search engine providers such
as Digital Equipment's Alta Vista Corporation, Excite, Inc., Infoseek
Corporation, Lycos, Inc., Verity, Inc. and Yahoo!, Inc., and (ix) companies that
offer space for advertising on the Web, including content Web sites.
Substantially all of the Company's potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources and greater name recognition than the Company. Many of these
competitors are already well established in the Internet marketplace and
therefore have a significant competitive advantage. In addition, these
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, and to devote greater resources to the
development, promotion and sale of their information services and products than
the Company. There can be no assurance that the Company's potential competitors
will not develop products and services comparable or superior to those developed
by the Company or adapt more quickly than the Company to new technologies,
evolving industry trends or changing customer requirements.
Some of the Company's potential competitors own all or a substantial part of
the information content in their databases. The Company does not own any of its
content and therefore must license content from providers at substantial cost.
Competitors who own their own information have no license fee obligation on
their own information, and may limit or preclude access by the Company to their
information, which gives such competitors a pricing or other competitive
advantage over the Company.
The Company believes that the overall cost to the consumer of retrieving
useful information through an online service is an important competitive factor.
This cost includes such elements as subscription fees, usage fees, online
charges and other items. The Company could be required to reduce its anticipated
transaction fees or otherwise alter its anticipated pricing structure in
response to competitive pressures.
Increased competition on the basis of price, depth and breadth of services
and data sources or other factors could result in price reductions, reduced
margins or loss of market share, any of which would materially and adversely
affect the Company's future business, results of operations and financial
condition. There can be no assurance that the Company will be able to compete
successfully against its competitors, or that competitive pressures faced by the
Company will not have a material adverse effect on its business, results of
operations and financial condition. If the Company is unable to compete
successfully against its competitors, the Company's business, results of
operations and financial condition will be materially adversely effected. See
"Business -- Competition."
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET. The Internet, and
particularly the Web, has created a potential market for the Company's business
information service which has only recently begun to develop, are rapidly
evolving and are characterized by an increasing number of market entrants who
have introduced or developed a wide variety of products and services for
communication and commerce. As is typical in the case of a new and rapidly
evolving industry, demand and market acceptance for new products and services
are subject to a high level of uncertainty. Moreover, critical issues concerning
the commercial use of the Internet (including security, reliability, cost,
quality of service and ease of use and access) remain unresolved and may impact
the growth of Internet and Web use. There can be no assurance that commerce over
the Internet will become widespread, or that services developed by the Company
for use on the Internet will become accepted. In particular, enterprises that
have already invested substantial resources in other means of conducting
commerce and exchanging information may be reluctant to adopt a new strategy
that could make their existing products and infrastructure obsolete. In
addition, there can be no assurance that individual business, professional, SOHO
or other potential customers will adopt the Web for online commerce and
communication. If the Internet market fails to develop, develops more slowly
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than expected or becomes saturated with competitors, the Company's business,
operating results and financial condition could be materially adversely
affected. See "Business--Industry Overview."
RISKS OF TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS. The market
for Internet services and products is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs and frequent
new service and product introductions. The Company's future success will depend,
in large part, on its ability to effectively use leading technologies, to
continue to develop its technical expertise, to finalize the development of its
SCOOP! business information service, to enhance its service, to develop new
services that meet changing customer needs, to advertise and market its business
information services and to influence and respond to emerging industry standards
and other technological changes on a timely and cost-effective basis. There can
be no assurance that the Company will be successful in effectively using new
technologies, developing SCOOP! or new business information services or
enhancing its business information services on a timely basis or that such new
technologies or enhancements will achieve market acceptance. The Company
believes that its ability to compete successfully is also dependent upon the
compatibility and interoperability of its business information services with
products, services and architectures offered by various other companies. There
can be no assurance that the Company will be able to effectively address the
compatibility and interoperability issues raised by technological changes or new
industry standards. In addition, there can be no assurance that information
products or technologies developed by others will not render the Company's
business information products or technology uncompetitive or obsolete.
MANAGEMENT OF GROWTH; NEED TO EXPAND RESOURCES AND INFRASTRUCTURE. Upon
completion of this Offering, to the extent the Company is successful in
expanding its business, the resulting growth will place a significant strain on
the Company's financial, management and other resources. As the Company grows
and commences the commercial release of its business information services, there
will be additional demands on the Company's customer support, sales and
marketing and administrative resources and network infrastructure. The Company
believes that it will need, both in the short term and the long term, to hire
additional qualified administrative, management and financial personnel. The
Company's ability to manage its growth effectively will require it to continue
to improve its operational, financial and management information systems, and to
attract, train, motivate, manage and retain key employees. The Company may also
make additional investments in capital equipment to expand its business. No
assurances can be given that these new systems will be implemented successfully
or that the Company's management will manage growth effectively, and the failure
to do so could have a material adverse effect on the Company's business,
operating results and financial condition.
SECURITY RISKS. Despite the Company's network security measures, which will
consist primarily of periodic monitoring of the Company's external network and
password-protecting certain administrative functions, the Company's
computer-based infrastructure will be vulnerable to computer viruses, break-ins,
vandalism and similar disruptive problems which may be caused by customers or
other Internet users. Computer viruses, break-ins or other problems caused by
third parties could lead to interruptions, delays or cessation in service to the
Company's customers. Furthermore, inappropriate use of the Internet by third
parties could also potentially jeopardize the security of information stored in
the Company's computer systems, which may deter potential customers. Persistent
security problems continue to plague public and private data networks. Recent
break-ins reported in the press and otherwise have reached computers connected
to the Internet and have included incidents involving "hackers" who bypassed
protective firewalls by posing as trusted computers and then stole, deleted or
altered information. Alleviating problems caused by computer viruses, break-ins
or other problems caused by third parties may require significant expenditures
of capital and resources by the Company, which could have a material adverse
effect on the Company's business, results of operations and financial condition.
Moreover, until more comprehensive security technologies are developed, the
security and privacy concerns of potential customers may inhibit the growth of
the Internet service industry in general and the Company's potential customers
and revenue in particular.
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DEPENDENCE ON PROPRIETARY TECHNOLOGY, TRADEMARKS AND OTHER INTELLECTUAL
PROPERTY RIGHTS; RISKS OF THIRD PARTY CLAIMS FOR INFRINGEMENT. The Company's
ability to effectively compete will largely depend on its ability to protect its
proprietary technology in general and its SCOOP SMARTGUIDE technology, which is
still under development, in particular. The Company does not presently own any
patents and does not have any patent applications pending. The Company relies on
a combination of trademarks, copyrights, trade secret laws, contractual
restrictions and, in the future, possibly patent laws, to establish and protect
its technology and other intellectual property. There can be no assurance that
the steps taken by the Company will be adequate to prevent misappropriation of
its technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. In addition, there can be no assurance that licenses for any
additional intellectual property that might be required for the Company's
business information service to be or remain competitive will be available on
reasonable terms, if at all. Although the Company does not believe that its
technology and business information service infringe the proprietary rights of
any third parties, and no third parties have asserted patent infringement or
other claims against the Company, there can be no assurance that third parties
will not assert such claims against the Company in the future or that such
claims would not be successful. Patents have recently been granted on
fundamental technologies in the communications and multimedia areas, and patents
may issue which relate to fundamental technologies incorporated in the Company's
SCOOP SMARTGUIDE technology. Because patent applications in the United States
are not publicly disclosed until the patents issue, patent applications may have
been filed which, if issued as patents, could relate to the Company's SCOOP
SMARTGUIDE technology. In addition, participants in the Company's industry also
rely upon trade secret law. The Company could incur substantial costs and
diversion of its management's time and energy with respect to the defense of any
claims relating to proprietary rights which, in turn, could have a material
adverse effect on the Company's business, financial condition and result of
operations. Furthermore, parties making such claims could secure a judgment
awarding substantial damages, as well as injunctive or other equitable relief,
which could effectively block the Company's ability to provide its business
information services in the United States or abroad. Any such judgment could
have a material adverse effect on the Company's business, financial condition
and results of operations.
DEPENDENCE UPON INVESTOR'S BUSINESS DAILY. The Company presently derives
approximately 48% of its annual net sales from the sale of NewsMakers business
information products and services through its relationship with Investor's
Business Daily. If the agreement between the Company and Investor's Business
Daily is terminated or the sales generated through such relationship otherwise
materially decrease, there is no assurance that the Company can replace lost
revenue from NewsMakers, which would have a material adverse effect upon the
Company's business, results of operations and financial condition. See
"Business--Pricing and Customers."
RISK OF THREATENED LITIGATION. The Company has been threatened with the
commencement of a lawsuit in connection with a letter executed in August 1995 by
NewsMakers Information Services, Inc., the Company's former subsidiary, and
Immedia Net ("Immedia Net"), a corporation owned and controlled by Michael F.
Arrigo. The letter outlined the mutual understandings regarding the proposed
establishment of a new corporation which was to be owned 50% by the NewsMakers
subsidiary and 50% by Immedia Net and which was to be organized to take
advantage of new business opportunities. Among other things, the letter
contemplated that the new corporation would be a distributor of content obtained
by the Company through one of its licenses in connection with the provision of
online services. Management believes the letter contemplated the negotiation,
execution and delivery of a definitive final written agreement and other
documents by the parties. The relationship between the NewsMakers subsidiary, on
the one hand, and Immedia Net and Mr. Arrigo, on the other hand, deteriorated
soon after the execution of the letter and no definitive final written agreement
was ever executed. In response to a letter sent by the Company's counsel
formally terminating all further negotiations between the NewsMakers subsidiary
and Immedia Net in early 1996, Immedia Net formally took the position that the
letter between it and NewsMakers was a legally binding contract, that NewsMakers
had breached such contract and that Immedia Net intended to
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take appropriate legal steps to protect its rights if NewsMakers did not abide
by the alleged contract's terms. Although the Company does not believe that a
legally binding contract existed between the NewsMakers subsidiary and Immedia
Net, there can be no assurance that Immedia Net and Mr. Arrigo will not initiate
litigation against the Company as the successor-in-interest to NewsMakers. Since
February 1996, the Company has not taken any further action with respect to this
matter and the Company is not aware that either Immedia Net or Mr. Arrigo has
taken any further action. If litigation is initiated, there can be no assurance
that the Company would prevail. The costs of defending any legal action as well
as the cost of any judgment that Immedia Net and Mr. Arrigo might obtain against
the Company could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Potential Litigation."
DEPENDENCE ON KEY PERSONNEL. The Company believes that its future success
will depend to a significant extent on the performance and continued service of
its key technical services, product development and senior management personnel.
The loss of the services of one or more of these key employees could have a
material adverse effect on the Company. The Company does not presently have or
intend to carry "key man" insurance, and does not presently have written
employment agreements with any of its key employees. Competition for highly
skilled employees with technical, management, marketing, sales, product
development and other specialized training is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. While the Company's employees are required to sign confidentiality
and nondisclosure agreements, there can be no assurance that employees will not
leave the Company or be in a position to compete against the Company. The
Company's failure to attract additional qualified employees or to retain the
services of key personnel could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management--Executive
Officers, Directors and Key Employees."
INFLUENCE ON THE COMPANY BY LARGEST STOCKHOLDER. Upon the consummation of
this Offering, Mr. Karlsson, the Chairman of the Board, will directly or
beneficially own approximately 28% of the outstanding shares of Common Stock. In
addition, Mr. Karlsson and Mr. Craichy, a director of the Company, are related
by marriage. As a result, Mr. Karlsson will be in a position to materially
influence, if not control, the outcome of all matters requiring stockholder or
board approval, including the election of directors. See "Management" and
"Principal Stockholders." Such influence and control is likely to continue for
the foreseeable future and may significantly diminish the control and influence
which future stockholders may have over the Company.
BROAD DISCRETION IN USE OF PROCEEDS. The net proceeds to the Company from
the sale of the Common Stock offered hereby, after deducting underwriting
discounts and commissions and the estimated expenses of this Offering of
$750,000 (including the Representative's non-accountable expense allowance), are
estimated to be approximately $5,170,000. The Company estimates that $220,000
(approximately 4%) of such net proceeds will be allocated to working capital.
The Company will have broad discretion in the use of funds allocated to working
capital. The Company may use some portion of the proceeds of the Offering to
make unspecified acquisitions of complementary companies, products or
technologies. See "Use of Proceeds" and "--History of Operating Losses;
Anticipation of Continuing Losses."
RISKS INHERENT IN UNSPECIFIED POTENTIAL ACQUISITIONS. As part of its
business strategy, the Company may make acquisitions of, or significant
investments in, complementary companies, products or technologies, although no
such acquisitions or investments are currently pending. See "Use of Proceeds."
Any such future acquisitions would be accompanied by the risks commonly
encountered in acquisitions of companies, products or technologies. Such risks
include, among other things, the difficulty of assimilating the operations and
personnel of the acquired companies, products or technologies, the potential
disruption of the Company's ongoing business, the inability of management to
maximize the financial and strategic position of the Company through the
successful incorporation of acquired companies, products or technologies into
the Company's products, additional expense associated with amortization of
acquired
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intangible assets, the maintenance of uniform standards, controls, procedures
and policies and the impairment of relationships with employees and customers as
a result of any integration of new management personnel. See "--Management of
Growth; Need to Expand Resources and Infrastructure." There can be no assurance
that the Company would be successful in overcoming these risks or any other
problems encountered in connection with any such acquisitions of other
companies, products or technologies.
ABSENCE OF PUBLIC MARKET. Prior to this Offering, there has been no public
market for the Common Stock. While the Common Stock has been approved for
quotation on The Nasdaq SmallCap Market, there can be no assurance that an
active and liquid public market for the Common Stock will develop as a result of
this Offering or listing on Nasdaq or, if an active public market does develop,
that it will continue. In the absence of such a market, investors may be unable
to liquidate their investment in the Common Stock.
ARBITRARY DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK
PRICE. The initial public offering price of the Common Stock was determined by
negotiation between the Company and the Representative and does not necessarily
bear any relationship to the Company's book value, assets, past operating
results, financial condition or any other established criteria of value. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. There can be no assurance that the Common Stock
will trade at market prices in excess of the initial public offering price, as
prices for the Common Stock in any public market which may develop will be
determined in the marketplace and may be influenced by many factors, including
the depth and liquidity of the market for the Common Stock, investor perceptions
of the Company, quarter-to-quarter variations in operating results, changes in
earnings estimates by analysts following the Company, if any, and general
factors affecting the Internet industry as well as general economic, political
and market conditions. In addition, stock prices of many companies in the
Internet industry fluctuate widely for reasons which may be unrelated to
operating results. Due to analysts' expectations of continued growth, if any,
and the high price/earnings ratio at which the Common Stock may trade, any
shortfall in expectations could have an immediate and significant adverse effect
on the trading price of the Common Stock.
INEXPERIENCED REPRESENTATIVE. The Representative does not have experience
as an underwriter of securities. The Representative has never acted as the
managing underwriter for a public offering or been a member of the underwriting
syndicate for any public offerings. No assurance can be given that the
Representative will be able to successfully complete the Offering or, if
completed, that an active trading market for the Common Stock will develop. See
"Underwriting."
REPRESENTATIVE'S CONTINUING INVOLVEMENT WITH THE COMPANY. Pursuant to the
terms of the underwriting agreement between the Company and the Underwriters,
the Company may not conduct certain securities transactions or take certain
other actions without the prior approval of the Representative. The Company has
also agreed to sell to the Representative a Warrant to purchase up to 145,000
shares of Common Stock. See "Underwriting." As a result of the restrictions
contained in the underwriting agreement and the Representative's right to
acquire a substantial equity interest in the Company through the exercise of
warrants, subsequent to completion of the Offering, the Representative may be in
a position to influence the operation of the Company's business. To the extent
that the interests of the Representative are adverse to or inconsistent with the
interests of the purchasers of Common Stock in this Offering, purchasers of
Common Stock could be adversely affected.
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET. It is anticipated that
a significant number of the shares of Common Stock being offered hereby will be
sold to clients of the Representative. In addition, substantially all of the
Selling Security Holders have agreed not to sell, pledge, assign or otherwise
transfer their Selling Security Holders' Shares during the one-year period
following the date of this Prospectus. However, such "lock-up" restrictions may
be waived by the Representative in its sole discretion. Any sales permitted by
the Representative may be effected through the Representative, which will be
entitled to receive its customary compensation in connection therewith. Although
the Representative does not have
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any arrangements or understandings with any Selling Security Holders regarding
the waiver of any such lock-ups or engaging in any transactions during the
Offering or in close proximity to the time of the Offering, any permitted sales
by the Selling Security Holders during such 12-month period could adversely
affect the price of and any market for the Common Stock. See "Resale of
Outstanding Shares." Although the Representative has advised the Company that it
currently intends to make a market in the Common Stock following the Offering,
it has no legal obligation, contractual or otherwise, to do so. The
Representative, if it becomes a market maker, could be a significant influence
in the market for the Common Stock, if one develops. The prices and the
liquidity of the Common Stock may be significantly affected by the degree, if
any, of the Representative's participation in such market. There is no assurance
that any market activities of the Representative, if commenced, will be
continued. See "Underwriting."
POSSIBLE ADVERSE EFFECT OF FUTURE SALES OF SECURITIES ON MARKET
PRICE. Sales of substantial amounts of Common Stock in the public market
following the Offering as well as the availability for sale of additional shares
could have a material adverse effect on the price of and any market for the
Common Stock. Upon the completion of the Offering, 5,202,497 shares of Common
Stock will be outstanding, assuming that the Underwriters' over-allotment option
to purchase 217,500 shares is not exercised and excluding 1,372,500 shares
underlying warrants and options outstanding at December 31, 1996. In addition,
although it has no present intention to do so, in connection with future
financing transactions or acquisitions, the Company could issue additional
Common Stock or preferred stock or other securities convertible into Common
Stock which issuance could have a material adverse effect the market price of
the Common Stock. See "Management--Stock Incentive Plan" and "Description of
Capital Stock."
Of the 5,202,497 shares outstanding upon completion of the Offering, the
1,450,000 shares offered by the Company and the 1,199,481 shares offered by the
Selling Security Holders (1,399,481 shares upon exercise of the Consultant
Warrants) will be registered under the Securities Act of 1933, as amended (the
"Securities Act"), by the Registration Statement of which this Prospectus is a
part and will therefore be freely tradeable without further registration
following the expiration or termination of any "lock-up" agreements described
below unless owned by an "affiliate" of the Company. The Company also has
granted certain registration rights with respect to the Common Stock underlying
all of the Company's outstanding warrants and intends to register the resale of
the Common Stock underlying the options granted under the Company's Stock
Incentive Plan within one year of the date of this Prospectus. The remaining
2,553,016 outstanding shares of Common Stock are "restricted securities" as
defined in Rule 144 under the Securities Act and may not be sold unless
registered under the Securities Act or sold pursuant to an exemption therefrom.
Approximately 2,498,000 shares of Common Stock which are "restricted securities"
will have satisfied the holding periods under Rule 144 as of 90 days after the
date of this Prospectus. Of these 2,498,000 shares, approximately 451,000 shares
will be freely tradeable under Rule 144 without any lock-up restrictions
commencing 90 days after the date of this Prospectus. Future sales of Common
Stock made pursuant to Rule 144 or otherwise, or the availability of Common
Stock for sale could adversely affect prevailing market prices for the Common
Stock.
Shares beneficially owned by the Company's officers and directors (including
all but 50,000 shares beneficially owned by Mr. Karlsson, the Company's largest
stockholder) are subject to "lock-up" agreements whereby such officers and
directors have agreed not to directly or indirectly sell, transfer or encumber
any shares of Common Stock owned by them for a period of one year from the date
of this Prospectus without the prior written consent of the Representative. In
addition, all but 21,700 shares owned by Stanley Berk, the Company's second
largest stockholder, all of the Selling Security Holders' Shares (other than
28,302 shares being registered for Stephen Grayson, 66,667 shares being
registered for Henry Wilf and 20,000 shares being registered for Robert
Finkelstein which are subject to a 90-day lock-up) and shares held by various
other stockholders of the Company are subject to the same one-year lock-up. A
total of approximately 465,000 shares of outstanding Common Stock are not
subject to any lock-up agreement. See "Resale of Outstanding Shares," "Shares
Eligible for Future Sale" and "Underwriting."
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. The Company is not currently
subject to direct regulation by any government agency, other than regulations
applicable to business generally, and there are currently few laws or
regulations directly applicable to access to, or commerce on, the Internet.
However, due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet, covering issues such as user privacy, pricing and characteristics
and quality of products and services. The Telecommunications Reform Act of 1996
(the "1996 Telecommunications Act") imposes criminal penalties on anyone who
distributes obscene, lascivious or indecent communications on the Internet
(although a trial court has recently declared such provisions unconstitutional).
The adoption of the 1996 Telecommunications Act or any other such laws or
regulations may decrease the growth of the Internet, which could in turn
decrease the demand for the Company's products and services and increase the
Company's cost of doing business or otherwise have an adverse effect on the
Company's business, results of operations and financial condition. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, libel and personal privacy is uncertain. See "Business--Government
Regulation."
CONFLICT OF INTEREST. The Company has from time to time engaged in
transactions with certain of its officers, directors and other affiliates. The
terms of some of these transactions involve conflicts of interest. The Company
has adopted a policy whereby all future transactions between the Company and its
officers, directors and affiliates will be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties and will be
approved by a majority of the disinterested members of the Company's Board of
Directors. See "Certain Transactions."
LIMITATION ON MONETARY LIABILITY OF OFFICERS AND DIRECTORS. The Company's
Certificate of Incorporation provides that the Directors of the Company shall
not be personally liable to the Company or its stockholders for monetary damages
for breach of their fiduciary duties as Directors, other than for engaging in
certain specifically prohibited conduct. The Company's Certificate of
Incorporation and Bylaws also provide that the Company shall indemnify its
Directors and officers to the fullest extent permitted by law, and the Company
has entered into indemnification agreements with its Directors and executive
officers. See "Management--Indemnification and Limitation of Liability" and
"Description of Capital Stock--Governing Law and Certain Charter and Bylaw
Provisions."
POTENTIAL LIABILITY FOR DISSEMINATION OF INFORMATION. Internet product and
service providers face potential liability of uncertain scope for the actions of
subscribers and others using their systems or databases, including liability for
infringement of intellectual property rights, rights of publicity, defamation,
libel and criminal activity under the laws of the United States and foreign
jurisdictions. Litigation is pending in several states seeking to impose
liability upon Internet product and service providers for information, messages
and other materials disseminated across and through their systems and for direct
or vicarious copyright infringement arising out of electronic information
disseminated through an Internet access service. To the extent that the Company
is in the business of dissemination of information from a variety of sources and
in a variety of languages, the Company could incur liabilities which could have
a material adverse effect on the Company's business, results of operations and
financial condition.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's Board of
Directors has the authority to issue up to 5,000,000 shares of Preferred Stock
and to determine the price, rights, preferences, qualifications, limitations and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of delaying or preventing a change of control.
Further, Section 203 of the Delaware General Corporation Law prohibits the
Company from engaging in certain business combinations with interested
stockholders. These provisions and certain provisions of the Company's
Certificate of Incorporation and Bylaws, including those related to the
classification of Board members may have the effect of delaying or preventing a
change in control of the Company without action by the
17
<PAGE>
stockholders. Therefore, such provisions could adversely affect the price of the
Common Stock and, to the extent tender offers for shares of the Company's Common
Stock are discouraged or prevented by these provisions, may reduce the
likelihood that investors could receive a premium for their shares of Common
Stock. See "Description of Capital Stock."
MAINTENANCE CRITERIA FOR NASDAQ; RISKS OF LOW-PRICED SECURITIES. The Common
Stock has been approved for quotation on The Nasdaq SmallCap Market, commencing
upon the effective date of this Offering. To maintain inclusion on The Nasdaq
SmallCap Market, the Company's Common Stock must continue to be registered under
Section 12(g) of the Exchange Act, and the Company must continue to have (i) net
tangible assets of at least $2,000,000 or net income of at least $500,000 in two
of the three previous years or market capitalization of at least $35,000,000,
(ii) a public float of at least 500,000 shares with a market value of at least
$1,000,000, (iii) at least 300 stockholders, (iv) a minimum bid price of $1.00
per share and (v) at least two market makers. While the Company expects that it
will initially meet these maintenance standards, there is no assurance that the
Company will be able to maintain the standards for Nasdaq SmallCap Market
inclusion with respect to its Common Stock. If the Company fails to maintain
Nasdaq SmallCap Market listing, the market value of the Common Stock likely
would decline and purchasers in this Offering likely would find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Common Stock.
If the Common Stock ceases to be included on The Nasdaq SmallCap Market, the
Common Stock could become subject to rules adopted by the Securities and
Exchange Commission (the "Commission") regulating broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on Nasdaq,
provided that current price and volume information with respect to transactions
in such securities is provided). The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document in a form prepared by the
Commission which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to these penny stock rules. If the
Common Stock becomes subject to the penny stock rules, investors in this
Offering may be unable to readily sell their Common Stock.
NO DIVIDENDS. It is the current policy of the Company that it will retain
earnings, if any, for expansion of its operations and other corporate purposes
and it will not pay any cash dividends in respect of the Common Stock in the
foreseeable future. See "Dividend Policy."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered by
the Company hereby are estimated to be approximately $5,171,400 ($6,030,300 if
the Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and the other estimated expenses of the
Offering.
The Company currently intends to use approximately $1.3 million of the net
proceeds of this Offering for sales and marketing expenses related to the launch
of the SCOOP! service, including joint marketing programs with potential
distribution partners, approximately $0.7 million to initiate the operations
center to run and administer the SCOOP! service, approximately $1.6 million to
develop the SCOOP SMARTGUIDE technology, approximately $0.9 million to acquire
capital equipment including routing equipment, web servers, and client/server
processors to continue development and administer the SCOOP! service, $0.5
million for repayment of debt, and approximately $0.2 million for working
capital and other general corporate purposes, including funding anticipated
operating losses. These uses are summarized in the following table:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
ANTICIPATED USE OF PROCEEDS DOLLAR AMOUNT OF NET PROCEEDS
- -------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Development of SCOOP SMARTGUIDE technology.................... $ 1,600,000 31%
Sales and marketing expenses.................................. 1,300,000 25%
Acquisition of capital equipment.............................. 900,000 17%
Initiation of SCOOP! Operations Center........................ 700,000 14%
Repayment of debt(1).......................................... 450,000 9%
Working capital............................................... 220,000 4%
Total..................................................... $ 5,170,000 100%
</TABLE>
- ------------------------
(1) Includes the repayment of principal and interest on a loan made to the
Company by an existing stockholder in February 1997. See "Certain
Transactions."
As part of its business strategy, the Company may also seek to acquire
complementary companies, products or technologies. See "Business--Possible
Acquisitions." In the event the Company makes one or more such acquisitions
after the completion of this Offering, the Company may use a portion of the net
proceeds in connection therewith. The Company is not presently a party to any
understandings, agreements or commitments with respect to any such acquisition.
The foregoing represents the Company's best estimate of its use of the net
proceeds of this Offering based upon its present plans, the state of its
business operations and current conditions in the information services industry.
The Company reserves the right to change the use of the net proceeds if
unanticipated developments in the Company's business, business opportunities, or
changes in economic, regulatory or competitive conditions, make shifts in the
allocations of net proceeds necessary or desirable. Pending any uses, the
Company intends to invest the net proceeds of this Offering primarily in
short-term, interest bearing securities or accounts.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on shares of its
Common Stock. The Company currently anticipates that it will retain all
available funds from earnings, if any, for use in the operation of its business,
and does not intend to pay any cash dividends on its Common Stock in the
foreseeable future. Any future determination relating to dividend policy will be
made at the discretion of Board of Directors of the Company and will depend on a
number of factors, including future earnings, capital requirements, financial
condition, future prospects of the Company and such other factors as the Board
of Directors may deem relevant. In addition, the provisions of future
indebtedness of the Company may prohibit or limit the Company's ability to pay
dividends.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 (i) on a pro forma basis to reflect the termination of the
mandatory redemption rights associated with the Redeemable Shares and (ii) as
adjusted to reflect the sale of the 1,450,000 shares of Common Stock offered
hereby at an initial public offering price of $4.50 per share and the
application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------
ACTUAL PRO FORMA(2) AS ADJUSTED
------------- ------------- -------------
<S> <C> <C> <C>
Short-Term Obligations............................................... $ 119,300 $ 119,300 $ 119,300
Long-Term Obligations................................................ 139,000 139,000 139,000
Redeemable Shares (1)................................................ 2,302,500 -- --
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value, 5,000,000 shares
authorized, none issued and outstanding.......................... -- -- --
Common Stock, $.001 par value, 20,000,000 shares authorized;
2,825,833 shares issued and outstanding, actual; 3,752,497 shares
issued and outstanding, pro forma; 5,202,497 shares issued and
outstanding, as adjusted(3)...................................... 2,800 3,700 5,200
Additional paid-in capital......................................... 725,600 3,027,200 8,197,100
Accumulated Deficit.............................................. . (3,374,100) (3,374,100) (3,374,100)
Deferred Compensation............................................ . 192,200 192,200 192,200
Total stockholders' (deficit) equity............................. (2,453,500) (151,000) 5,020,400
Total capitalization............................................. $ (12,000) $ (12,000) $ 5,159,400
</TABLE>
- ------------------------
(1) Under certain circumstances, holders of Redeemable Shares are entitled to a
10% return compounded annually. Any and all such return will be canceled
upon termination of the mandatory redemption rights associated with the
Redeemable Shares upon the closing of the Offering. See Note 5 of Notes to
Financial Statements.
(2) Pro forma stockholders' equity assumes the termination of the mandatory
redemption rights associated with the Redeemable Shares upon the closing of
the Offering. See Note 5 of Notes to Financial Statements.
(3) Excludes 622,500 shares of Common Stock issuable upon the exercise of stock
options outstanding at December 31, 1996 under the Company's Stock Incentive
Plan with a weighted average exercise price of $2.76 per share. See Notes 7
and 10 of Notes to Financial Statements.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1996, was a deficit of approximately ($228,300) or $(0.06) per share of Common
Stock. Pro forma net tangible book value per share represents the amount of the
Company's net tangible assets less total liabilities divided by the number of
shares of Common Stock outstanding after giving effect to the termination of the
mandatory redemption rights associated with the Redeemable Shares upon
completion of the Offering. After giving effect to the sale by the Company of
the 1,450,000 shares of Common Stock offered hereby at the initial public
offering price of $4.50 per share, and after deducting the underwriting
discounts and commissions and estimated Offering expenses payable by the
Company, the Company's pro forma net tangible book value at December 31, 1996
would have been approximately $4,943,100 or $.95 per share. This represents an
immediate increase in pro forma net tangible book value of $1.01 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $3.55 per share, or 78.9% to new investors purchasing shares of Common
Stock in the Offering. The following table illustrates this dilution on a per
share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price................................. $ 4.50
Pro forma net tangible book value at December 31, 1996...... $ (.06)
Increase attributable to new investors...................... 1.01
---------
Pro forma net tangible book value after Offering.............. $ .95
---------
Dilution to new investors..................................... $ 3.55
---------
---------
</TABLE>
The following table sets forth the number of shares of Common Stock owned by
the existing stockholders of the Company, the number of shares of Common Stock
to be purchased from the Company offered hereby (at an Offering price of $4.50
per share) and the respective total consideration paid or to be paid to the
Company and the average price per share of Common Stock paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE
AMOUNT PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................................... 3,752,497 72.1% $ 3,030,900 31.7% $ 0.81
New Investors............................................ 1,450,000 27.9% 6,525,000 68.3% 4.50
---------- ----- ------------- -----
Total.................................................... 5,202,497 100.0% $ 9,555,900 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The foregoing computations assume no exercise of stock options outstanding
at December 31, 1996. At December 31, 1996, there were outstanding stock options
to purchase an aggregate of 622,500 shares of Common Stock at a weighted average
price of $2.76 per share. See Notes 7 and 10 of Notes to Financial Statements.
To the extent the aforementioned options are exercised, there will be further
dilution to new investors.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operations for each of the two years in the period ended December
31, 1996 and with respect to the balance sheet as of December 31, 1996 are
derived from the financial statements of the Company included elsewhere in this
Prospectus that have been audited by Deloitte & Touche, LLP, independent
auditors, which firm's report includes an explanatory paragraph regarding
substantial doubt about the Company's ability to continue as a going concern.
The income statement data for the year ended December 31, 1994 was derived from
the Company's audited financial statements for such year. The selected financial
data set forth below is qualified in its entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net sales(1).................................................................. $ 943,500 $ 968,600 $ 1,395,900
Cost of sales................................................................. 412,000 534,100 833,200
------------- ------------- -------------
Gross profit.............................................................. 531,500 434,500 562,700
Operating Expenses:
Research and development.................................................... 64,300 186,600 601,700
Selling and marketing....................................................... 69,600 175,100 396,500
General and administrative.................................................. 597,600 637,900 1,710,300
------------- ------------- -------------
Total Operating expenses................................................ 731,500 999,600 2,708,500
------------- ------------- -------------
Operating loss................................................................ (200,000) (565,100) (2,145,800)
------------- ------------- -------------
Interest expense.............................................................. 18,600 36,000 21,500
------------- ------------- -------------
Loss before provision for income taxes........................................ (218,600) (601,100) (2,167,300)
Provision for income taxes.................................................... 1,600 1,600 1,600
------------- ------------- -------------
Net loss...................................................................... $ (220,200) $ (602,700) $ (2,168,900)
------------- ------------- -------------
------------- ------------- -------------
Net loss applicable to Common Stock(2)........................................ $ (2,283,900)
-------------
-------------
Net loss per share(2)......................................................... $ (.04) $ (.13) $ (.64)
------------- ------------- -------------
Weighted average common shares outstanding(2)................................. 5,385,000 4,756,000 3,566,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------
AS
ACTUAL PRO FORMA ADJUSTED(3)
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 262,400 $ 262,400 $ 5,433,800
Working capital............................................................. (402,600) (402,600) 4,768,800
Total assets................................................................ 971,800 971,800 6,143,200
Current liabilities......................................................... 983,800 983,800 983,800
Long term obligations....................................................... 139,000 139,000 139,000
Redeemable Shares(4)........................................................ 2,302,500 -- --
Stockholders' (deficit) equity(4)........................................... (2,453,500) (151,000) 5,020,400
</TABLE>
- ------------------------------
(1) The Company currently derives all of its net sales from its NewsMakers
product line. To date, no revenue has been derived from the Company's SCOOP!
service. See "Risk Factors--Lack of Operating History; Unproven Business
Strategy", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 1 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for information concerning the
calculation of net loss applicable to common stock and net loss per share.
(3) Adjusted to give effect to (i) the sale of 1,450,000 shares of Common Stock
offered hereby at the initial public offering price of $4.50 per share, and
the application of the net proceeds therefrom as described under "Use of
Proceeds" and (ii) the termination of the mandatory redemption rights
associated with the Redeemable Shares upon the closing of the Offering. See
Note 5 to Notes to Financial Statements.
(4) Pro forma stockholders' equity assumes the termination of the mandatory
redemption rights associated with the Redeemable Shares upon the closing of
the Offering. See Notes 1 and 5 of Notes to Financial Statements.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND
RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Since the Company began operations in May 1990, it has provided publishing
services while also developing its SCOOP! information service business. The
Company's NewsMakers publishing services business provides printed media
reproductions in hard copy format such as customized reprints, wall displays and
desk displays of newspaper and magazine articles. The Company is in the process
of expanding its information management business with the development of the
SCOOP! information service which will be available over the Internet.
The NewsMakers business information product line has generated substantially
all of the Company's net sales to date. The categories of printed media
reproductions marketed by NewsMakers include article reprints, wall displays and
desk displays. In 1995, the Company focused its sales efforts on the growth of
the reprint business. While reprint margins are lower, due to royalty fees, the
Company believes the overall market for reprints to be substantially larger than
the market for wall displays products. In line with this focus, the Company
entered into a contract with Investors Business Daily ("IBD") to be IBD's
exclusive provider of article reprints and recently entered into a contract to
be the exclusive provider of reprints for The Motley Fool Internet publication.
The Company intends to attempt to further increase the sales of NewsMakers media
reprints through the addition of new contractual relationships.
The Company initiated development of the SCOOP SMARTGUIDE technology in
early 1994. These efforts were principally financed through contributions by the
NewsMakers business in 1994 and 1995. In the first half of 1996, the Company
completed various rounds of private funding. The private placements completed in
April through July 1996 netted the Company approximately $2.5 million and
enabled the Company to accelerate its pace of investment in the SCOOP!
information service business. Since 1994, the Company has invested approximately
$920,000 in the development of the SCOOP SMARTGUIDE technology, including
expenditures in development expenses, capital equipment, and content
acquisition. There can be no assurances that the Company will be successful in
its efforts to develop its SCOOP SMARTGUIDE technology. See "Risk Factors--Lack
of Operating History; Unproven Business Strategy."
The Company intends to complete product development and launch an electronic
mail version of the SCOOP! information service in the summer of 1997 and launch
the Internet version of SCOOP! in the fall of 1997.
The Company intends to market SCOOP! primarily through alliances which the
Company will attempt to establish with strategic distribution partners with
existing Internet services and customer bases. The Company believes this
distribution strategy will enable a broad market penetration while minimizing
customer acquisition costs. Although the Company has had discussions with
several potential strategic distribution partners, the Company has not yet
entered into any definitive agreements relating to the establishment of any
strategic distribution relationship and no assurance can be given that the
Company will be able to attract any such prospective strategic distribution
partners. See "Risk Factors--Dependence on Potential Strategic Distribution
Partners."
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net sales for the fiscal years ended December 31, 1994,
1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net sales............................................................................ 100.0% 100.0% 100.0%
Cost of sales........................................................................ 43.7% 55.1% 59.7%
------- ------- -------
Gross profit..................................................................... 56.3% 44.9% 40.3%
Operating expenses:
Research and development........................................................... 6.8% 19.3% 43.1%
Selling and marketing.............................................................. 7.4% 18.1% 28.4%
General and administrative......................................................... 63.3% 65.8% 122.5%
------- ------- -------
Total Operating Expenses....................................................... 77.5% 103.2% 194.0%
------- ------- -------
Operating Loss....................................................................... (21.2)% (58.3)% (153.7)%
------- ------- -------
Interest Expense..................................................................... 2.0% 3.7% 1.6%
------- ------- -------
Loss Before Provision For Income Taxes............................................... (23.2)% (62.0)% (155.3)%
Provision For Income Taxes........................................................... 0.2% 0.2% 0.1%
------- ------- -------
Net Loss............................................................................. (23.4)% (62.2)% (155.4)%
------- ------- -------
------- ------- -------
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased 44.1% in the year ended December 31, 1996 to
$1,395,900 from $968,600 in the comparable period in 1995. The growth in net
sales was driven by focused efforts to expand the sale of NewsMakers reprints.
Gross profit margins decreased due to higher royalty fees associated with
reprints and increases in production costs for the FAMEFRAME wall display
products. While reprints generally incur a higher royalty fee, decreasing gross
margins, the Company believes there is a larger market for reprints with a
higher growth potential than the Company's other reproduction products. It is
also believed that the reprint business will effectively compliment the SCOOP!
information service.
Net sales of reprints increased 64.5% in 1996 to $931,300 from $566,200 in
1995. Key to this growth in reprints was the establishment of a relationship
with Investors Business Daily ("IBD") in August 1995 to be the exclusive
provider of IBD content reprints. In 1997, the Company contracted with The
Motley Fool, an Internet based investment publication, to be the exclusive
provider of content reprints. The Company also expanded its license agreement
with UMI in 1997 to enable the Company to utilize certain UMI content for
reprints and other NewsMakers products in addition to the use of such content in
the SCOOP! service.
Net sales of FAMEFRAME wall displays decreased 9.2% in 1996 to $366,800 from
$403,900 in 1995 as the Company focused its sales efforts largely on reprints.
The FAMEFRAME product line is not viewed by the Company as synergistic with its
progression as an information services company. Due to this view and its low
gross profit contribution, the Company has decided to evaluate options for
selling or discontinuing the FAMEFRAME product line in 1997.
No sales deriving from SCOOP! are expected to occur until after the
anticipated commercial launch of the electronic mail service in the summer of
1997 and of the Internet based service in the fall of 1997. Once launched, sales
for SCOOP! are expected to be booked principally on a per transaction basis as
information is accessed by users.
24
<PAGE>
COST OF SALES. Cost of sales increased 56.0% in 1996 to $833,200 from
$534,100 in 1995. The increase in cost of sales and the related decline in
overall margins was primarily driven by higher royalty fees associated with the
growth of reprint sales, and declines in FAMEFRAME margins as a result of higher
production costs. Overall, gross profits from the sale of NewsMakers' products
increased by $128,200 in 1996 as compared to 1995.
Cost of sales consists primarily of the external production costs,
subscriptions, shipping and various usage, permission, and royalty fees arising
from the reproduction of electronic and printed content for the NewsMakers
products.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D")
expenses increased 222.5% in 1996 to $601,700 from $186,600 in 1995. Increases
in R&D expense were primarily driven by additional development team staffing,
increased utilization of third party design services, and increases in the cost
of content acquisition all related to the SCOOP SMARTGUIDE technology.
R&D expenses in 1996 and 1995 included the cost of content acquisition from
Information Access Company and UMI for the purpose of developing the SCOOP
SMARTGUIDE technology. Expenses for content acquisition in 1996 were $269,800
versus $150,000 in 1995. In October 1996, the Company signed a content agreement
with UMI. See "Business--UMI Relationship." Costs for UMI content will be
incurred as R&D expense up to the initiation of the SCOOP! service at which
point they will be included as part of costs of sales. The 1997 contractual
minimums with UMI are approximately $296,000.
To date all R&D expenses relate to the development of the SCOOP SMARTGUIDE
technology and have been expensed as incurred.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
126.4% in 1996 to $396,500 from $175,100 in 1995 as new sales and sales support
staff were added in late 1995 and 1996 in an effort to capitalize on new
publisher relationships and generate sales growth.
Expenses for SCOOP! sales and marketing, initiated in the fourth quarter of
1996, will increase in 1997 as the Company prepares for the launch of the SCOOP!
information service.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
("G&A") expenses increased 168.1% in 1996 to $1,710,300 from $637,900 in 1995.
The increase in G&A was primarily attributable to compensation expense for which
the Company used warrants and Common Stock as consideration for services
performed, increases in legal and accounting fees, and additional salary
expenses resulting from the expansion of the management team in 1996.
Compensation expense in 1996 resulting from the Company's use of warrants
and Common Stock as consideration for services performed totalled approximately
$324,000. Professional fees for accounting, legal, and other consulting services
in 1996 totalled approximately $416,000. In addition, G&A expenses consist of
all office service expenses, as well as salary and other expenses for internal
G&A functional departments.
INTEREST EXPENSE. Interest expense decreased 40.3% in 1996 to $21,500 from
$36,000 in 1995. Interest earnings from the proceeds of the Company's private
placements during 1996, offset increases in interest expense resulting from
financing of additional capital equipment used in the SCOOP SMARTGUIDE
technology development.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales increased 2.7% in 1995 to $968,600 from $943,500 in
1994. Substantially all sales were generated from the sale of reprints and
permanent displays of published information. Increases in the sale of reprints
were offset in 1995 by small declines in the sale of permanent wall displays.
The
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IBD exclusive reprint relationship, initiated in the third quarter of 1995,
helped to drive the increase in reprint sales.
COST OF SALES. Cost of sales increased 29.6% in 1995 to $534,100 from
$412,000 in 1994. This increase in cost of sales was driven by higher supplier
production costs for both reprints and permanent displays of $47,300. In
addition, subscription fees increased by approximately $56,400 in 1995 as
compared to 1994. Overall gross margins decreased to 44.9% in 1995 from 56.3% in
1994 as a result of the increase in supplier production costs and subscriptions
and the 2.7% increase in sales.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses increased 190.2% in 1995 to
$186,600 from $64,300 in 1994. The increase was entirely driven by the Company's
efforts to develop its SCOOP SMARTGUIDE technology.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
151.6% in 1995 to $175,100 from $69,600 in 1994 as the Company added sales staff
in late 1995. The Company also increased its marketing and promotional efforts
in 1995 as part of its push for sales growth. Expenses in 1995 also increased as
a result of bad debt write-offs in 1995 totalling $41,200.
GENERAL AND ADMINISTRATIVE EXPENSES. G&A expenses increased 6.7% in 1995 to
$637,900 from $597,600 in 1994. The increase was primarily due to increases in
legal and accounting administration costs and general business operating
expenses.
INTEREST EXPENSE. Interest expense increased 93.5% in 1995 to $36,000 from
$18,600 in 1994 as the Company increased borrowings to fund its software
development efforts.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through private
sales of Common Stock totalling approximately $2.5 million. At December 31,
1996, the Company had approximately $262,400 in cash and cash equivalents.
Subsequent to December 31, 1996, the Company continued to experience additional
operating losses and, as a result, the Company had approximately $37,700 in cash
and cash equivalents at March 31, 1997.
In 1995 and 1996, the Company used $303,400 and $1,656,200, respectively, in
operating cash flows primarily to fund the SCOOP SMARTGUIDE technology
development activities and additional expenses including the expansion of the
management team in 1996. The Company will incur minimum royalty payments under
its content agreement with UMI of approximately $296,000 in 1997 and $570,000 in
1998.
The Company has also used equipment leases and debt instruments to finance
the majority of its purchases of capital equipment, and at December 31, 1996 had
obligations of approximately $177,700 incurred in connection with these
purchases. Capital requirements for 1997 are currently expected to be
approximately $900,000, primarily consisting of computer equipment required to
support development of the SCOOP SMARTGUIDE technology and to run the SCOOP!
information service.
In February 1997, the Company obtained three short-term loans aggregating
$300,000 and bearing interest at 9.75% per annum. One of the loans for $75,000
is payable on the earlier of April 30, 1997 or one day after the closing of the
Offering. The second loan for $75,000 matured on March 31, 1997 and is currently
past due. The third loan for the remaining $150,000 is payable on April 30,
1997. All three short-term loans may be prepaid without penalty, are unsecured
and will be repaid from the net proceeds of the Offering. See "Certain
Transactions."
In February 1997, the Company also established a $150,000 revolving secured
credit line with a commitment term expiring on August 15, 1997. Borrowings under
the line bear interest at 9.5% per annum and are due on November 13, 1997. The
line is secured by the Company's accounts receivable and may be
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prepaid without penalty. The Company has borrowed $150,000 under the line and
anticipates that such borrowings will be repaid from the net proceeds of the
Offering.
The Company's ability to continue as a going concern is dependent upon
future events, including the successful development and market acceptance of its
SCOOP! service and its ability to secure additional sources of financing. These
factors raise substantial doubt about its ability to continue as a going
concern. The Company believes that the net proceeds from the Offering, its
$150,000 revolving line of credit and its existing cash and cash equivalents
will be adequate to meet its capital needs for at least the next nine months.
The Company's current operating plan shows that at the end of such nine-month
period, the Company will require substantial additional capital. Moreover, if
the Company experiences unanticipated cash requirements during the nine-month
period or experiences delays in the development or marketing of its SCOOP!
business information service, the Company could require additional capital to
fund its operations, continue research and development programs, and
commercialize any products that may be developed. There can be no assurance that
additional financing will be available at all or that, if available, such
financing will be obtainable on terms favorable to the Company and would not be
dilutive. See "Risk Factors--Ability to Continue as Going Concern," "--History
of Operating Losses; Anticipation of Continuing Losses," and "--Possible need
for Future Financing; Risk of Future Dilution."
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BUSINESS
INTRODUCTION
The Company is in the process of developing SCOOP!, an Internet-delivered
business information service designed to enable customers to efficiently satisfy
their daily information needs. SCOOP! customers will have access to an extensive
array of well-recognized news and information sources which the Company licenses
from UMI, a wholly-owned subsidiary of Bell & Howell and one of the world's
leading aggregators of articles from newspapers, periodicals and other
information sources. The Company believes that SCOOP! also will provide
customers with a combination of information delivery capabilities for accessing
relevant information from the Internet's World Wide Web (the "Web"). SCOOP! is
designed to provide users with three distinct information tools: (i) a
personalized electronic newspaper feature which provides current information
tailored to the individual user's preferences (the "Alert" service), (ii)
research tools for efficient retrieval of information from the Company's
licensed content databases and (iii) navigation tools for accessing information
available on the Internet's Web. The Company believes that through SCOOP! it
will be able to capitalize on the increasing use of Web "push" technologies that
independently seek out and deliver information to customers based on a profile
of their information needs rather than waiting for customers to request
information.
The Company plans to introduce and proliferate SCOOP! as a branded service
to corporate, professional, SOHO and other users primarily through alliances
with large, well-established providers of Internet services with existing
customer bases. The Company also intends to launch the SCOOP! service in a
variety of channels customized for users within a specific market or industry.
The Company intends to initially launch an electronic mail version of the
SCOOP! information service in the summer of 1997. The Company currently plans to
launch the Internet version of SCOOP! in the fall of 1997. Following commercial
launch, the Company expects to generate revenue from SCOOP! primarily through
transaction-based fees, such as fees charged for retrieval of full-text versions
of articles. The Company believes its transaction-based pricing structure will
encourage corporate decision makers and other professionals to use the SCOOP!
service because customers will be charged only for the information that they
select to satisfy their needs. The Company may also generate revenue in the
future by selling advertising targeted to reach customers based on their
individualized search profiles. No assurance can be given that the Company will
be successful in completing development of SCOOP!, in operating the SCOOP!
service or in generating revenue from SCOOP!. Any significant failure by the
Company in developing or marketing SCOOP! in a timely manner or in operating the
SCOOP! service will have a material adverse affect on the Company's business,
results of operations and financial condition. See "Risk Factors--Lack of
Operating History; Unproven Business Strategy," "--Failure to Develop Service or
Obtain Market Acceptance," "--History of Operating Losses; Anticipation of
Continuing Losses" and "--Ability to Continue as a Going Concern."
As the Company pursues the development and marketing of its SCOOP! business
information service, it also intends to continue to expand and generate sales
from its NewsMakers business information product line. The NewsMakers product
line promotes the reproduction, re-use and re-sale of articles from newspapers,
magazines and on-line publications. NewsMakers products include customized media
reprints, FAMEFRAME wall displays and lucite NEWSCUBE desk displays of published
articles. In the same way that the Company intends to use SCOOP! to add value to
the content licensed from UMI, NewsMakers adds value to content obtained through
the Company's relationships with various content suppliers. NewsMakers has been
the exclusive provider of reproduction and reprint services for IBD since August
1995 and recently entered into an exclusive agreement to provide the same
services for The Motley Fool, an Internet-based investment-oriented publication.
The Company's license agreement with UMI enables NewsMakers to utilize certain
UMI content for media reprints and other NewsMakers products. NewsMakers
products generated net sales of approximately $968,900 during 1995 and
$1,395,900 during 1996, a 44.1% increase. Currently, the Company derives all of
its sales of business information products from its NewsMakers department. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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INDUSTRY OVERVIEW
The Internet is a global collection of computer networks which link public
and private computers throughout the world. The Internet was created beginning
in the late 1960s when the Department of Defense needed a distributed network
system to connect government research computers throughout the country. Over
time, academic institutions started connecting to the network. Until
approximately five years ago, the Internet was primarily used by these
government agencies and academic institutions to exchange information and
transmit and receive electronic mail, or e-mail, messages. The recent
proliferation of communications-enabled PCs, the development of computer
software systems which have extremely sophisticated graphics and which are
increasingly intuitive, the emergence of a healthy network infrastructure and
other factors have resulted in rapidly-declining costs of accessing information
on the Internet which has fueled the Internet's growth. The Internet's growth
has facilitated the emergence of the Web, a client/server system of hyperlinked,
multimedia databases which allows non-technical PC users to access information
on the Internet and enables providers to supply textual, graphical and other
information directly to PC users. PC users can easily access information on the
Web using client software commonly referred to as Web "browsers" such as
Netscape's Navigator and Microsoft's Internet Explorer.
Morgan Stanley's "The Internet Report" (December 1995) (the "Morgan Stanley
Report") estimated that there were approximately 150 million PC users throughout
the world at the end of 1995, of which only 35 million were e-mail users, only
10 million were Internet/Web users and only 8 million were users of online
services such as America Online, CompuServe and Prodigy. The Morgan Stanley
Report further estimated that there will be more than 250 million worldwide PC
users by the year 2000 and that approximately 200 million of such PC users will
utilize e-mail, as many as 170 million of such PC users will utilize the
Internet and the Web and about 30 million of such PC users will subscribe to
online services.
Hambrecht & Quist's "Internet Report" (September 1995) predicted that a wide
variety of products and services will eventually be delivered by means of the
Internet. In its report, Hambrecht & Quist estimated that the information
content delivery segment of the Internet industry alone will grow from
approximately $50 million per annum in 1995 to approximately $10 billion per
annum by the year 2000.
The Morgan Stanley Report estimated that the number of Internet users
doubled each year between 1990 and 1995, and predicted that this growth rate
would continue through the next decade. The Company believes this trend provides
it with an excellent opportunity to market its business information service to a
large and growing number of potential corporate, professional, SOHO and other
users within the next several years if the Company succeeds in implementing its
marketing and sales strategy of selling its business information service through
alliances with large strategic partners.
The Company also believes that PC users will find its products easy to use
and will allow them to move almost instantly from their daily customized Alert
report to other sources of business information on companies and news items of
interest including information contained in the Company's licensed content
database, in the home pages maintained by other companies on the Web, and from
other Internet sources.
THE COMPANY'S HISTORY
The Company commenced business operations in May 1990. The Company's
original business focused on the sale of NewsMaker media products promoting the
re-use or re-sale of articles published in business or financially-oriented
newspapers, trade and consumer magazines and other periodicals. The Company's
NewsMakers products currently include customized media reprints of published
articles, FAMEFRAME wall hangings depicting articles or cover pages from
publications, and NEWSCUBES containing miniaturizations of articles or issues
enclosed in solid plastic cubes.
In late 1993, the Company formed NewsMakers Information Services, Inc. which
introduced the Company's next generation of business information products. This
portion of the Company's business originally involved the distribution of
business information electronically to customers by means of direct
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broadcast facsimile and a private electronic mail, or e-mail, system. The
Company's first such product, MEDIAALERT, was introduced in late 1993. The
Company introduced a second product, HEALTHALERT, in mid-1994. HEALTHALERT was
primarily focused on medical device manufacturers and the pharmaceutical
industry.
The Company soon realized that its direct broadcast facsimile and private
e-mail delivery systems inevitably led to "information overload" on the part of
its customers and, as a result, ceased providing such earlier generation
business information products and commenced the development of the critical
components of what is now known as the SCOOP SMARTGUIDE technology. The Company
has spent approximately $920,000 since 1994 in developing its SCOOP SMARTGUIDE
software technology. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
Upon completion of the development of its SCOOP SMARTGUIDE technology, the
Company believes it will be capable of reaching its targeted market consisting
of corporate, professional, SOHO and other users of business information with
its Internet and Web-based business information services. The Company further
believes that it will have the potential to introduce other business information
products utilizing the "SCOOP!" name in a variety of vertical markets, such as
the medical, accounting and human resources markets, by customizing information
services for professionals in such markets.
PRODUCTS AND SERVICES
SCOOP! SERVICE. Through SCOOP! the Company will offer customers access to
content from a broad range of worldwide news and information sources, including
well-recognized publications such as THE WASHINGTON POST, FORBES, WIRED and THE
NEW ENGLAND JOURNAL OF MEDICINE. The Company anticipates that over 3,000
worldwide news and information sources will be available through SCOOP!,
including national and regional domestic newspapers, international newspapers,
magazines, financial journals, industry journals, trade publications, general
business publications and newswires and press release services. A selection of
current news and other information will be made available through SCOOP! from
UMI's information database which includes approximately 11 million proprietary
abstracts and rights to full-text and full image content from over 7,000
newspapers, 18,000 periodicals and 1.2 million dissertations and other
materials. The Company expects that a substantial portion of its news sources
(E.G., newswires) will be continuously updated, enabling SCOOP! users to obtain
current information on a timely basis through customized Alert reports. SCOOP!
will also enable customers to obtain specific information concerning various
public and private companies of interest through company intelligence profiles.
In addition, SCOOP! users will be able to hyperlink directly to home pages
maintained by companies mentioned in abstracts and full-text versions of
articles by simply "clicking" on the company name.
The Company intends to complete product development and initially launch an
electronic mail version of the SCOOP! information service in the summer of 1997.
The Company currently plans to launch the Internet version of SCOOP! in the fall
of 1997. SCOOP! is expected to begin contributing revenue to the Company shortly
after the launch.
SCOOP SMARTGUIDE TECHNOLOGY. The Company's proprietary SCOOP SMARTGUIDE
technology, which is presently being developed, will be the foundation for the
SCOOP! business information service. The SCOOP SMARTGUIDE technology will enable
customers to structure profiles to track industry developments or obtain
information pertaining to companies, products or other topics of interest to the
customers. Based on customer-defined profiles, the SCOOP SMARTGUIDE technology
will present customers with customized Alert reports comprised of brief
abstracts sorted in order of relevancy. The SCOOP SMARTGUIDE technology
encompasses Scoop's HEURISTIC PROFILING SYSTEM ("SCOOP HPS") and CONTENT
DISTRIBUTION SYSTEM ("SCOOP CDS") technologies. SCOOP HPS will determine the
relevancy of articles to each customer based on defined key terms and indices
using a context vectoring system, the customer's defined profile, the customer's
article selection history, and the article selection history of the customer's
professional communities. SCOOP CDS will be designed to deliver selected
articles to customers via the delivery medium of their choice such
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as message pagers, facsimiles, personal data assistants ("PDAs") and personal
communication systems ("PCSs"). Customers will be able to structure profiles to
track industry developments or obtain information pertaining to companies,
products or other topics of interest to the customer. SCOOP CDS will enable
customers to view lists of articles sorted in order of relevancy, skim through
abstracts of the articles, and retrieve full-text versions of articles for
immediate review or storage on their computers for later review. The SCOOP
SMARTGUIDE technology is designed to enable customers to perform additional
research on companies or subjects of interest by searching deeper in content and
corporate intelligence databases. In addition, the SCOOP SMARTGUIDE technology
is designed to enhance customers' ability to quickly access relevant information
which is publicly available on the Web by enabling customers to hyperlink from
the Company's licensed content databases to specific information sources, such
as company home pages, on the Web. The Company believes that the Alert, research
and Web navigation features of the SCOOP SMARTGUIDE technology comprise a
combination of services and tools which will enable customers to quickly and
efficiently meet their information needs.
NEWSMAKERS MEDIA. The Company also markets printed media reproductions
(article reprints and desk and wall displays) that are customized by the
Company's in-house layout department and printed and/ or manufactured by outside
contractors. NewsMakers media has been the exclusive provider of reproduction
and reprint services for IBD since August 1995 and recently entered into an
exclusive agreement to provide the same services for The Motley Fool, an
Internet-based investment-oriented publication. The Company has also expanded
its content reselling agreement with UMI to allow the Company to market media
reprints from published content received from UMI.
The Company believes that its NewsMakers media reprints product line will be
complementary to its Internet and Web-based business information services. Net
sales of media reprints increased 64.5% in 1996 to $931,300 from $566,200 in
1995.
Net sales of NewsMakers FAMEFRAME wall displays decreased 9.2% for 1996 to
$366,800 from $403,900 in 1995. Unlike media reprints, the Company does not
believe that the FAMEFRAME product line will be complementary with the SCOOP!
information services. FAMEFRAME profit contributions have also decreased over
the past two years as production costs have increased. The Company is evaluating
options for selling or discontinuing the FAMEFRAME product line in 1997.
UMI RELATIONSHIP
LICENSE AGREEMENT. The Company initially will derive all of its content for
SCOOP! from its license agreement with UMI. See "Risk Factors--Dependence on UMI
Content." The UMI license agreement has an initial term of three years expiring
in October 1999, and provides for automatic one year renewals unless notice of
termination is provided before the end of the term or any extensions thereafter.
The Company has the right under the license agreement to resell through SCOOP!
the vast majority of the "current" content (i.e., content less than six months
old) which is available for electronic distribution through UMI and its
subsidiaries, including DataTimes which primarily provides current news and
business information. The Company will pay UMI royalties based on transaction
fees, subscription fees and distribution partner fees received by the Company.
Royalties will be paid at a flat rate for full text versions of articles
purchased by users. Step reductions in the flat rate will become effective if
the Company achieves certain cumulative volumes of full text sales. The Company
will pay fixed percentage royalties on fees generated from sales of summaries of
articles, subscriptions and distribution partners. The license agreement
requires the Company to make guaranteed minimum annual royalty payments of
approximately $20,000 in 1996, $296,000 in 1997, $570,000 in 1998 and $652,500
in 1999. The Company also has limited exclusive third-party reselling rights
with respect to the distribution of certain UMI content via specified
alert-based Internet delivery systems provided that the Company makes certain
minimum annual royalty payments to UMI of at least $200,000 in year one of the
contract, $400,000 in year two, and $600,000 in year three. Cross-selling
arrangements between UMI and the Company will enable SCOOP! users to access
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additional information from UMI's extensive database by hyperlinking from SCOOP!
to UMI's ProQuest-TM- Direct Web service and other UMI premium research
services. The Company will receive referral royalties from UMI in the event
SCOOP! users subscribe to and utilize the UMI services.
ENHANCING RELATIONSHIP. The Company views UMI as an established leader in
the information services industry and intends to explore additional areas for
enhancing its strategic relationship with UMI, including technology sharing,
joint product development, additional co-marketing efforts and overall business
efficiencies. In connection with entering into the UMI license agreement, the
Company issued Bell & Howell, UMI's parent, a three-year warrant to acquire a
significant interest in the Company. Under the warrant, Bell & Howell has the
right to purchase 550,000 shares of Common Stock at any time through October
1999 at prices ranging from $6.50 to $15.00 per share. In the event Bell &
Howell exercises its warrant for at least 300,000 shares by September 15, 1997,
Bell & Howell can either (i) purchase up to an additional 200,000 shares at
$6.50 per share by September 15, 1997, or (ii) purchase up to an additional
50,000 shares at $10.00 per share, and 100,000 shares at $15.00 per share by
October 31, 1999. If Bell & Howell fully exercises its warrant for the initial
550,000 shares, it will own approximately 9.6% of the Common Stock of the
Company based on the number of shares expected to be outstanding upon
consummation of the Offering. See "Principal Stockholders" and "Description of
Capital Stock-- Warrants."
SALES AND MARKETING STRATEGY
The Company expects that a version of SCOOP! will initially be delivered to
customers via electronic mail starting in the summer of 1997. The Company
currently plans to launch the Internet version of SCOOP! in the fall of 1997.
The Company will then seek to deliver its service via additional delivery
mediums such as cable, telephone, PDAs, PCSs and pagers. The Company's principal
marketing strategy is to proliferate SCOOP! as a "branded" service across
numerous information mediums by distributing SCOOP! primarily through alliances
with large, well-established strategic distribution partners with existing
customer bases. The Company intends to market SCOOP! and obtain customers by
accessing and attracting users from the existing customer bases of distribution
partners. The Company also believes that its partner distribution strategy will
provide the Company with a cost effective marketing alternative to the more
capital intensive marketing programs aimed at individual users. Although the
Company has initiated discussions with several prospective distribution
partners, to date there are no agreements between the Company and any such
parties. No assurances can be given that the Company will be successful in
entering into any such agreements or implementing its distribution strategy or
that the Company will be successful in its efforts to attract and retain
customers of its distribution partners. See "Risk Factors--Dependence on
Potential Strategic Distribution Partners."
The Company believes that the success of its Internet and Web-based business
information services may also result in additional publications seeking to
become future content providers for NewsMakers' media reprint products.
PRICING AND CUSTOMERS
The Company presently has not launched SCOOP! and has no paying customers
for its Internet and Web-based business information service. However, the
Company will attempt to contract with a number of strategic partners to jointly
market the Company's business information service or bundle it with the
strategic partners' own services for sale to large numbers of customers and
potential customers. The Company expects its primary source of revenue from the
SCOOP! service will be from transaction fees generated by the distribution of
abstracts, company intelligence profiles and full-text articles. The Company
believes that the importance of advertising revenues will increase as its
customer base grows.
The Company believes one of SCOOP!'S competitive advantages will be that
customers will not be charged for using the service until they locate and
retrieve information they deem relevant. SCOOP!
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generally will provide the personalized Alert service for free. Users will not
be charged until they retrieve full-text articles, company intelligence, and
other research information. The Company anticipates marketing full-text articles
for under $3.00 per article while intelligence and research information will be
competitively priced based on the particular reports selected. The Company
believes that SCOOP! users will generally be able to satisfy their information
needs for a cost lower than many of the competitive services offered on a
subscription basis.
The Company's content providers for its NewsMakers media reprint products
include approximately five content providers for which the Company acts as
exclusive outsourcing agent, and a number of content providers for which the
Company acts as agent on a project-by-project basis. One such exclusive content
provider, IBD, presently accounts for approximately 48% of the Company's annual
revenue. The Company anticipates adding additional new publications to its list
of exclusive customers for its publishing products and services, although there
can be no assurance that such additional customers will be added.
COMPETITION
The market for business information services, including Internet information
products and services, is intensely competitive and rapidly changing.
Participants in this market range from extremely large and well-capitalized
companies to smaller competitors as there are no substantial barriers to entry
into such market. The Company's direct competitors for its Internet and
Web-based business information service will include Individual, Inc., DeskTop
Data, and M.A.I.D. Plc. The Company may also compete, directly or indirectly,
for customers and/or information content sources with the following categories
of companies: (i) connectivity providers of telephone, cable, wireless and/or
other means of accessing the Internet, (ii) large, well-established news and
other information providers, such as Dow Jones & Company, Inc., Knight-Ridder,
Inc. ("Knight-Ridder"), Pearson Plc, Reed Elsevier Plc. ("Lexis/Nexis"), Reuters
America, Inc., and Thompson Financial Networks, Inc., (iii) traditional print
media companies that are increasingly searching for opportunities for providing
news online, including through the establishment of Web sites on the Internet,
(iv) providers of network-based software systems such as Lotus Development
Corporation and Microsoft Corporation, which have allied, or may in the future
ally, with competing news and other information providers, (v) third party
providers of software which allows PC users to aggregate and filter a variety of
news feeds, (vi) consumer online services such as America Online, GEnie
CompuServe and Prodigy, (vii) Internet-based news distributors such as ClariNet
Communications Corp., Marimba Inc.'s Castanet and the PointCast Network, (viii)
search engine providers such as Digital Equipment's Alta Vista Corporation,
Excite, Inc., Infoseek Corporation, Lycos, Inc., Verity, Inc. and Yahoo!, Inc.,
and (ix) companies that offer space for advertising on the Web, including
content Web sites.
Substantially all of the Company's potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources and greater name recognition than the Company. Many of these
competitors are already well established in the Internet marketplace and
therefore have a significant competitive advantage. In addition, these
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, and to devote greater resources to the
development, promotion and sale of their information services and products than
the Company. There can be no assurance that the Company's potential competitors
will not develop products and services comparable or superior to those developed
by the Company or adapt more quickly than the Company to new technologies,
evolving industry trends or changing customer requirements.
Some of the Company's potential competitors own all or a substantial part of
the information content in their databases. The Company does not own any of its
content and therefore must license content from providers at substantial cost.
Competitors who own their own information have no license fee obligation on
their own information, and may limit or preclude access by the Company to their
information, which gives such competitors a pricing or other competitive
advantage over the Company.
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The Company believes that the overall cost to the consumer of retrieving
useful information through an online service is an important competitive factor.
This cost includes such elements as subscription fees, usage fees, online
charges and other items. The Company could be required to reduce its anticipated
subscription or transaction fees or otherwise alter its anticipated pricing
structure in response to competitive pressures.
Increased competition on the basis of price, depth and breadth of services
and data sources or other factors could result in price reductions, reduced
margins or loss of market share, any of which would materially and adversely
affect the Company's future business, results of operations or financial
condition. There can be no assurance that the Company will be able to compete
successfully against its competitors, or that competitive pressures faced by the
Company will not have a material adverse effect on its business, results of
operations and financial condition. If the Company is unable to compete
successfully against its competitors, the Company's business, results of
operations and financial condition will be materially adversely affected.
TRADEMARKS AND PROPRIETARY RIGHTS
The Company regards its SCOOP SMARTGUIDE technology and its other
copyrights, trademarks, trade secrets and intellectual property as critical to
its success, and the Company has relied, and intends to continue to rely, upon
trademark and copyright law and trade secret protection. The Company is also
considering patent protection for certain elements of its SCOOP SMARTGUIDE
technology. In addition, the Company relies on confidentiality and/or license
agreements with its employees, strategic partners and others to protect its
proprietary rights. The Company has registered its NEWSMAKERS and FAMEFRAME
trademarks in the United States and has recently filed trademark applications to
register MEDIAALERT and SCOOP!. The Company is also in the process of pursuing
the registration of certain of its other trademarks and tradenames in the United
States and (based upon anticipated use) internationally. Effective trademark,
copyright, trade secret and possible patent protection may not be available in
every country in which the Company's business information products may be
distributed or made available through the Internet. There can be no assurance
that the steps taken, and anticipated to be taken, by the Company to protect its
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate the Company's copyrights, trademarks, tradenames,
trade secrets, patents (if any) and similar proprietary rights. In addition,
there can be no assurance that other parties will not assert infringement claims
against the Company.
GOVERNMENT REGULATION
The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to business generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, covering issues such as user privacy, pricing and
characteristics and quality of products and services. The Telecommunications
Reform Act of 1996 (the "1996 Telecommunications Act") imposes criminal
penalties on anyone who distributes obscene, lascivious or indecent
communications on the Internet (although a trial court recently ruled many of
such prohibitions to be unconstitutional). The adoption of the 1996
Telecommunications Act or any other such laws or regulations may decrease the
growth of the Internet, which could in turn decrease the demand for the
Company's business information products and increase the Company's cost of doing
business or otherwise have an adverse effect on the Company's business, results
of operations and financial condition. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership, libel and
personal privacy is uncertain.
POTENTIAL LITIGATION
In August 1995, the Company's former subsidiary, NewsMakers Information
Services, Inc., and Immedia Net, a corporation owned and controlled by Michael
F. Arrigo, executed a letter outlining their
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mutual understandings regarding the proposed establishment of a new corporation
which was to be owned 50% by the NewsMakers subsidiary and 50% by Immedia Net
and which was to be organized to take advantage of new business opportunities.
Among other things, such letter contemplated that such new corporation would be
a distributor of the media information content obtained by the NewsMakers
subsidiary through its licenses in connection with the provision of services on
the Internet or other online services. Management believes such letter
contemplated the negotiation, execution and delivery of a definitive final
written agreement and other documents by the parties. The relationship between
the NewsMakers subsidiary, on the one hand, and Immedia Net and Mr. Arrigo, on
the other hand, deteriorated soon after the execution of such letter and no
definitive final written agreement was ever prepared, executed or delivered by
either NewsMakers or Immedia Net. In response to a letter sent in January 1996
by the Company's counsel formally terminating all further negotiations between
the NewsMakers subsidiary and Immedia Net, Immedia Net formally took the
position that the letter between it and NewsMakers was a legally binding
contract, that NewsMakers had breached such alleged contract and that Immedia
Net intended to take appropriate legal steps to protect its rights if NewsMakers
did not commence to abide by the contract's terms. Since such response, the
Company has not taken any further action with respect to this matter and the
Company is not aware that either Immedia Net or Mr. Arrigo has taken any further
action. Although the Company does not believe that a legally binding contract
existed between the NewsMakers subsidiary and Immedia Net, there can be no
assurance that Immedia Net and Mr. Arrigo will not initiate litigation against
the Company as the successor-in-interest to NewsMakers. If litigation is
initiated, there can be no assurance that the Company would prevail. The costs
of defending any legal action as well as the cost of any judgment that Immedia
Net and Mr. Arrigo might obtain against the Company could have a material
adverse effect on the Company's business, operating results and financial
condition.
EMPLOYEES
As of December 31, 1996, the Company employed a total of 28 persons,
including eight in sales and marketing, five in software development and
technical support, eight in layout and operations and seven in general and
administrative functions, including management. None of the Company's employees
is represented by a labor union or is subject to a collective bargaining
agreement. The Company has never experienced a work stoppage and believes that
its relations with its employees are good.
FACILITIES
The Company presently leases approximately 6,400 square feet of office space
in Santa Ana, California. The lease for the Company's office space is currently
$7,290 per month with certain increases over time. The lease expires in
September 2000. The Company may lease additional space as its needs require,
which additional space the Company believes will be available on acceptable
terms.
POSSIBLE ACQUISITIONS
Subsequent to the completion of this Offering, the Company may pursue
possible acquisitions of complementary companies, products or technologies. The
Company believes that acquisitions may provide diversification of revenue and
enhanced revenue growth. The Company is not presently a party to any
discussions, agreements, arrangements or understandings in connection with any
such possible acquisition. See "Use of Proceeds" and "Risk Factors--Risks
Inherent in Unspecified Potential Acquisitions."
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
executive officers, directors and certain key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Karl-Magnus S. Karlsson............. 33 Chairman of the Board
Mark A. Davidson.................... 35 President and Chief Financial Officer
Peter Kui........................... 36 Director of Engineering
Bill O'Connell...................... 32 Director of Marketing
Daniel L. Pelekoudas................ 34 Executive Vice President, General Counsel and Secretary
Michael Baum(1)(3).................. 34 Vice Chairman of the Board and Chief Technical Advisor
John P. Kensey(1)(3)................ 60 Director
K.C. Craichy(2)..................... 34 Director
Nils B.A. Andersson(2).............. 43 Director
Michael K. Boone(1)(3).............. 35 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Executive Committee
The following sets forth information as to the business experience for at
least the past five years of each executive officer and director and certain key
employees of the Company:
KARL-MAGNUS S. KARLSSON is a co-founder of the Company and has served as a
director of the Company since May 1990 and as the Chairman of the Board of
Directors of the Company since the creation of that position in July 1996. Mr.
Karlsson served as President and Chief Executive Officer from May 1990 through
February 1997. Prior to co-founding the Company, Mr. Karlsson worked for The
Interpublic Group, Inc. and its subsidiary, McCann Erickson Worldwide, in
various executive-level capacities for approximately three years. Mr. Karlsson
holds a B.A. in Communications from California State University at Fullerton and
an M.B.A. from the American Graduate School of International Management
(Thunderbird), Glendale, Arizona. Mr. Karlsson is the brother-in-law of Mr.
Craichy, a director of the Company.
MARK A. DAVIDSON has served as President of the Company since February 1997
and as Chief Financial Officer since July 1996. From February 1995 through March
1996, Mr. Davidson was the controller at USoft where he was responsible for
worldwide accounting, treasury and financial planning activities. He served as
the Controller of the Imaging Products Manufacturing Division of Unisys
Corporation from October 1992 through January 1995 and the Group Finance Manager
of Unisys' Computer Systems Group from January 1990 to September 1992. He
received a B.S. in Business Administration, with an emphasis in accounting, from
Humboldt State University.
PETER KUI joined the Company as Director of Engineering in December 1996.
From August 1995 through November 1996, Mr. Kui was the Director of Software
Development at Quest Software where he architected and led the development of an
Intranet document management system. From April 1994 through August 1995, Mr.
Kui was a Development Manager at Russell Information Sciences where he led the
development of a personal scheduling system. From January 1992 through March
1994, Mr. Kui was a Senior Project Manager at Data General Corporation where he
was a technical consultant for client/server software engineering. From October
1988 through January 1992, Mr. Kui was the Software Development Manager at
Quotron Data Systems for the International Data Collector, the network hub for
collection and normalization of financial information from European and Asian
stock exchanges. Mr. Kui attended the University of California at Berkeley where
he studied Computer Science.
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BILL O'CONNELL joined the Company as Director of Marketing in November 1996.
Prior to joining the Company, Mr. O'Connell was an independent consultant
rendering services to firms doing business in electronic commerce. From November
1994 to April 1996, Mr. O'Connell led a $40 million electronic transaction
processing division for First Interstate Bank, where he had responsibility for
strategic planning, marketing, product management and financial activities. From
October 1989 to November 1994, Mr. O'Connell held several positions in
marketing, product development and product management for Wells Fargo Bank. Mr.
O'Connell received his B.A. in Political Science in 1986 and his M.B.A. in 1989,
both from the University of California at Irvine.
DANIEL L. PELEKOUDAS joined the Company as Executive Vice President, General
Counsel and Secretary in June 1996. From August 1994 through June 1996, Mr.
Pelekoudas was a corporate attorney with Latham & Watkins, a national law firm,
where he specialized in public and private financing transactions, securities,
mergers and acquisitions and general corporate matters. From October 1987
through July 1994, Mr. Pelekoudas specialized in the same practice areas as a
corporate attorney with the law firm of Pettis, Tester, Kruse & Krinsky. Mr.
Pelekoudas received B.A. and J.D. degrees from the University of Michigan and is
an active member of the State Bar of California.
MICHAEL J. BAUM has been involved in the Company's product efforts since
September 1995 and was appointed Vice Chairman and Chief Technical Advisor in
July 1996. Mr. Baum co-founded Realty On-Line, Inc. in 1984, which created a
consumer-focused financial on-line service which is now operated by Reuters as
the Reuters Money Network. Mr. Baum is currently President and Chief Executive
of 280, Inc., a San Francisco-based company he co-founded in April 1996 to
develop new Internet/Intranet software technologies and services. From June 1994
through March 1996, Mr. Baum was a principal of Advent International, a venture
capital firm, and was primarily responsible for Advent's Information Technology
investment activities on the West Coast. From February 1993 through April 1994,
he was an entrepreneur in residence at CrossPoint Venture Partners, a seed stage
venture capital fund. Mr. Baum also co-founded and, from July 1990 through
January 1993, served as President and Chief Executive Officer of Pensoft
Corporation, a software company which developed database products for wireless
devices. Mr. Baum received a B.S. in Computer Science from Drexel University in
1985 and an M.B.A. from the Wharton Business School in 1989.
JOHN P. KENSEY has served as a director of the Company since June 1996. In
March 1990, Mr. Kensey founded Avalon Capital Corporation, a privately-held
consulting firm primarily engaged in providing strategic consulting services to
emerging growth companies. Mr. Kensey has served as the President and Chief
Executive Officer of Avalon Capital Corporation since its inception. Mr. Kensey
has held various executive officer and management level positions with The Coca
Cola Bottling Company of Los Angeles, Coast Catamaran Corporation, McKinsey &
Company, Inc., Mattel, Inc. and a number of privately-held companies. Mr. Kensey
holds a B.S. in Industrial Engineering from Stanford University, an M.B.A. from
Harvard University and is a Ph.D. candidate with The Peter F. Drucker Graduate
Management Center at Claremont McKenna College.
K. C. CRAICHY has served as a director of the Company since November 1995.
Since October 1996, Mr. Craichy been Chairman of the Board of Directors of ARZCO
Medical Systems, Inc., a privately-held medical device manufacturer. From June
1994 through October 1996, Mr. Craichy served as the Chairman of the Board of
Directors, Chief Executive Officer and President of ARZCO. From May 1991 through
June 1994, Mr. Craichy served as President of Synchrotech Medical, a company
which was merged into ARZCO Medical Systems, Inc. in June 1994. Prior to May
1991, Mr. Craichy served as the President of KCC International, Inc., a
privately-held corporate finance and strategy consulting firm founded by Mr.
Craichy in June 1987. Mr. Craichy is the brother-in-law of Mr. Karlsson.
NILS B.A. ANDERSSON has served as a director of the Company since December
1993. In 1981, Mr. Andersson founded Nils, Inc., a privately-held skiwear
manufacturer located in Fountain Valley, California. Mr. Andersson has served as
the President and Chief Executive Officer of Nils, Inc. since its
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inception. Mr. Andersson graduated from Deutsche Bekleidungs Akademie, a leading
clothing design school located in Munich, Germany, and also attended the
University of Lund in his native Sweden where he studied accounting and
political economy.
MICHAEL K. BOONE has served as a director of the Company since December
1993. In 1984, Mr. Boone founded Boone International, Inc., a privately-held
manufacturer of dry erase bulletin boards and other consumer products based in
Corona, California. Mr. Boone has served as the President of Boone
International, Inc. since its inception. Prior to forming Boone International,
Inc., Mr. Boone holds a B.S. in Petroleum Engineering from Stanford University.
The officers of the Company are elected by the directors and, subject to any
employment agreement the Company may enter into with such officers, serve at the
discretion of the Board of Directors. The Company does not have employment
agreements with any of its officers but anticipates entering into agreements
with one or more of its executive officers after the completion of this
Offering.
In 1997, Mr. Davidson assumed the office of President to permit Mr. Karlsson
to concentrate on the strategic focus of the Company as its Chairman of the
Board. The Company has initiated a search for a Chief Executive Officer with
significant experience in the business information service and Internet
industries to complete the Company's management team.
BOARD OF DIRECTORS AND COMMITTEES
The business of the Company's Board of Directors is conducted through full
meetings of the Board, as well as through meetings of its committees. Set forth
below is a description of the committees of the Board.
The Executive Committee advises Mr. Davidson concerning the operation of the
Company and reviews, evaluates and makes recommendations with respect to
specific matters delegated to it by the Board of Directors. The Executive
Committee also is responsible for identifying and screening potential Chief
Executive Officer candidates. The Executive Committee consists of Messrs.
Kensey, Baum and Boone. Mr. Kensey is the Chairman at the Executive Committee.
The Audit Committee makes recommendations to the Board of Directors
regarding the selection of the Company's independent auditors, reviews the
results and scope of the audit and other services provided by the Company's
independent auditors, and reviews and evaluates the Company's audit and control
functions. The Audit Committee consists of Messrs. Andersson and Craichy. Mr.
Andersson is the Chairman of the Audit Committee.
The Compensation Committee determines the salaries and incentive
compensation for employees and consultants of the Company and administers and
determines appropriate awards under the Company's Stock Incentive Plan. See
"--Stock Incentive Plan." The Compensation Committee consists of Messrs. Kensey,
Baum and Boone. Mr. Kensey is the Chairman of the Compensation Committee.
The directors serve until the next annual meeting of stockholders and the
election and qualification of their successors. Upon the satisfaction of certain
aspects of California law, the directors will be divided into three classes,
each having a term of three years and with a term of one class expiring each
year. See "Description of Capital Stock--Governing Law and Certain Charter and
Bylaw Provisions."
DIRECTORS' COMPENSATION
Prior to July 1996, directors received no cash compensation for serving on
the Company's Board of Directors. Beginning in July 1996, the Company began
paying fees to its non-officer and non-employee directors for serving on the
Board of Directors and its committees and for their attendance at Board of
Director and committee meetings. The Company pays each non-employee director an
annual fee of $4,000. Non-employee directors are reimbursed for reasonable
expenses incurred by them in attending Board or committee meetings. In addition,
non-employee directors are eligible for the grant of stock options under the
Stock Incentive Plan. As of December 31, 1996, Mr. Baum has been granted options
to
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<PAGE>
purchase 115,000 shares at $2.50 per share, Mr. Kensey has been granted options
to purchase 25,000 shares at $2.00 per share and 25,000 shares at $2.50 per
share, and Messrs. Boone, Andersson and Craichy have each been granted options
to purchase 15,000 shares at $2.00 per share. Each non-employee director will be
granted options to purchase 15,000 shares of Common Stock at the fair market
value on the date of grant every fourth year during the term of the Stock
Incentive Plan following the date on which such non-employee director is first
elected or appointed if such non-employee director has continuously served for
such period. See "--Stock Incentive Plan." Mr. Baum and Mr. Kensey have also
received compensation for consulting services provided to the Company. After the
Offering, Mr. Baum will continue to receive compensation for providing
consulting services and Mr. Kensey will receive compensation for chairing the
Executive Committee. See "Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
Karl-Magnus S. Karlsson, the Company's Chairman of the Board, for the fiscal
years ended December 31, 1995 and 1996. No other executive officers of the
Company earned in excess of $100,000 of salary and bonus during the fiscal years
ended December 31, 1995 and 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
ALL OTHER
YEAR SALARY(1) COMPENSATION(2)
--------- ---------- ----------------
<S> <C> <C> <C>
Karl-Magnus S. Karlsson
Chairman of the Board.................................................... 1996 $ 126,200 $ 37,150
1995 $ 128,000 $ 4,400
</TABLE>
- ------------------------
(1) The $128,000 reported for 1995 includes $76,000 of compensation deferred by
Mr. Karlsson from 1995 which the Company commenced paying to Mr. Karlsson in
July 1996 in 12 monthly installments of $6,333 each.
(2) The amount shown for 1995 represents life insurance premiums paid by the
Company. The amount shown for 1996 represents life, health and disability
insurance premiums plus auto lease and insurance payments.
STOCK INCENTIVE PLAN
The Company's Board of Directors and stockholders adopted the Stock
Incentive Plan to promote and advance the interests of the Company and its
stockholders by (i) enabling the Company to attract, retain and reward executive
officers and other key employees and non-employee directors, and (ii)
strengthening the mutuality of interests between participants in the Stock
Incentive Plan and the stockholders of the Company in its long-term growth,
profitability and financial success by offering stock options and other
stock-based awards. The following summary of the Stock Incentive Plan is
qualified in its entirety by the Stock Incentive Plan filed as an exhibit to the
Registration Statement of which this Prospectus is a part, and is subject to
change following review by applicable state regulatory authorities.
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<PAGE>
ADMINISTRATION. The Stock Incentive Plan empowers the Company to award or
grant from time to time, to executive officers, directors, key employees and key
consultants of the Company and its subsidiaries, incentive stock options
("ISOs") and nonqualified stock options ("NQSOs") (ISOs and NQSOs being
collectively referred to as "Options"), restricted stock, dividend equivalents,
deferred stock, performance awards, and stock appreciation rights ("SARs")
(collectively, "Awards"). The Stock Incentive Plan is administered by the
Compensation Committee which must consist of at least two directors of the
Company who are "non-employee directors" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Committee has the sole authority to construe and interpret the Stock Incentive
Plan, to make rules and procedures relating to the implementation of the Stock
Incentive Plan, to select participants, to establish the terms and conditions of
Awards and to grant Awards. All executive officers, key employees, non-employee
directors and key consultants of the Company are eligible to receive Awards
under the Stock Incentive Plan. Non-employee directors and key consultants are
only eligible to receive NQSOs under the Stock Incentive Plan.
SHARES SUBJECT TO STOCK INCENTIVE PLAN. The maximum number of shares of
Common Stock in respect of which Options may be granted under the Stock
Incentive Plan is 1,500,000, subject to appropriate equitable adjustment in the
event of a reorganization, stock split, stock dividend, combination of shares,
merger, consolidation or other recapitalization and distribution. For the
purpose of computing the total number of shares of Common Stock available for
Options under the Stock Incentive Plan, the above limitations shall be reduced
by the number of shares of Common Stock subject to issuance upon exercise or
settlement of Options previously granted, determined at the date of the grant of
such Options. However, if any Options previously granted are forfeited,
terminated, settled in cash or exchanged for other Options or expire
unexercised, the shares of Common Stock previously subject to such Options shall
again be available for further grants under the Stock Incentive Plan.
TRANSFERABILITY. No Option granted under the Stock Incentive Plan, and no
right or interest therein, shall be assignable or transferable by a participant
except by will or the laws of descent and distribution.
TERM, AMENDMENT AND TERMINATION. The Stock Incentive Plan will terminate in
April 2006, except with respect to Options then outstanding. The Board of
Directors may amend or terminate the Stock Incentive Plan at any time, except
that, to the extent restricted by Rule 16b-3 promulgated under the Exchange Act,
the Board of Directors may not, without approval of the stockholders of the
Company, make any amendment that would increase the total number of shares
covered by the Stock Incentive Plan, change the class of persons eligible to
receive Awards granted under the Stock Incentive Plan, reduce the exercise price
of Awards granted under the Stock Incentive Plan or extend the latest date upon
which Options may be exercised.
INCENTIVE STOCK OPTIONS. Options designated as ISOs, within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), may
be granted under the Stock Incentive Plan. The number of shares of Common Stock
in respect of which ISOs are first exercisable by any participant in the Stock
Incentive Plan during any calendar year shall not have a fair market value
(determined at the date of grant) in excess of $100,000 (or such other limit as
may be imposed by the Code). To the extent the fair market value of the shares
for which options are designated as ISOs that are first exercisable by any
optionee during any calendar year exceed $100,000, the excess amount shall be
treated as NQSOs. ISOs are exercisable for such period or periods, not in excess
of ten years after the date of grant, as shall be determined by the Compensation
Committee.
NONQUALIFIED STOCK OPTIONS. NQSOs may be granted for such number of shares
of Common Stock and will be exercisable for such period or periods as the
Compensation Committee shall determine.
OPTION EXERCISE PRICES. The exercise price of any Option granted under the
Stock Incentive Plan shall be at least 85% of the fair market value of the
Common Stock on the date of grant. Fair market value per share of Common Stock
shall be determined as the average of the closing bid and asked prices per share
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quoted by the Nasdaq Small Cap Market or the Nasdaq National Market, or as the
amount determined in good faith by the Compensation Committee.
EXERCISE OF OPTIONS. No Options may be exercised, except as provided by
state law, unless the holder thereof remains in the continuous employ or service
of the Company. Options shall be exercisable upon the payment in full of the
applicable option exercise price in cash or, if approved by the Compensation
Committee, by instruction to a broker directing the broker to sell the Common
Stock for which such Option is exercised and remit to the Company the aggregate
exercise price of the Option or, in the discretion of the Committee, upon such
terms as the Committee shall approve, in shares of Common Stock then owned by
the optionee (at the fair market value thereof at the exercise date).
RESTRICTED STOCK may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Compensation Committee. Restricted stock, typically, may be repurchased by
the Company at the original purchase price if the conditions or restrictions are
not met. In general, restricted stock may not be sold, or otherwise transferred
or hypothecated, until restrictions are removed or expire. Purchasers of
restricted stock, unlike recipients of options, will have voting rights and will
receive dividends prior to the time when the restrictions lapse.
DEFERRED STOCK may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Committee. Like restricted stock,
deferred stock may not be sold, or otherwise transferred or hypothecated, until
vesting conditions are removed or expire. Unlike restricted stock, deferred
stock will not be issued until the deferred stock award has vested, and
recipients of deferred stock generally will have no voting or dividend rights
prior to the time when vesting conditions are satisfied.
SARS may be granted in connection with stock options or other Awards, or
separately. SARs granted by the Compensation Committee in connection with stock
options or other awards typically will provide for payments to the holder based
upon increases in the price of the Common Stock over the exercise price of the
related option or other Awards, but alternatively may be based upon criteria
such as book value. Except as required by Section 162(m) of the Code with
respect to an SAR intended to quality as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, there are no restrictions
specified in the Equity Plan on the exercise of SARs or the amount of gain
realizable therefrom, although restrictions may be imposed by the Compensation
Committee in the SAR agreements. The Compensation Committee may elect to pay
SARs in cash or in Common Stock or in a combination of both.
DIVIDEND EQUIVALENTS represent the value of the dividends per share paid by
the Company, calculated with the reference to the number of shares covered by
the stock options, SARs or other Awards held by the participant.
PERFORMANCE AWARDS may be granted by the Compensation Committee on an
individual or group basis. Generally these Awards will be based upon specific
performance targets and may be paid in cash or in Common Stock or in a
combination of both. Performance Awards may include "phantom" stock Awards that
provide for payments based upon increases in the price of the Common Stock over
a predetermined period. Performance Awards may also include bonuses which may be
granted by the Compensation Committee on an individual or group basis and which
may be payable in cash or in Common Stock, or in a combination of both.
STOCK PAYMENTS may be authorized by the Compensation Committee in the form
of shares of Common Stock or an option or other right to purchase Common Stock
as party of a deferred compensation arrangement in lieu of all or any part of
compensation, including bonuses, that would otherwise be payable in cash to the
employee or consultant.
DIRECTOR OPTIONS. NQSOs are granted to non-employee directors of the
Company pursuant to a formula (the "Director Options"). Under the formula, when
a director is initially elected to the Board and
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is at that time a non-employee director, he or she automatically shall be
granted an NQSO to purchase 15,000 shares of Common Stock. During the term of
the Stock Incentive Plan, each then current non-employee director shall
automatically be granted an NQSO to purchase 15,000 shares of Common Stock
during the fourth year from the prior grant on the date of the annual meeting at
which he or she is reelected to the Board. The exercise price of the Director
Options shall be the fair market value of a share of Common Stock on the date of
grant. Each Director Option becomes exercisable in cumulative annual
installments of one-third on each of the first, second and third annual meeting
of shareholders that are subsequent to the date of grant, subject to the
director's continued service as a director; provided, however, to the extent
permitted by Rule 16b-3, the Board may accelerate the exercisability of the
Options upon the occurrence of certain specified extraordinary corporate
transactions or events and provided further, that in any event, upon the
occurrence of a "Change in Control" of the Company (as defined in the Stock
Incentive Plan) all outstanding Director Options shall become immediately
exercisable. No portion of a Director Option shall be exercisable after the
tenth anniversary of the date of grant and no portion of a Director Option shall
be exercisable upon the expiration of one year following the director's
termination of services as a director of the Company.
AWARDS GRANTED. As of December 31, 1996, the Company has granted an
aggregate of 622,500 Options to the executive officers, non-employee directors,
key employees and consultants of the Company. Such Options generally have ten
year terms and vest as to 25% of the shares of Common Stock covered thereby at
the end of each of the first four years after their date of grant. Of such
Options, 155,000 are currently exercisable. No other Awards have been granted.
The Company anticipates granting Options exercisable into approximately 230,000
shares of Common Stock at the Offering Price to the Company's employees at or
immediately prior to the effective date of this Offering.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company's Certificate of Incorporation (the "Certificate") and Bylaws
include provisions that eliminate the directors' personal liability for monetary
damages to the fullest extent possible under Delaware Law or other applicable
law (the "Director Liability Provision"). The Director Liability Provision
eliminates the liability of directors to the Company and its stockholders for
monetary damages arising out of any violation by a director of his fiduciary
duty of due care. Under Delaware Law, however, the Director Liability Provision
does not eliminate the personal liability of a director for (i) breach of the
director's duty of loyalty, (ii) acts or omissions not in good faith or
involving intentional misconduct or knowing violation of law, (iii) payment of
dividends or repurchases or redemptions of stock other than from lawfully
available funds, or any transaction from which the director derived an improper
benefit. The Director Liability Provision also does not affect a director's
liability under the federal securities laws or the recovery of damages by third
parties. Furthermore, pursuant to Delaware Law, the limitation on liability
afforded by the Director Liability Provision does not eliminate a director's
personal liability for breach of the director's duty of due care. Although the
directors would not be liable for monetary damages to the corporation or its
stockholders for negligent acts or omissions in exercising their duty of due
care, the directors remain subject to equitable remedies, such as actions for
injunction or rescission, although these remedies, whether as a result of
timeliness or otherwise, may not be effective in all situations. With regard to
directors who also are officers of the Company, these persons would be insulated
from liability only with respect to their conduct as directors and would not be
insulated from liability for acts or omissions in their capacity as officers.
Delaware Law provides a detailed statutory framework covering
indemnification of directors, officers, employees or agents of the Company
against liabilities and expenses arising out of legal proceedings brought
against them by reason of their status or service as directors, officers,
employees or agents. Section 145 of the Delaware General Corporation Law
("Section 145") provides that a director, officer, employee or agent of a
corporation (i) shall be indemnified by the corporation for expenses actually
and reasonably incurred in defense of any action or proceeding if such person is
sued by reason of his service to the
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corporation, to the extent that such person has been successful in defense of
such action or proceeding, or in defense of any claim, issue or matter raised in
such litigation, (ii) may, in actions other than actions by or in the right of
the corporation (such as derivative actions), be indemnified for expenses
actually and reasonably incurred, judgments, fines and amounts paid in
settlement of such litigation, even if he is not successful on the merits, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation (and in a criminal proceeding,
if he did not have reasonable cause to believe his conduct was unlawful), and
(iii) may be indemnified by the corporation for expenses actually and reasonably
incurred (but not judgments or settlements) of any action by the corporation or
of a derivative action (such as a suit by a stockholder alleging a breach by the
director or officer of a duty owed to the corporation), even if he is not
successful, provided that he acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
provided that no indemnification is permitted without court approval if the
director has been adjudged liable to the corporation.
Delaware Law also permits a corporation to elect to indemnify its officers,
directors, employees and agents under a broader range of circumstances than that
provided under Section 145. The Certificate contains a provision that takes full
advantage of the permissive Delaware indemnification laws (the "Indemnification
Provision") and provides that the Company is required to indemnify its officers,
directors, employees and agents to the fullest extent permitted by law,
including those circumstances in which indemnification would otherwise be
discretionary, provided, however, that prior to making such discretionary
indemnification, the Company must determine that the person acted in good faith
and in a manner he or she believed to be in the best interests of the Company
and, in the case of any criminal action or proceeding, the person had no reason
to believe his or her conduct was unlawful.
In furtherance of the objectives of the Indemnification Provision, the
Company has also entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Certificate and Bylaws (the "Indemnification Agreements"). The Company
believes that the Indemnification Agreements are necessary to attract and retain
qualified directors and executive officers. Pursuant to the Indemnification
Agreements, an indemnitee will be entitled to indemnification to the extent
permitted by Section 145 or other applicable law. In addition, to the maximum
extent permitted by applicable law, an indemnitee will be entitled to
indemnification for any amount or expense which the indemnitee actually and
reasonably incurs as a result of or in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, preparing to be a witness, or
otherwise participating in any threatened, pending or completed claim, suit,
arbitration, inquiry or other proceeding (a "Proceeding") in which the
indemnitee is threatened to be made or is made a party or participant as a
result of his or her position with the Company, provided that the indemnitee
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company and had no reasonable cause to
believe his or her conduct was unlawful. If the Proceeding is brought by or in
the right of the Company and applicable law so provides, the Indemnification
Agreements provide that no indemnification against expenses shall be made in
respect of any claim, issue or matter in the Proceeding as to which the
indemnitee shall have been adjudged liable to the Company.
The provisions eliminating personal liability and affording indemnification
described above are, and for some period following the consummation of this
Offering will be, limited in certain respects by California law. See
"Description of Capital Stock--Governing Law and Certain Charter and Bylaw
Provisions."
The California General Corporation Law provides that a corporation governed
by California law may include provisions in its charter relieving directors of
monetary liability for breach of their fiduciary duty as directors, except for
the liability of a director resulting from (i) any transaction from which the
director derives an improper personal benefit, (ii) acts or omissions involving
intentional misconduct or a knowing and culpable violation of law, (iii) acts or
omissions that a director believes to be contrary to the best interests of the
Company or its stockholders or that involves the absence of good faith on the
part of the
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director, (iv) acts or omissions constituting an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, (v) acts or omissions showing a reckless disregard for the
director's duty to the Company or its stockholders 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 stockholders, (vi) any improper transaction between a director and the
Company in which the director has a material financial interest, or (vii) the
making of an illegal distribution to stockholders or an illegal loan or
guaranty.
The inclusion of provisions limiting liability of the Company's officers and
directors may have the effect of reducing the likelihood of derivative
litigation against the officers and directors and may discourage or deter
stockholders or management from bringing a lawsuit against the officers and
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
The Company maintains directors' and officers' liability insurance in favor
of its directors and executive officers.
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<PAGE>
CERTAIN TRANSACTIONS
In November 1995, the Company redeemed all of the shares of common stock of
the Company's predecessor owned by Mr. Michael Del Rey, a co-founder and former
officer of the Company, for $12,000 in cash and an unsecured noninterest-bearing
promissory note for $88,000. Pursuant to the written agreement governing the
redemption, the Company issued 64,527 shares of Common Stock to Mr. Del Rey for
nominal consideration in July 1996. In connection with such transactions, Mr.
Del Rey agreed not to compete with the business of the Company and its
NewsMakers subsidiary for a period of five years in consideration of payments of
$2,000 per month during such time period. The Company also appointed Mr. Del Rey
to serve as an independent sales representative for a minimum term of 12 months
and reimbursed Mr. Del Rey an aggregate of $7,500 for certain office and
equipment lease expenses incurred by him in establishing himself as an
independent sales representative.
In November and December 1995, Stanley Berk and Associates ("SBA"), a
general partnership comprised of Stanley Berk and Stephen Grayson, principal
stockholders of the Company, loaned the Company an aggregate of $150,000 in
exchange for an 8% convertible promissory note issued by the Company. In June
1996, the Company exercised its right to redeem the note in exchange for 71,760
shares of Common Stock. In February 1997, in settlement of various disputes
arising between the Company and Mr. Karlsson, on the one hand, and SBA and
Messrs. Berk and Grayson, on the other hand, the Company agreed to pay to each
of these stockholders $30,000 in twelve monthly payments of $2,500, the Company
granted a warrant to Mr. Grayson exercisable into 11,250 shares of Common Stock,
and Mr. Karlsson granted an option to Mr. Berk exercisable into 11,250 shares of
Common Stock. Both the option and the warrant have exercise prices set at 120%
of the initial public offering price of the Common Stock. The Company granted
certain registration rights with respect to the shares of Common Stock issuable
upon exercise of the warrant and option and also agreed to register 28,302
shares owned by Mr. Grayson by including them in the Registration Statement of
which this Prospectus is a part. See "Resale of Outstanding Shares."
In December 1995, Mr. Karlsson and his spouse collectively gifted 25,168
shares of Common Stock to Mr. Craichy, his spouse and two minor children. In the
same month, Mr. Karlsson also granted Mr. Craichy an option to purchase 25,168
additional shares of Common Stock owned by Mr. Karlsson at $1.99 per share. The
option expires in June 1997. In March 1997, Mr Karlsson granted Mr. Craichy an
option to purchase 25,000 additional shares owned by Mr. Karlsson at $5.00 per
share. The option expires in March 2002. Mr. Craichy is a director of the
Company and Mr. Karlsson's brother-in-law.
In March 1996, Mr. Karlsson gifted 5,033 shares of Common Stock to Mr.
Michael Boone and 5,033 shares of Common Stock to Mr. Nils Andersson. Messrs.
Boone and Andersson are directors of the Company.
In April 1996 and July 1996, the Company issued an aggregate of 34,663 and
5,000 shares, respectively, of Common Stock as stock bonuses to an aggregate of
fourteen executive officers, non-employee directors and key employees of the
Company for services rendered at a deemed issuance price equal to $2.00 per
share.
Concurrently with a private placement of Common Stock and cancelable
warrants conducted by the Company during June and July 1996, Mr. Karlsson
privately sold to certain of the Selling Security Holders an aggregate of
150,000 shares of Common Stock for total cash consideration of $448,500.
Purchasers of such shares of Common Stock have received registration and other
rights identical to those received by investors in the Company's private
placement and such shares have been included in the Registration Statement of
which this Prospectus is a part. See "Resale of Outstanding Shares."
In July 1996, the Company granted options to certain consultants
periodically utilized by the Company to render advice concerning various
business, financial and strategic matters. Options to purchase 5,000
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<PAGE>
shares of Common Stock exercisable at $2.50 per share were granted to each of
Mr. Cliff Friedman and Mr. Pete Peterson. Mr. Karlsson also gifted 5,000 shares
to Mr. Peterson in May 1996.
In October 1996, the Company issued a warrant to Bell & Howell in connection
with entering into a license agreement with UMI. The warrant gives Bell & Howell
the right to purchase 550,000 shares of Common Stock of the Company and is
exercisable for a period of three years. The warrant is exercisable at the
following exercise prices: 300,000 shares at $6.50 per share, 150,000 shares at
$10.00 per share, and 100,000 shares at $15.00 per share. In the event Bell &
Howell exercises its warrant for at least 300,000 shares by September 15, 1997,
Bell & Howell can either (i) purchase up to an additional 200,000 shares at
$6.50 per share by September 15, 1997, or (ii) purchase up to an additional
50,000 shares at $10.00 per share, and 100,000 shares at $15.00 per share by
October 31, 1999. If Bell & Howell fully exercises its warrant for the initial
550,000 shares, it will own approximately 9.6% of the Common Stock of the
Company based on the number of shares expected to be outstanding upon
consummation of the Offering. See "Business UMI Relationship," "Principal
Stockholders" and "Description of Capital Stock-- Warrants."
Messrs. Baum and Kensey, directors of the Company, perform certain
consulting services on behalf of the Company. Mr. Baum has been granted stock
options to acquire 115,000 shares of Common Stock at $2.50 per share and, since
June 1996, has received $5,000 per month for assisting the Company in its
development of products, technology and strategic partnerships and participating
in engineering reviews and recruitment. Mr. Baum may also be entitled to receive
a cash bonus of $20,000 at the discretion of the Board of Directors. At the
request of the Company, Mr. Kensey provides consulting services on an hourly fee
basis. As of December 31, 1996, the Company had paid Mr. Kensey $32,900 for
consulting services including assisting in the development of the Company's
operating plan, establishing the relationship with UMI and providing financial
and accounting advice. The compensation was based on Mr. Kensey's customary
consulting fees for providing similar services. Mr. Kensey has also been granted
stock options to acquire 10,000 shares of Common Stock at $2.00 per share and
25,000 shares at $2.50 per share in consideration of consulting services
provided to the Company.
In February 1997, the Company borrowed $150,000 from Gabriel Kaplan, a
principal stockholder of the Company. The loans were made at 9.75% simple
interest payable together with principal on April 30, 1997. The principal amount
of this loan can be increased to up to $350,000 by endorsement by the Company
and Mr. Kaplan. The Company intends to repay the loan from the net proceeds of
the Offering. As additional consideration for the loan, the Company issued a
warrant to Mr. Kaplan exercisable into 15,000 shares of Common Stock at $4.50
per share. In the event the principal amount of the loan is increased, Mr.
Kaplan would be entitled to receive additional warrants. The warrants are not
exercisable until February 1998 and expire in February 2002. The Company has
granted certain registration rights with respect to the shares of Common Stock
issuable on exercise of the warrant.
In February 1997, the Company borrowed $75,000 from each of two individuals
who have pre-existing business relationships with the Representative. The
Representative did not receive any renumeration for bringing these lenders and
the Company together.
The terms of some of these transactions involve conflicts between the
interests of the related parties and the Company. The Company believes, however,
that the consideration exchanged reflects fair value in all of the transactions
set forth above. The Company has adopted a policy whereby all future
transactions between the Company and its officers, directors and affiliates will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and will be approved by a majority of the
disinterested members of the Company's Board of Directors.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, both prior to the Offering and
immediately following completion of the Offering, by (i) each person who
beneficially owns 5% or more of the outstanding shares of Common Stock, (ii)
each of the Company's directors, and (iii) all directors and executive officers
of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
------------------------------------------------
PERCENT OWNED
IMMEDIATELY PRIOR PERCENT OWNED
NUMBER OF TO THE IMMEDIATELY AFTER
NAME AND ADDRESS(2) SHARES OFFERING(3) THE OFFERING(3)
- ---------------------------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
Karl-Magnus S. Karlsson(4)............................................ 1,471,116 39.2% 28.3%
Bell & Howell(5)...................................................... 550,000 12.8% 9.6%
Stanley Berk(6)....................................................... 231,077 6.1% 4.4%
Gabriel Kaplan (7).................................................... 206,666 5.5% 4.0%
Stephen Grayson(8).................................................... 206,064 5.5% 4.0%
Larry R. Gordon(9).................................................... 193,333 5.1% 3.7%
K. C. Craichy(10)(11)................................................. 79,086 2.1% 1.5%
Michael Baum(12)...................................................... 73,437 1.9% 1.4%
John P. Kensey(13)(14)................................................ 45,000 1.2% *
Nils B.A. Andersson(11)............................................... 8,783 * *
Michael K. Boone(11).................................................. 8,783 * *
All directors and executive officers as a group
(10 persons)(15).................................................... 1,706,037 43.3% 31.7%
</TABLE>
- --------------------------
* Less than one percent.
(1) The persons named in the table, to the Company's knowledge, have sole voting
and sole dispositive power with respect to all shares of Common Stock shown
as beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes hereunder.
(2) Except as noted in these footnotes, the stockholders' address is at the
Company's executive offices.
(3) Shares of Common Stock which a person had the right to acquire within 60
days are deemed outstanding in calculating the percentage ownership of the
person, but are not deemed outstanding as to any other person. The Percent
Owned Immediately Prior to the Offering is calculated based on 3,752,497
shares of Common Stock outstanding as of the date of this Prospectus and the
Percent Owned Immediately After the Offering is calculated based upon
5,202,497 shares of Common Stock outstanding assuming the issuance and sale
of the 1,450,000 shares of Common Stock offered hereby by the Company.
(4) Includes an aggregate of 10,066 shares owned of record by Mr. Karlsson's two
minor children and 503,327 shares owned of record by AMKEK Limited
Partnership, a family limited partnership ("AMKEK"). Mr. Karlsson has voting
power with respect to the shares held by AMKEK and his spouse has sole
dispositive power with respect to such shares. Also includes an aggregate of
94,394 shares which are subject to options Mr. Karlsson has granted to
various third parties.
(5) Represents shares subject to a warrant which is currently exercisable. Bell
& Howell's address is 5215 Old Orchard Road, Skokie, Illinois 60077. Does
not include shares underlying additional warrants that may be granted to
Bell & Howell under certain circumstances. See "Business--UMI Relationship"
and "Certain Transactions."
(6) Includes 11,250 shares subject to an option granted by Mr. Karlsson which is
currently exercisable.
(7) Mr. Kaplan's business address is c/o City National Bank, 400 N. Roxbury Dr.,
Beverly Hills, California 90210. Includes 83,333 shares owned by Mr. Kaplan
as plan administrator for Rotunda Productions, Inc. MPO.
(8) Includes 121,385 shares owned by Mr. Grayson, 73,429 shares owned by the
Stephen P. Grayson Profit Sharing Plan, and 11,250 shares subject to a
warrant granted by the Company which is currently exercisable.
(9) Includes 66,667 shares subject to Mr. Gordon's Consultant Warrant, which is
currently exercisable, 98,333 shares owned by Mr. Gordon and 28,333 shares
owned by Lexington Ventures, Inc., of which Mr. Gordon is a principal.
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<PAGE>
(10) Includes an aggregate of 15,101 shares owned of record by Mr. Craichy's
spouse and two minor children. Also includes 50,168 shares owned by Mr.
Karlsson which are subject to options granted by Mr. Karlsson to Mr.
Craichy.
(11) Includes 3,750 shares subject to Options that are exercisable within 60
days and excludes 11,250 shares subject to Options that are not exercisable
within 60 days.
(12) Includes 63,437 shares subject to Options that are exercisable within 60
days and excludes 51,563 shares subject to Options that are not exercisable
within 60 days.
(13) Excludes 15,000 shares subject to Options that are not exercisable within
60 days.
(14) Includes 35,000 shares subject to Options that are currently exercisable.
Also includes 10,000 shares owned by the John P. and Susan S. Kensey Family
Trust, of which Mr. Kensey is a trustee.
(15) Includes 179,687 shares subject to Options that are currently exercisable
and excludes 270,313 shares subject to Options that are not exercisable
within 60 days.
RESALE OF OUTSTANDING SHARES
This Prospectus relates to the sale by the Company of 1,450,000 shares of
Common Stock. A separate Prospectus is being filed with the Registration
Statement of which this Prospectus is a part which relates to the sale by the
Selling Security Holders of the Selling Security Holders' Shares. None of the
Selling Security Holders' Shares being offered for resale by the Selling
Security Holders is being underwritten by the Underwriters.
The Company will not receive any of the proceeds of the sale of the Selling
Security Holders' Shares by the Selling Security Holders, although it will
receive the exercise price for the Consultant Warrants when and if they are
exercised. None of the Selling Security Holders had any position, office or
material relationship with the Company or its affiliates during the last three
years except for: (i) the three holders of the Consultant Warrants, each of whom
received his portion of the Consultant Warrants in exchange for agreeing to
provide certain corporate development consulting services to the Company during
1996; (ii) Gabriel Kaplan, who made a loan of $150,000 to the Company in
February 1997 in exchange for a promissory note and warrants to purchase Common
Stock; (iii) Mr. Grayson, who entered into a settlement agreement with the
Company in February 1997; and (iv) Mr. Del Rey, a co-founder and former officer
of the Company whose shares of common stock in the Company's predecessor were
redeemed in November 1995. See "Certain Transactions" and "Description of
Capital Stock--Warrants" and "Certain Transactions."
Prior to this Offering, the Selling Security Holders collectively held
1,595,981 shares of Common Stock (including the 200,000 shares of Common Stock
issuable upon the full exercise of the Consultant Warrants). Assuming the sale
of all of the Selling Security Holders' Shares pursuant to the separate
Prospectus referred to above, the Selling Security Holders will collectively own
196,500 shares of Common Stock.
Each of the Selling Security Holders has agreed not to sell, pledge, assign
or otherwise transfer any shares of Common Stock during the one-year period
following the date of this Prospectus; provided, however, that 28,302 of the
shares owned by Mr. Grayson, 20,000 shares owned by Mr. Robert Finkelstein and
all 66,667 shares to be received by Mr. Henry Wilf upon exercise of his
Consultant Warrant are subject to a 90-day restriction. Such "lock-up"
restrictions may be waived by the Representative in its sole discretion on a
case by case basis upon the Representative's review of various factors including
but not limited to one or more of the following: (i) the volatility of the
market for the Common Stock, (ii) the Representative's evaluation of the effect
on the market for the Common Stock of waiving one or more lock-up restrictions,
(iii) market demand for the Common Stock and (iv) the Selling Security Holder's
reasons for seeking waiver of the lock-up restriction. In such event, any sales
permitted by the Representative may be effected through the Representative and
the Representative will be entitled to receive its customary compensation in
connection therewith. Although the Representative does not have any arrangements
or understandings with any Selling Security Holders regarding the waiver of any
such lock-ups, any permitted sales by the Selling Security Holders during such
one-year period could adversely affect the price of and any market for the
Common Stock. See "Risk Factors--Possible Adverse Effect of Future Sales of
Securities on Market Price."
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $0.001 par value, and 5,000,000 shares of Preferred Stock, $0.001
par value. The following description of the Company's capital stock does not
purport to be complete and is subject in all respects to applicable Delaware and
California law and to the provisions of the Company's Certificate of
Incorporation and Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
As of December 31, 1996, there were 3,752,497 shares of Common Stock held of
record by 110 stockholders. There will be 5,202,497 shares of Common Stock
outstanding after completion of this Offering. Each share of Common Stock
entitles the holder to one vote on all matters submitted to a vote of the
stockholders. The holders of Common Stock are entitled to receive dividends,
when, as and if declared by the Board of Directors, in its discretion, from
funds legally available therefor. The Company does not currently intend to
declare or pay cash dividends on the Common Stock in the foreseeable future, but
rather intends to retain any future earnings to finance the expansion of its
businesses. See "Dividend Policy." Upon liquidation or dissolution of the
Company, the holders of Common Stock are entitled to share ratably in the assets
of the Company, if any, legally available for distribution to stockholders after
the payment of all debts and liabilities of the Company and the liquidation
preference of any outstanding preferred stock.
The Common Stock has no preemptive rights and no subscription, redemption or
conversion privileges. The Common Stock does not have cumulative voting rights,
which means that the holders of a majority of the outstanding shares of Common
Stock voting for the election of directors can elect all members of the Board of
Directors. A majority vote is also sufficient for other actions that require the
vote or concurrence of stockholders. All of the outstanding shares of Common
Stock are, and the shares to be sold in this Offering will be, when issued and
paid for, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders of the Company, to issue up to 5,000,000 shares of preferred stock
in one or more series and to fix the rights, preferences and privileges thereof,
including the dividend rights, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of the series. Although it presently has no intention to do so, the Board of
Directors, without stockholder approval, could issue preferred stock with voting
and conversion rights that could adversely affect the voting powers of the
holders of the Common Stock and the market price of the Common Stock. Issuance
of preferred stock may also have the effect of delaying, deferring or preventing
a change of control of the Company without further action by the stockholders
and may discourage bids for the Common Stock at a premium over the market price.
WARRANTS
In June 1996, the Company issued the Consultant Warrants to Larry Gordon,
Steven Eagon and Henry Wilf, none of whom was an affiliate of the Company, in
consideration of their agreement to provide certain corporate development
services to the Company. The Consultant Warrants are exercisable into an
aggregate of 200,000 shares of Common Stock for a period of five years at an
exercise price equal to $2.55 per share. The shares of Common Stock issuable
upon exercise of the Consultant Warrants have been included in the Registration
Statement of which this Prospectus is a part and comprise a portion of the
Selling Security Holders' Shares. See "Resale of Outstanding Shares." Messrs.
Gordon and Eagon have agreed not to offer, sell, grant an option, transfer,
assign, pledge, hypothecate or otherwise encumber the
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<PAGE>
Consultant Warrants or any shares of stock received upon exercise of the
Consultant Warrants for 12 months from the effective date of this Offering
without the prior written consent of the Representative. Mr. Wilf has entered
into a similar lock-up agreement for 90 days from the effective date of the
Offering.
In October 1996, the Company issued a warrant to Bell & Howell in connection
with entering into a license agreement with UMI. The warrant gives Bell & Howell
the right to purchase 550,000 shares of Common Stock of the Company and is
exercisable for a period of three years. The warrant is exercisable at the
following exercise prices: 300,000 shares at $6.50 per share, 150,000 shares at
$10.00 per share, and 100,000 shares at $15.00 per share. In the event Bell &
Howell exercises its warrant for at least 300,000 shares by September 15, 1997,
Bell & Howell can either (i) purchase up to an additional 200,000 shares at
$6.50 per share by September 15, 1997, or (ii) purchase up to an additional
50,000 shares at $10.00 per share, and 100,000 shares at $15.00 per share by
October 31, 1999. The warrant also gives Bell & Howell the right, subject to
certain limitations, to require the Company to register for public resale the
shares of Common Stock underlying the warrant.
In February 1997, the Company issued a warrant to Mr. Grayson in connection
with a settlement agreement. This warrant gives Mr. Grayson the right to
purchase up to 11,250 shares of Common Stock at a price per share equal to 120%
of the initial public offering price of the Common Stock, subject to adjustment.
The warrant expires in February 2000. The Company has granted certain
registration rights with respect to the shares of Common Stock issuable upon
exercise of the warrant.
In connection with a loan obtained by the Company in February 1997, the
Company issued a warrant to Mr. Kaplan exercisable into 15,000 shares of Common
Stock at $4.50 per share one year after issuance and expiring five years after
issuance (the "Bridge Warrant"). In the event Mr. Kaplan agrees to increase the
principal amount of the loan to the Company, he will receive additional Bridge
Warrants exercisable into 200 shares of Common Stock for each $1,000 additional
principal amount loaned to the Company, up to a maximum of 40,000 additional
shares, each on the same terms as the initial Bridge Warrant. The Company has
granted certain registration rights with respect to the shares of Common Stock
issuable upon exercise of the Bridge Warrants.
In connection with a $150,000 line of credit established by the Company in
February 1997 and borrowings made by the Company under the line of credit, the
Company issued a warrant to the lender which is exercisable into 15,750 shares
of Common Stock at $5.50 per share (the "LOC Warrant"). The LOC Warrant is
exercisable commencing in March 1998 and expires in February 2002. The Company
granted certain registration rights with respect to the shares of Common Stock
issuable upon exercise of the LOC Warrants.
Concurrent with the consummation of this Offering, the Company has agreed to
sell to the Representative for an aggregate of $50 the Representative Warrant to
purchase up to 145,000 shares of Common Stock at an exercise price equal to 120%
of the initial public offering price per share of Common Stock. See
"Underwriting."
As of December 31, 1996, none of the warrants described above had been
exercised.
GOVERNING LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company is subject to the laws of the states of Delaware and California
because the Company is incorporated in Delaware but is domiciled and transacts
most of its business in California. Set forth below is a description of certain
provisions of Delaware and California law applicable to the Company.
DELAWARE LAW. Upon the consummation of this Offering, the Company will be
subject to the provisions of Section 203 of the Delaware General Corporation Law
(Section 203"), an anti-takeover law. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder unless such
transaction was approved in the manner
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prescribed by law or another prescribed exception applies. For purposes of
Section 203, a "business combination" is defined broadly to include a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock.
The Company's Bylaws provide for a Board of Directors classified into three
classes, with the Directors elected at the Company's first annual meeting at
which the classification provision is enabled divided into three classes and
serving initial terms expiring at each of the next three annual stockholders'
meetings, respectively. Thereafter, Directors in each class will be elected for
three year terms. All directors elected to the Company's classified Board of
Directors will serve until the election and qualification of their successors or
their earlier resignation or removal. The Board of Directors is authorized to
create new directorships and to fill such positions so created and is permitted
to specify the class to which such new position is assigned, and the person
filling such position would serve for the term applicable to that class. The
Board of Directors (or its remaining members, even though less than a quorum) is
also empowered to fill vacancies on the Board of Directors occurring for any
reason for the remainder of the term of the class of Directors in which the
vacancy occurred. These provisions are likely to increase the time required for
stockholders to change the composition of the Board of Directors.
The Company's Bylaws also provide that, for nomination to the Board of
Directors or for other business to be properly brought by a stockholder before a
meeting of stockholders, the stockholder must first have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice generally must be delivered not less than sixty days nor
more than ninety days prior to the annual meeting. If the meeting is not an
annual meeting, the notice must generally be delivered not more than ninety days
prior to the special meeting and not less than the later of sixty days prior to
the special meeting and ten days following the day on which public announcement
of the meeting is first made by the Company. Only such business shall be
conducted at a special meeting of stockholders as is brought before the meeting
pursuant to the Company's notice of meeting. The notice by a stockholder must
contain, among other things, certain information about the stockholder
delivering the notice, and, as applicable, background information about the
nominee or a description of the proposed business to be brought before the
meeting.
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless the
corporation's certificate of incorporation or bylaws, as the case may be,
requires the affirmative vote of the holders of at least 66 2/3% of the
outstanding voting stock of the The Bylaws require a 66 2/3% vote for any
amendment to or repeal of the Company's Bylaws by the stockholder. Such 66 2/3%
stockholder vote would be in addition to any separate class vote that might in
the future by required pursuant to the terms of any Preferred Stock that might
then be outstanding. The Bylaws may also be amended or repealed by a majority
vote of the Board of Directors.
The provisions of the Company's Bylaws discussed above could make more
difficult or discourage a proxy contest or other change in the management of the
Company or the acquisition or attempted acquisition of control by a holder of a
substantial block of the Company's stock. It is possible that such provisions
could make it more difficult to accomplish, or could deter, transactions which
stockholders may otherwise consider to be in their best interests.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that Directors of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of their fiduciary duties as Directors, except for liability (i) for any
breach of their duty of loyalty to the Company and its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends of unlawful
stock repurchases or redemptions, as provided in Section 174 of the Delaware
51
<PAGE>
General Corporation Law or (iv) for any transaction from which the Director
derives an improper personal benefit. The Company's Certificate of Incorporation
and Bylaws provide that the Company shall indemnify its Directors and officers
to the fullest extent permitted by Delaware law and advance expenses to such
Directors and officers to defend any action for which rights of indemnification
are provided. See "Management--Indemnification and Limitation of Liability."
CALIFORNIA LAW. Section 2115 of the California General Corporation Law
("Section 2115") provides that certain provisions of the California General
Corporation Law shall be applicable to a corporation organized under the laws of
another state to the exclusion of the law of the state in which it is
incorporated, if the corporation meets certain tests regarding the business done
in California and the number of its California stockholders.
An entity such as the Company is subject to Section 2115 if, on a
consolidated basis, the average of the property factor, payroll factor and sales
factor (as those terms are defined by the California Revenue and Taxation Code)
is more than 50 percent deemed to be in California during its latest full income
year and more than one-half of its outstanding voting securities are held of
record by persons having addresses in California. Section 2115 does not apply to
a corporation with outstanding securities listed on the New York or American
Stock Exchange, or with outstanding securities designated as qualified for
trading as a national market security on Nasdaq, if such corporation has at
least 800 beneficial holders of its equity securities. Since the Company
currently would be deemed to meet the factors discussed above and does not
currently qualify as a national market security on Nasdaq, it is subject to
Section 2115.
During the period that the Company is subject to Section 2115, the
provisions of the California General Corporation Law regarding the following
matters are made applicable to the exclusion of the law of the State of
Delaware: (i) general provisions and definitions; (ii) annual election of
directors; (iii) removal of directors without cause; (iv) removal of directors
by court proceedings; (v) filling of director vacancies where less than a
majority in office elected by shareholders; (vi) directors' standard of care;
(vii) liability of directors for unlawful distributions; (viii) indemnification
of directors, officers and others; (ix) limitations on corporate distributions
of cash or property; (x) liability of a stockholder who receives an unlawful
distribution; (xi) requirements for annual stockholders meetings; (xii)
stockholders' right to cumulate votes at any election of directors; (xiii)
supermajority vote requirements; (xiv) limitations on sales of assets; (xv)
limitations on mergers; (xvi) reorganizations; (xvii) dissenters' rights in
connection with reorganizations; (xviii) required records and papers; (xix)
actions by the California Attorney General; and (xx) rights of inspection.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this Offering, 5,202,497 shares of Common Stock will
be outstanding, assuming that the Underwriters' over-allotment option to
purchase 217,500 shares is not exercised and excluding (i) the 145,000 shares
underlying the Representative Warrant, (ii) the 200,000 shares underlying the
Consultant Warrants, (iii) up to 750,000 shares underlying the warrant to Bell &
Howell, (iv) the 11,250 shares underlying the warrant to Mr. Grayson, (v) the
15,000 shares underlying the Bridge Warrant, (vi) the 15,750 shares underlying
the LOC Warrant, (vii) the 622,500 shares of Common Stock underlying Options
granted pursuant to the Company's Stock Incentive Plan as of December 31, 1996,
and (viii) up to 877,500 shares of Common Stock underlying Options which may be
granted in the future pursuant to the Company's Stock Incentive Plan. In
addition, although it has no present intention to do so, the Company could issue
additional Common Stock or preferred stock or other securities convertible into
Common Stock. See "Management--Stock Incentive Plan" and "Description of Capital
Stock."
52
<PAGE>
Of the 5,202,497 shares outstanding upon completion of the Offering, the
1,450,000 shares offered by the Company and the 1,199,481 shares offered by the
Selling Security Holders (1,399,481 shares upon exercise of the Consultant
Warrants) will be registered under the Securities Act by the Registration
Statement of which this Prospectus is a part and will therefore be freely
tradeable without further registration following the expiration or termination
of any "lock-up" agreement described below unless owned by an "affiliate" of the
Company. See "Resales of Outstanding Shares." The Company also has granted
certain registration rights with respect to the Common Stock underlying all of
the Company's outstanding warrants and intends to file a registration statement
on Form S-8 under the Securities Act registering the resale of the Common Stock
underlying the Options and available for issuance under the Stock Incentive
Plan. The remaining 2,553,016 outstanding shares of Common Stock are "restricted
securities" as defined in Rule 144 under the Securities Act and may not be sold
unless registered under the Securities Act or pursuant to an exemption
therefrom.
In general, under recent changes to Rule 144 which will be in effect not
later than 60 days after the date of this Prospectus, a person (or persons whose
shares are required to be aggregated) who has satisfied a one-year holding
period may, under certain circumstances, commencing 90 days after the date of
this Prospectus, sell within any three-month period, in ordinary brokerage
transactions or in transactions directly with a market maker, a number of shares
of Common Stock equal to the aggregate of one percent of the then outstanding
Common Stock or the average weekly trading volume during the four calendar weeks
prior to such sale. Rule 144 also permits the sale of shares of Common Stock
without any quantity limitations by a person who is not an "affiliate" of the
Company and who has owned the shares for at least two years. Approximately
2,498,000 shares of Common Stock which are "restricted securities" will have
satisfied the holding periods under Rule 144 as of 90 days after the date of
this Prospectus. Of these 2,498,000 shares, approximately 2,047,000 shares are
subject to the lock-up restrictions described below and approximately 451,000
shares will be freely tradeable under Rule 144 without any lock-up restrictions
commencing 90 days after the date of this Prospectus.
Shares of Common Stock beneficially owned by the Company's officers and
directors (including all but 50,000 shares beneficially owned by Mr. Karlsson,
the Company's largest stockholder) are subject to "lock-up" agreements whereby
such officers and directors have agreed not to directly or indirectly sell,
transfer or encumber any shares of Common Stock owned by them for a period of
one year from the date of this Prospectus without the prior written consent of
the Representative. In addition, substantially all of the Selling Security
Holders' Shares (other than the 28,302 shares being registered for Mr. Grayson,
the 66,667 shares being registered for Mr. Wilf and 20,000 of the shares being
registered for Mr. Finkelstein, which are subject to a 90-day lock-up) all but
21,700 shares owned by Mr. Berk, the Company's second largest stockholder, and
shares held by various other stockholders of the Company are subject to the same
one-year lock-up. A total of approximately 465,000 shares of outstanding Common
Stock are not subject to any lock-up agreement. See "Underwriting." The Company
intends to make a public announcement and filings with the Commission in the
event that a material amount of securities subject to the lock-up arrangement
are released prior to the expiration of the term of such arrangement if such
announcement is required by the federal securities laws. See "Resales of
Outstanding Shares."
Prior to the Offering, there has been no public market for the Common Stock.
Future sales of Common Stock made pursuant to this Prospectus, Rule 144 or
otherwise, or the availability of Common Stock for sale, could adversely affect
prevailing market prices for the Common Stock. See "Risk Factors-- Possible
Adverse Effect of Future Sales of Securities on Market Price."
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part), the Underwriters named below, represented by
the Representative, have severally but not jointly agreed, subject to the terms
and conditions contained in the Underwriting Agreement, to purchase from the
Company the respective number of shares of Common Stock indicated below opposite
their names at the initial public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of the 1,450,000 shares of Common Stock being offered hereby, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Shamus Group, Inc................................................................ 920,000
Hill Thompson Magid & Co. Inc.................................................... 100,000
Joseph Charles & Associates, Inc................................................. 100,000
Joseph Stevens & Company, L.P.................................................... 100,000
LT Lawrence & Co., Inc........................................................... 100,000
M.H. Meyerson & Co., Inc......................................................... 100,000
M.S. Farrell & Company, Inc...................................................... 30,000
----------
Total........................................................................ 1,450,000
----------
----------
</TABLE>
The Representative's principal business is to underwrite and sell securities
and to operate as a full-service brokerage firm. This is the first public
offering which the Representative will underwrite. See "Risk
Factors--Inexperienced Representative."
The Boston Group, L.P. (the "Dealer Manager"), an NASD member firm, acted as
Dealer Manager in connection with certain private placements of securities
conducted by the Company in May through July 1996. In connection with such
private placements, the Dealer Manager received a ten percent commission and a
three percent non-accountable expense allowance, was reimbursed for certain
expenses and received Dealer Manager Warrants to purchase 92,667 shares of
Common Stock at $3.30 per share. The Dealer Manager subsequently waived its
rights to the Dealer Manager Warrants and the Company has cancelled such
warrants.
The Company initially retained the Dealer Manager to act as the managing
underwriter in connection with the Offering. In January 1997, the Company
elected to retain the Representative to act as managing underwriter of the
Offering. The decision to retain the Representative was made because the Company
believes that the Representative is familiar with the Company and its business
and was better able to complete the Offering within the timeframe required by
the Company's business plan. In consideration of the expenditures made and
services performed by the Dealer Manager in connection with the structuring of
the Offering as well as the preparation and filing of the Registration Statement
of which this Prospectus is a part, the Representative has agreed to pay the
Dealer Manager, out of the non-accountable expense allowance payable to the
Representative, a fee equal to one and one-half percent of the gross proceeds
from the sale of all shares of Common Stock offered hereby. To date, the Company
has paid the Representative $15,000 of such fee.
The Company has been advised by the Representative that the Underwriters
propose to offer shares to the public at the initial public offering set forth
on the cover page of this Prospectus, and to certain securities dealers at such
price less a concession of not more than $.15 per share, and that the
Underwriters and such dealers may reallot to other dealers, including the
Underwriters, at a discount not in excess of $.10 per share. After the initial
public offering, the public offering price and concessions and discounts may
54
<PAGE>
be changed by the Representative. No reduction in such terms shall change the
amount of proceeds to be received by the Company as set forth on the cover page
of this Prospectus.
The Company has granted the Underwriters an option, exercisable within 45
days after the date of the Prospectus, to purchase up to an aggregate of an
additional 217,500 shares of Common Stock, solely to cover over-allotments, if
any, at the same price per share of Common Stock being paid by the Underwriters
for the 1,450,000 shares of Common Stock being offered by the Company hereby.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to three percent of the gross proceeds from the sale of
all shares of Common Stock offered hereby, one half of which will be paid to the
Dealer Manager as described above, $15,000 of which has been advanced to the
Dealer Manager. The Representative's expenses in excess of the non-accountable
expense allowance, including its legal expenses, will be borne by the
Representative. To the extent that the expenses of the Representative are less
than the non-accountable expense allowance, the excess shall be deemed to be
compensation to the Representative.
The Underwriters have informed the Company that they do not expect any sales
or shares of Common Stock offered hereby to be made by the Underwriters to any
accounts over which they exercise discretionary authority.
The Company has agreed to sell to the Representative and/or, at the option
of the Representative, any of the Underwriters, for an aggregate of $50 the
Representative Warrant to purchase up to 145,000 shares of Common Stock at an
exercise price equal to 120% of the initial public offering price per share of
Common Stock. The Representative Warrant may not be transferred prior to
exercise and is exercisable during the four-year period commencing one year from
the date of this Prospectus.
Except as described below, each of the Company's executive officers,
directors, and principal stockholders, has agreed not to, directly or
indirectly, offer, offer to sell, sell, grant an option to purchase or sell,
transfer, assign, pledge, hypothecate or otherwise encumber any shares of Common
Stock owned by them for a period of one year from the date of this Prospectus
without the prior written consent of the Representative. Notwithstanding the
foregoing, Mr. Karlsson and Mr. Berk hold 50,000 and 21,700 shares,
respectively, which are not registered and are not covered by their respective
lock-up agreements. In addition, substantially all of the Selling Security
Holders have agreed not to sell, pledge, assign or otherwise transfer any shares
of Common Stock during the one-year period following the date of this
Prospectus; provided that a total of three Selling Security Holders have agreed
to a 90 day "lock-up" with respect to 114,969 shares of Common Stock. However,
any of such "lock-up" restrictions may be waived by the Representative in its
sole discretion. In such event, the Representative may require any such sales to
be effected through the Representative or such other broker dealer(s) as the
Representative may allow and the Representative (or such other broker-dealer(s))
will be entitled to receive its customary compensation in connection therewith.
Although the Representative does not have any plans, proposals, arrangements or
understandings with any Selling Security Holders regarding the waiver of any
such lock-ups, any permitted sales by the Selling Security Holders during such
12-month period could adversely affect the price of and any market for the
Common Stock.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities under the Securities Act or will
contribute to payments the Underwriters may be required to make in respect
thereof. The Company 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.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the shares of Common Stock offered hereby
and the exercise price and other terms of the Representative Warrant have been
determined by negotiations between the Company and the Representative. The major
factors considered in determining the initial public offering price of the
Common Stock
55
<PAGE>
were the prevailing market conditions, the market price relative to earnings,
cash flow and assets for publicly traded common stock of comparable companies,
the sales and earnings of the Company and comparable companies in recent
periods, the Company's earning potential, the experience of its management and
the position of the Company in the industry. The initial public offering price
set forth on the cover page of this Prospectus should not be considered an
indication of the actual value of the Common Stock. Such price is subject to
change as a result of market conditions and other factors and no assurance can
be given that the Common Stock can be resold at the initial public offering
price.
The Company has agreed that the Representative shall have the right, from
time to time, for a period not to exceed three years after completion of the
Offering, to have an individual selected by the Representative attend all
meetings of the Board of Directors of the Company as a non-voting observer. In
addition, pursuant to the Underwriting Agreement, for a period not to exceed
three years following completion of the Offering the Company has agreed not to
conduct certain securities and other transactions without the prior consent of
the Representative.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof, copies of which are on file at the offices of the
Representative, the Company and the Securities and Exchange Commission. See
"Additional Information."
The Representative and/or any other persons participating in the Offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock offered hereby. Such transactions may take a variety
of forms including syndicate short covering transactions and penalty bid
provisions requiring the forfeiture of commissions or discounts by
broker-dealers who participate in the Offering in the event that shares allotted
to such broker-dealers in the Offering are resold within a specified period of
time following the Offering.
ABC Capital Markets Group ("ABC"), which is controlled by Pete Peterson, has
provided financial advisory and other services to the Company as a consultant
beginning in the fourth quarter of 1995. Mr. Peterson is an affiliate of L.H.
Friend, Weinress, Frankson & Presson, Inc., a member of the NASD. As
compensation for services rendered by Mr. Peterson in July 1996 the Company
issued Mr. Peterson an option to purchase 5,000 shares at the fair market value
of the Common Stock at such time ($2.50 per share). In addition, through
December 31, 1996, the Company had paid ABC an aggregate of $19,800 for advisory
services rendered in 1996. It is anticipated that additional fees of no more
than $18,000 will be paid to ABC for services rendered in 1996 and in the first
quarter of 1997.
In appreciation of advisory services provided by Mr. Peterson to the Company
during the fourth quarter of 1995 and the first quarter of 1996, in May 1996 Mr.
Karlsson gifted 5,000 shares of his personally-held Common Stock to Mr.
Peterson, which resulted in a compensation charge to the Company of
approximately $10,000.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Latham & Watkins, Costa Mesa, California. Certain
legal matters will be passed upon for the Underwriters by Jeffer, Mangels,
Butler & Marmaro LLP, Los Angeles, California.
EXPERTS
The financial statements as of December 31, 1996 and for the years ended
December 31, 1995 and 1996 included in this Prospectus, have been audited by
Deloitte & Touche, LLP, independent auditors, as stated in their report, which
includes an explanatory paragraph regarding substantial doubt about the
Company's ability to continue as a going concern, appearing herein, and have
been included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
56
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a registration statement on Form SB-2 (the
"Registration Statement") under the Securities Act with respect to the shares of
Common Stock registered hereby. This Prospectus omits certain information
contained in the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements contained
herein concerning the contents of any contract or any other document are not
necessarily complete, and in each instance, reference is made to such contract
or other document filed with the Commission as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including exhibits and schedules thereto,
may be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at the
New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048 and at the Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. This information also can be obtained from the
Commission's Web site at http://www.sec.gov.
57
<PAGE>
SCOOP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................................................... F-2
FINANCIAL STATEMENTS:
Balance sheet.............................................................................................. F-3
Statements of operations................................................................................... F-4
Statements of stockholders' deficit........................................................................ F-5
Statements of cash flows................................................................................... F-6
Notes to financial statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Scoop, Inc.:
We have audited the accompanying balance sheet of Scoop, Inc. (the Company)
as of December 31, 1996 and the related statements of operations, stockholders'
deficit and cash flows for each of the two years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and also 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 Scoop, Inc. as of December
31, 1996 and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming Scoop,
Inc. will continue as a going concern. As more fully described in Notes 1 and 11
to the financial statements, the Company has incurred recurring operating
losses, has an accumulated deficit of $3,374,100 at December 31, 1996 and is in
default of one promissory note. The Company's ability to continue as a going
concern is dependent upon future events, including the successful development
and market acceptance of its service, its ability to secure sufficient
additional sources of financing to repay its obligations as they become due, to
complete its development program and generate revenues sufficient to cover its
cost structure. These factors raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
February 17, 1997 (except for information
in Note 11, for which the date is March 31, 1997)
F-2
<PAGE>
SCOOP, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
1996
1996 (NOTE 1)
----------- -----------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents.............................................................. $ 262,400
Accounts receivable, net of allowance for doubtful accounts $100,900................... 115,900
Prepaid expenses....................................................................... 187,500
Income tax refund receivable (Note 8).................................................. 15,400
-----------
Total current assets................................................................. 581,200
EQUIPMENT, at cost, net of accumulated depreciation and amortization (Notes 2 and 9)... 305,100
COVENANT NOT-TO-COMPETE, net of amortization (Note 10)................................. 77,300
OTHER ASSETS........................................................................... 8,200
-----------
$ 971,800
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................................................... $ 415,000 $ 415,000
Accrued payroll........................................................................ 133,000 133,000
Accrued royalty (Note 9)............................................................... 284,200 284,200
Other accrued liabilities.............................................................. 32,300 32,300
Current portion of capital lease obligations........................................... 100,900 100,900
Current portion of covenant not-to-compete obligation.................................. 18,400 18,400
----------- -----------
Total current liabilities............................................................ 983,800 983,800
CAPITAL LEASE OBLIGATIONS, net of current portion (Note 9)............................. 76,800 76,800
COVENANT-NOT-TO-COMPETE OBLIGATION, net of current portion (Note 10)................... 62,200 62,200
COMMITMENTS AND CONTINGENCIES (Note 9)
MANDATORILY REDEEMABLE COMMON STOCK, 926,664 issued and outstanding--actual; none
issued and outstanding--pro forma (Note 5)........................................... 2,302,500
STOCKHOLDERS' DEFICIT (Notes 5, 6, 7 and 10):
Preferred stock $.001 par value; 5,000,000 shares authorized; no shares issued or
outstanding
Common stock, $.001 par value; 20,000,000 shares authorized; 2,825,833 (December 31,
1996) shares issued and outstanding--actual; 3,752,497 shares issued and
outstanding--pro forma............................................................... $ 2,800 $ 3,700
Additional paid-in capital............................................................. 725,600 3,027,200
Accumulated deficit.................................................................... (3,374,100) (3,374,100)
Deferred compensation.................................................................. 192,200 192,200
----------- -----------
Total stockholders' deficit.......................................................... (2,453,500) (151,000)
----------- -----------
$ 971,800 $ 971,800
----------- -----------
----------- -----------
</TABLE>
See independent auditor's report and notes to financial statements.
F-3
<PAGE>
SCOOP, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -------------
<S> <C> <C>
Net sales............................................................................. $ 968,600 $ 1,395,900
Cost of sales......................................................................... 534,100 833,200
----------- -------------
Gross profit...................................................................... 434,500 562,700
Operating expenses:
Research and development............................................................ 186,600 601,700
Selling and marketing............................................................... 175,100 396,500
General and administrative (Note 6)................................................. 637,900 1,710,300
----------- -------------
999,600 2,708,500
----------- -------------
Operating loss........................................................................ (565,100) (2,145,800)
Interest expense, net................................................................. 36,000 21,500
----------- -------------
Loss before provision for income taxes................................................ (601,100) (2,167,300)
Provision for income taxes (Note 8)................................................... 1,600 1,600
----------- -------------
Net loss.............................................................................. $ (602,700) $ (2,168,900)
----------- -------------
----------- -------------
Net loss applicable to common stock (Note 1).......................................... $ (2,283,900)
-------------
-------------
Net loss per common share (Note 1).................................................... $ (0.13) $ (0.64)
----------- -------------
----------- -------------
Weighted average common shares outstanding (Note 1)................................... 4,756,000 3,566,000
----------- -------------
----------- -------------
</TABLE>
See independent auditor's report and notes to financial statements.
F-4
<PAGE>
SCOOP, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
---------- --------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995............... 5,033,270 $ 5,000 $ -- $ (228,700) $ -- $ (223,700)
Repurchase of shares (Note 10)......... (2,516,635) (2,500) (97,500) (100,000)
Ascribed value of transferred shares
(Note 6)............................. 12,000 12,000
Net loss............................... (602,700) (602,700)
---------- --------- ----------- ------------ ------------- -----------
BALANCE, December 31, 1995............. 2,516,635 2,500 12,000 (928,900) (914,400)
Issuance of shares in repayment of debt
(Note 10)............................ 71,760 100 154,900 155,000
Net proceeds from issuance of common
stock (Note 6)....................... 113,248 100 224,900 225,000
Proceeds from issuance of common stock
(Note 10)............................ 20,000 40,000 40,000
Stock bonus (Note 6)................... 39,663 81,800 81,800
Ascribed value of transferred shares
(Note 6)............................. 50,800 50,800
Issuance of shares (Note 10)........... 64,527 100 161,200 (161,300)
Increase in redemption value of
redeemable shares of common stock
(Note 5)............................. (115,000) (115,000)
Net loss............................... (2,168,900) (2,168,900)
Deferred compensation (Note 6)......... 192,200 192,200
---------- --------- ----------- ------------ ------------- -----------
BALANCE, December 31, 1996............. 2,825,833 $ 2,800 $ 725,600 $(3,374,100) $ 192,200 $(2,453,500)
---------- --------- ----------- ------------ ------------- -----------
---------- --------- ----------- ------------ ------------- -----------
</TABLE>
See independent auditor's report and notes to financial statements.
F-5
<PAGE>
SCOOP, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................................. $(602,700) $(2,168,900)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................................... 35,800 105,400
Stock bonus (Note 6).................................................................... 81,800
Ascribed value of transferred shares (Note 6)........................................... 12,000 50,800
Deferred compensation................................................................... 192,200
Changes in:
Accounts receivable................................................................... 900 (93,800)
Publishing materials.................................................................. (1,800) 14,600
Prepaid expenses...................................................................... (187,500)
Income tax refund receivable.......................................................... (17,200) 1,800
Other assets.......................................................................... (8,200)
Accounts payable...................................................................... 143,500 187,000
Accrued payroll....................................................................... 60,400 36,000
Accrued royalty....................................................................... 100,000 134,200
Other accrued liabilities............................................................. (34,300) (1,600)
--------- -----------
Net cash used in operating activities............................................... (303,400) (1,656,200)
CASH FLOWS FROM INVESTING ACTIVITIES--Purchase of equipment............................... (166,700)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit............................................. 136,000 (150,000)
Proceeds from convertible note payable.................................................... 150,000
Repayment of note payable to stockholder.................................................. (88,000)
Proceeds from note payable--Other (Note 4)................................................ 57,500
Repayment of note payable--Other (Note 4)................................................. (57,500)
Repayment of capital lease obligations.................................................... (27,100) (56,300)
Repayment of covenant not-to-compete obligation........................................... (16,700)
Proceeds from issuance of common stock (Notes 6 and 10)................................... 265,000
Proceeds from bridge notes................................................................ 400,000
Repayment of bridge notes................................................................. (400,000)
Proceeds from issuance of redeemable common stock (Note 5)................................ 2,187,500
Redemption of common stock (Note 10)...................................................... (12,000)
--------- -----------
Net cash provided by financing activities........................................... 304,400 2,084,000
--------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS..................................................... 1,000 261,100
CASH AND CASH EQUIVALENTS:
Beginning of year....................................................................... 300 1,300
--------- -----------
End of year............................................................................. $ 1,300 $ 262,400
--------- -----------
--------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--Cash paid during the year for:
Interest................................................................................ $ 11,500 $ 32,200
--------- -----------
--------- -----------
Income taxes............................................................................ $ 17,200 $ 3,200
--------- -----------
--------- -----------
SCHEDULE OF NONCASH INVESTING AND FINANCING TRANSACTIONS:
Contractual obligations incurred for the acquisition of equipment......................... $ 125,000
-----------
-----------
Note payable exchanged for common stock (Note 10)......................................... $ 88,000
---------
---------
Contractual obligation incurred in exchange for noncompetition agreement.................. $ 97,000
---------
---------
Increase in redemption value of redeemable shares of common stock (Note 5)................ $ 115,000
-----------
-----------
Common stock issued in repayment of debt and accrued interest (Note 10)................... $ 155,000
-----------
-----------
</TABLE>
See independent auditor's report and notes to financial statements.
F-6
<PAGE>
SCOOP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--Scoop, Inc. (the Company), formerly Karlsson-DelRey
Communications, Inc., was incorporated in California in May 1990. On November 5,
1993, the Company formed a wholly-owned subsidiary, Newsmakers Information
Services, Inc. (Newsmakers or the subsidiary). In May 1996, the Company changed
its corporate name to Scoop, Inc. In November 1996, the Company merged the
subsidiary into itself. The accompanying financial statements have been restated
to reflect this reorganization, which has been accounted for on a basis similar
to a pooling of interests.
DESCRIPTION OF BUSINESS--The Company is principally engaged in developing
SCOOP!, an internet delivered business information service, and marketing
printed media reproductions. The Company plans to use SCOOP! and the Company's
proprietary SCOOP SMARTGUIDE-TM- technology which is under development, to
provide customers with a combination of information delivering capabilities for
accessing information from a variety of databases and the Internet's World Wide
Web. The market for the Company's business information services is highly
competitive and may be affected by technology changes. Changes in technology and
other market conditions could adversely impact future operating results of the
Company. Additionally, the Company's future operating success is largely
dependent on its ability to successfully complete the development of SCOOP! and
market its proprietary technology, including its SCOOP SMARTGUIDE-TM-
technology.
GOING CONCERN AND MANAGEMENT'S PLANS--Through December 31, 1996, the Company
has incurred significant operating losses and expects significant additional
losses in the future. The Company plans to finance its operations primarily
through the proceeds from the Company's proposed initial public offering. The
Company believes that the estimated net proceeds of such offering, existing cash
and cash equivalents and a line of credit obtained from a third party (Note 11)
will satisfy its budgeted cash requirements for the nine months subsequent to
completion of the offering, based on the Company's current operating plan. The
Company's current operating plan shows that at the end of such period, the
Company will require substantial additional capital. Moreover, if the Company is
unsuccessful in raising the full estimated net proceeds of the offering or
experiences unanticipated cash requirements during the nine-month period or
experiences delays in the development and marketing of its SCOOP! business
information service, the Company could require additional capital to fund its
operations, continue research and development programs, and commercialize any
products that may be developed. The Company may seek such additional funding
through public or private financings or collaborative or other arrangements with
third parties. There can be no assurance that additional funds will be available
on acceptable terms, if at all. The accompanying financial statements have been
prepared assuming the Company will continue as a going concern and do not
include any adjustments that might result from the outcome of this uncertainty.
USE OF 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 years. Actual results could differ from those estimates.
CONCENTRATION OF CONTENT PROVIDERS--The Company's content providers for its
NewsMakers services include approximately four content providers for which the
Company acts on an exclusive outsourcing agency basis, and approximately 20
additional content providers for which the Company acts as outsourcing agent on
a nonexclusive basis and a smaller number of content providers for which the
Company acts
F-7
<PAGE>
SCOOP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on a project-by-project basis. One exclusive content provider presently provides
the content for approximately 48% of the Company's annual revenue. The Company
anticipates adding additional new publications to its list of exclusive content
providers for its publishing products and services, although there can be no
assurance that such additional content providers will be added.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash on hand
and investments purchased with original maturities of three months or less.
EQUIPMENT--Equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method over a four-year period
for computer and office equipment. Leasehold improvements are amortized over the
term of the related lease if less than the estimated service life.
The Company accounts for long-lived assets (primarily equipment) under
Statement of Financial Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
This statement requires impairment losses to be recognized for long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the assets' carrying
amount. The statement also requires that assets to be disposed of should be
written down to fair value less selling costs.
REVENUE RECOGNITION--Revenues from product sales are recognized upon
shipment of product to customers who principally consist of corporate and
professional entities. The Company offers credit to its customers, performs
ongoing credit evaluations and generally does not require collateral.
INCOME TAXES--Income taxes are recorded in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. This statement requires the recognition of deferred
tax assets and liabilities to reflect the future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Measurement of the deferred items is based on enacted tax laws. In the event the
future consequences of differences between financial reporting basis and tax
basis of the Company's assets and liabilities result in a deferred tax asset,
SFAS No. 109 requires an evaluation of the probability of being able to realize
the future benefits indicated by such asset. A valuation allowance related to a
deferred tax asset is recorded when it is more likely than not that some portion
or all of the deferred tax asset will not be realized.
SOFTWARE DEVELOPMENT COSTS--Development costs incurred in the research and
development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. After technological feasibility is established, any additional
costs would be capitalized in accordance with SFAS No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED. Through
December 31, 1996, software development has been substantially completed
concurrently with the establishment of technological feasibility, and
accordingly, no costs have been capitalized to date.
FAIR VALUE OF FINANCIAL INSTRUMENTS--SFAS No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires management to disclose the estimated
fair value of certain assets and liabilities defined by SFAS No. 107 as
financial instruments. Financial instruments are generally defined by SFAS No.
107 as cash, evidence of ownership interest in equity, or a contractual
obligation that both conveys to one entity a right to receive cash or other
financial instruments from another entity and imposes on the other entity the
obligation to deliver cash or other financial instruments to the first entity.
At December 31, 1995 and 1996, management believes that the carrying amount of
cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate fair value because of the short maturity of these
financial
F-8
<PAGE>
SCOOP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
instruments. The carrying value of the Company's capital leases is considered to
approximate fair value based upon current borrowing rates offered to the
Company.
STOCK SPLIT--In May 1996, the Company effected a 1,006.654-for-1 stock split
of its then outstanding common stock. All share and per share amounts included
in the accompanying financial statements have been restated to reflect the stock
split.
REINCORPORATION--As described in Note 11, in March 1997, the Company
reincorporated in the state of Delaware. The accompanying financial statements
include the effects of the reincorporation and resulting increase in the number
of common stock authorized to 20,000,000 shares and the authorization of
5,000,000 shares of preferred stock.
NET LOSS APPLICABLE TO COMMON STOCK--Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin Topic 6b, net loss applicable to common
stock for the period presented has been calculated by adding to the net loss the
increase in the redemption value of redeemable shares of common stock.
NET LOSS PER COMMON SHARE--Net loss per common share has been computed by
dividing the net loss by the weighted average number of common shares and
redeemable common shares outstanding during the period. Additionally, pursuant
to Securities and Exchange Commission Staff Accounting Bulletin Topic 4d, stock
options and warrants granted during the twelve months prior to the date of the
initial filing of the Company's Form SB-2 Registration Statement have been
included in the calculation of common equivalent shares using the treasury stock
method, as if they were outstanding as of the beginning of each period net loss
per share is presented.
PRO FORMA LIABILITIES AND STOCKHOLDERS' EQUITY--In September 1996, the
Company began preparing for an initial public offering of its common stock. Upon
the completion of an initial public offering, the mandatory redemption rights
associated with certain shares of common stock will terminate (Note 5). The
accompanying pro forma information as of December 31, 1996 gives effect to the
termination of such redemption rights.
2. EQUIPMENT
Equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Computer equipment............................................... $ 379,600
Furniture and fixtures........................................... 54,700
Leasehold improvements........................................... 38,300
---------
472,600
Accumulated despreciation and amortization....................... (167,500)
---------
$ 305,100
---------
---------
</TABLE>
Included in equipment as of December 31, 1996 is $274,600 of equipment held
under capital leases. The related accumulated amortization amounted to $128,700
at December 31, 1996.
F-9
<PAGE>
SCOOP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
3. LINE OF CREDIT
Outstanding borrowings under the line of credit agreement were repaid in
June 1996 at which time the credit facility was terminated.
4. NOTE PAYABLE--OTHER
Note payable--other consisted of a 10% unsecured demand note payable to a
financing institution. The principal sum of $57,500, plus accrued interest of
$2,150, was repaid in full in June 1996.
5. REDEEMABLE SHARES OF COMMON STOCK
In July 1996, the Company completed two separate private placements (the May
and June Private Placements) aggregating 926,664 shares of common stock (the
Redeemable Shares) for $2,178,200 (net of offering costs of $592,400). Holders
of the Redeemable Shares have cumulative voting rights and are entitled to share
ratably in dividends, if any. The Redeemable Shares must be redeemed by the
Company in the event that the Company fails to complete an initial public
offering of its common stock and to have its common stock quoted for trading on
a national securities exchange or NASDAQ by December 1998. The redemption price
is equal to the greater of the issuance price plus a return of 10% compounded
annually, or the aggregate fair market value. During the year ended December 31,
1996, the Company increased the mandatorily redeemable common stock and
accumulated deficit by $115,000 to increase the carrying value of the Redeemable
Shares to approximate redemption value. In the event the Company completes an
initial public offering of its common stock and the common stock is quoted for
trading on a national securities exchange or NASDAQ by December 1998, the
redemption rights associated with the Redeemable Shares will terminate.
In connection with the May and June Private Placements, the Company issued
to each purchaser of redeemable common stock an equal number of cancelable
warrants for aggregate consideration of $9,300, the deemed value of the
warrants. Each cancelable warrant entitles the holder to purchase one share of
common stock at either $2.50 (May Private Placement) or $3.00 (June Private
Placement) per share. The cancelable warrants will become exercisable in July
1998, unless the Company either consummates an initial public offering of its
stock or offers to redeem all Redeemable Shares issued in the May and June
Private Placements for $6.00 per share. In either case, the cancelable warrants
become null and void. Holders of cancelable warrants are not entitled to receive
dividends, vote, consent, exercise any preemptive right or receive notice as
stockholders of the Company in respect of any meeting of stockholders for the
election of directors of the Company or any other matter.
6. STOCKHOLDERS' DEFICIT
STOCK BONUS--In April 1996, the Company issued an aggregate of 34,663 shares
of the Company's common stock at a deemed fair market value of $2.00 per share
as a stock bonus to 14 key employees or consultants of the Company. Compensation
expense of $69,300 was recorded in connection with this stock bonus.
In July 1996, the Company issued 5,000 shares of the Company's common stock
as a stock bonus to an employee. Compensation expense of $12,500 ($2.50 per
share) was recorded concurrent with the issuance of the common stock, which the
Company's Board of Directors deemed to be the fair value of the stock at the
date of grant.
PRIVATE PLACEMENT OF STOCK--In April 1996, the Company completed the private
placement of 113,248 shares of its common stock, yielding net proceeds of
$225,000.
F-10
<PAGE>
SCOOP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
6. STOCKHOLDERS' DEFICIT (CONTINUED)
OTHER--During the years ended December 31, 1995 and 1996, the Company's
president and majority stockholder gifted certain shares of his personally-held
common stock to various directors, consultants and employees of the Company.
These transactions resulted in the Company's recording an increase to general
and administrative expense and additional paid-in capital of $12,000 and
$50,800, respectively, which the Company deemed the fair value of the gifted
stock at the dates of the transactions.
7. STOCK OPTION PLAN
STOCK OPTION PLAN--In April 1996, the Company adopted its 1996 Stock
Incentive Plan (the 1996 Plan), as subsequently amended in October 1996, which
provides for the grant of stock options and other awards to certain officers,
key employees, consultants or other persons affiliated with the Company. The
maximum number of shares of common stock that may be issued pursuant to the 1996
Plan is 1,500,000. Following the adoption of such plan, the Company granted
options to purchase an aggregate of 402,500 shares of the Company's common stock
at prices ranging from $2.00 to $5.00 per share, which the Company's Board of
Directors deemed to be equal to, or in excess of, fair market value of the
common stock at the dates of grants, to employees of the Company. Additionally,
options were granted for the purchase of up to 220,000 common shares at prices
ranging from $2.00 to $5.00 per share to certain nonemployees of the Company.
The Company will record compensation expense equivalent to the fair value of the
options granted to nonemployees, totaling approximately $91,000. As options to
purchase 75,000 shares vested upon grant, the Company recorded $32,300 at the
date of grant. The remaining amount will be recorded ratably over the four-year
vesting periods of the respective options. At December 31, 1996, the Company had
recorded $41,000 of deferred compensation expense associated with these stock
option grants.
CONSULTANT WARRANTS--In June 1996, the Company granted warrants to purchase
up to 200,000 shares of the Company's common stock at a price of $2.55 per
share, which the Company deemed to be equal to the fair market value of the
stock at the date of grant, to certain consultants of the Company. As these
warrants vested upon grant, the Company recorded compensation expense equivalent
to the fair value of these warrants, totaling $119,200. In connection with the
May and June Private Placements, the Company granted warrants to purchase up to
92,667 shares of common stock at a price of $3.30 to its underwriter.
CONTENT PROVIDER WARRANTS--In October 1996, the Company entered into an
agreement with a third party giving the Company the right to access and resell
certain proprietary database information. Pursuant to such agreement, the
Company granted warrants to purchase up to 550,000 shares of the Company's
common stock with exercise prices of $6.50 (300,000 shares), $10.00 (150,000
shares), and $15.00 (100,000 shares) to a third party. As these warrants vest
immediately, the Company recorded compensation expense equivalent to the fair
value of the warrants totaling approximately $32,000. Additionally, the third
party will be granted additional warrants to purchase shares of the Company's
common stock (the additional warrants) if they exercise 300,000 warrants by
September 1997. If the third party elects to exercise the additional warrants by
September 1997, the additional warrants will total 200,000 and have an exercise
price of $6.50 per share. If the third party exercises the warrants subsequent
to September 1997, the additional warrants will aggregate 150,000 with exercise
prices of $10.00 per share (50,000 shares) and $15 per share (100,000 shares).
F-11
<PAGE>
SCOOP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
7. STOCK OPTION PLAN (CONTINUED)
The following table summarizes the activity under the 1996 Plan along with
common stock warrant activity for the periods indicated:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
PRICE OF AVERAGE PRICE RANGE AVERAGE
OPTIONS OPTION EXERCISE OF WARRANT EXERCISE
OUTSTANDING GRANTS PRICE WARRANTS GRANTS PRICE
----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31, 1995................ -- --
1996 grants..................................... 242,500 $ 2.00 200,000 $ 2.55
245,000 2.50 92,667 3.30
20,000 3.00 300,000 6.50
14,000 4.00 150,000 10.00
101,000 5.00 100,000 15.00
----------- ---------
Outstanding at December 31, 1996................ 622,500 $ 2.76 842,667 $ 6.84
----------- ---------
----------- ---------
</TABLE>
At December 31, 1996, 155,000 options and 200,000 warrants to purchase
shares were exercisable. The weighted average exercise price of the exercisable
options and warrants is $2.63 and $2.55, respectively.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, encourages but does
not require companies to record compensation cost for employee stock option
grants. The Company has chosen to continue to account for employee option grants
using Accounting Principles Board (APB) No. 25. Accordingly, no compensation
expense has been recognized for employee stock option grants. Had compensation
expense for the employee stock option grants been determined based on the fair
value at the grant dates consistent with SFAS No. 123, the Company's net loss
and net loss per share for the year ended December 31, 1996 would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Net loss applicable to common stock:
As reported................................................... $(2,283,900)
Pro forma..................................................... $(2,425,100)
Net loss per common share:
As reported................................................... $ (0.64)
Pro forma..................................................... $ (0.70)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996: zero dividend yield, expected volatility of
1%, risk-free interest rate of 5.2% and expected lives of ten years.
F-12
<PAGE>
SCOOP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
8. INCOME TAXES
The reconciliation of income tax expense computed at U.S. federal statutory
rates to income tax expense for each of the two years in the period ended
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Tax at U.S. federal statutory rates................................. $ (206,200) $ (759,000)
State income taxes.................................................. (16,000) (107,200)
Other............................................................... 5,600 10,300
Change in valuation allowance....................................... 218,200 857,500
----------- -----------
Total income tax expense........................................ $ 1,600 $ 1,600
----------- -----------
----------- -----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows at December 31,
1996:
<TABLE>
<S> <C>
Deferred tax assets:
State income taxes............................................ $ 600
Depreciation.................................................. (17,700)
Accruals not currently deductible............................. 103,500
Net operating losses.......................................... 1,075,100
----------
1,161,500
Valuation allowance........................................... (1,161,500)
----------
Total net deferred tax assets............................... $ --
----------
----------
</TABLE>
At December 31, 1996, the Company has federal and state tax loss
carryforwards of approximately $2,700,000 and $1,300,000 which expire in 2011
and 2001, respectively. Utilization of these federal and state loss
carryforwards is limited to approximately $300,000 annually as a result of
Internal Revenue Code Section 382 change of ownership rules.
9. COMMITMENTS AND CONTINGENCIES
LEASES--The Company leases its main operating facility on a month-to-month
basis. The Company leases certain equipment under both capital and operating
lease agreements. Rent expense for the years ended December 31, 1995 and 1996
was $84,700 and $39,400, respectively.
F-13
<PAGE>
SCOOP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Minimum annual payments under these agreements as of December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ----------
<S> <C> <C>
Year ending December 31:
1997............................................................... $ 112,600 $ 88,400
1998............................................................... 62,300 92,200
1999............................................................... 23,100 96,000
2000............................................................... 5,200 74,100
----------- ----------
Total minimum lease payments......................................... 203,200 $ 350,700
----------
----------
Amount representing interest......................................... (25,500)
-----------
Present value of future minimum lease payments....................... 177,700
Current portion...................................................... (100,900)
-----------
Long-term portion.................................................... $ 76,800
-----------
-----------
</TABLE>
CONTRACTUAL AGREEMENTS--As discussed in Note 7, the Company has entered into
an agreement with a third party enabling the Company to access and resell
certain proprietary database information. The terms of the agreement provide for
minimum royalty payments of $296,000 (1997), $570,000 (1998) and $652,500 (1999)
during the initial term of this agreement.
LITIGATION--The Company is currently involved in litigation incidental to
its business. In the opinion of management, the ultimate resolution of such
litigation will not have a significant effect on the accompanying financial
statements. Additionally, the Company has been threatened with the commencement
of litigation related to a business venture the Company chose not to pursue.
Whether the threatened litigation will actually commence and the potential
impact on the financial condition of the Company is presently unknown.
10. RELATED PARTY TRANSACTIONS
CONVERTIBLE NOTE PAYABLE--In October 1995, a current stockholder of the
Company loaned the Company $150,000 in exchange for an 8% promissory note
convertible into 71,760 shares of the Company's common stock. In June 1996, the
Company exercised its right of redemption and issued to this stockholder 71,760
shares of common stock.
REPURCHASE OF STOCK--Pursuant to an agreement dated October 5, 1995, as
subsequently amended, the Company repurchased all of the shares that were then
owned by a co-founder and former officer of the Company in exchange for a
$12,000 cash payment and a $88,000 promissory note. This stock repurchase
resulted in a decrease in capital of $2,500 and an increase of $97,500 in
accumulated deficit. In addition, the Company agreed to issue to this former
officer 64,527 shares of the Company's common stock. In July 1996, the Company
issued these shares and recorded an addition to common stock and paid-in capital
and a reduction to accumulated deficit of $161,300 ($2.50 per share) which the
Company's Board of Directors deemed to be the fair value of the stock at the
date of issuance. Such shares of common stock have registration rights in an
initial public offering or subsequent offering.
The unsecured noninterest-bearing $88,000 note payable issued in connection
with the stock repurchase from the co-founder was repaid in full in January
1996.
F-14
<PAGE>
SCOOP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
10. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company also entered into a noncompetition agreement with the former
officer. Under the terms of the agreement, payments of $2,000 will be made in
monthly installments over a term of five years, beginning December 1995. The
Company has established the related asset and liability associated with this
agreement, based upon an imputed interest rate of 8%. The covenant
not-to-compete is being amortized over the five-year term of the covenant.
Amortization expense of $2,000 and $19,700 was recorded for the years ended
December 31, 1995 and 1996, respectively.
OTHER--In April 1996, the Company entered into an agreement with its former
counsel to issue 20,000 shares of common stock for $2.00 per share, which the
Company's Board of Directors deemed to be the fair value of the stock at the
date of the agreement. The Company issued the shares in June 1996, yielding net
proceeds of $40,000.
11. SUBSEQUENT EVENTS
OPTIONS--In February 1997, in settlement of various disputes arising between
the Company, the Company's chairman and two stockholders of the Company, the
Company agreed to pay to these stockholders a total of $60,000 in twelve equal
monthly payments of $5,000 and granted to one stockholder a warrant to purchase
11,250 shares of the Company's common stock. Additionally, the chairman has
granted to the other stockholder an option to purchase 11,250 shares of his
personally-held stock. Both the option and the warrant expire in three years,
vest at the earlier of July 1997 or upon the completion of an initial public
offering and have exercise prices set at 120% of the initial public offering
price of the Company's common stock or, if the Company does not complete an
initial public offering by June 30, 1997, $7.20 per share.
BRIDGE NOTES--In February 1997, two separate individuals each loaned $75,000
to the Company in exchange for the Company's promissory notes. The borrowings
are unsecured, bear interest at 9.75% and matured at the earlier of March 31,
1997, or upon the completion of an initial public offering. As of March 31,
1997, the Company had not completed its initial public offering or repaid the
promissory notes. One of the promissory notes was amended to extend the date of
maturity to the earlier of April 30, 1997 or upon completion of the initial
public offering. The Company is in default under the terms of the second
promissory note which is currently payable.
In February 1997, the Company borrowed $150,000 from a shareholder of the
Company. The loan is unsecured, bears interest at 9.75% and matures April 30,
1997. As additional consideration of the loan, the Company granted to this
shareholder a warrant to purchase 15,000 shares of the Company's common stock at
$4.50 per share, which the Company believed to be below the fair market price at
the date of grant. The estimated fair value (determined using an option pricing
model) of the warrants, $30,100, will be recorded as an increase to paid-in
capital and expense over the term of the two-month loan. The warrants become
exercisable in February 1998.
LINE OF CREDIT--In February 1997, the Company entered into a credit
agreement with an independent third party, which provides for maximum borrowings
of $150,000. The line of credit is collateralized by accounts receivable, bears
interest at 9.5% and has a commitment term expiring in August 1997. Any
borrowings outstanding are payable in full in November 1997. In lieu of paying a
loan processing fee, the Company granted to this individual a warrant to
purchase up to 15,750 shares of the Company's common stock at $5.50 per share,
which the Company believed to be equal to the fair market value at the date of
grant. The Company will record expense equivalent to the fair value of the
warrants (determined using an option pricing model) totaling approximately
$19,400. The warrants become exercisable in March 1998.
F-15
<PAGE>
SCOOP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
11. SUBSEQUENT EVENTS (CONTINUED)
REINCORPORATION--In March 1997, the Company reincorporated in the state of
Delaware. The accompanying financial statements include the effects of the
reincorporation and resulting increase in the number of common stock authorized
to 20,000,000 shares and the authorization of 5,000,000 shares of preferred
stock.
F-16
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN ITS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR AND THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS NOT QUALIFIED TO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 23
Business.................................................................. 28
Management................................................................ 36
Certain Transactions...................................................... 45
Principal Stockholders.................................................... 47
Resale of Outstanding Shares.............................................. 48
Description of Capital Stock.............................................. 49
Shares Eligible for Future Sale........................................... 52
Underwriting.............................................................. 54
Legal Matters............................................................. 56
Experts................................................................... 56
Additional Information.................................................... 57
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL MAY 4, 1997 (25 DAYS AFTER 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 DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
1,450,000 SHARES OF COMMON STOCK
[SCOOP LOGO]
SCOOP, INC.
----------------
PROSPECTUS
------------------
SHAMUS GROUP, INC.
APRIL 9, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PROSPECTUS
SCOOP, INC.
1,199,481 SHARES OF COMMON STOCK AND
200,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF CONSULTANT WARRANTS
------------------
This Prospectus relates to the registration by Scoop, Inc. (the "Company"),
at its expense, for the account of certain non-affiliated security holders (the
"Selling Security Holders") of 1,199,481 shares of Common Stock, par value $.001
per share (the "Common Stock"), and 200,000 shares of Common Stock issuable by
the Company upon exercise of certain consultant warrants previously issued by
the Company to three of the Selling Security Holders (the "Consultant Warrants")
(the 1,199,481 shares of Common Stock and the 200,000 shares of Common Stock
issuable upon exercise of the Consultant Warrants offered by the Selling
Security Holders being sometimes collectively referred to herein as the "Selling
Security Holders' Shares"). The Selling Security Holders' Shares are not being
underwritten in this Offering and the Company will not receive any proceeds from
the sale of the Selling Security Holders' Shares. See "Selling Security
Holders." Subject to certain contractual restrictions, an aggregate of 1,199,481
of the Selling Security Holders' Shares may be sold by the Selling Security
Holders or their respective transferees commencing on the date of this
Prospectus. The remaining 200,000 of the Selling Security Holders' Shares may be
sold by the Selling Security Holders or their respective transferees only after
the Consultant Warrants have been exercised. Sales of the Selling Security
Holders' Shares may depress the price of the Common Stock in any market that may
develop therefor. See "Prospectus Summary--The Offering," "Selling Security
Holders," "Dilution" and "Risk Factors--Possible Adverse Effect of Future Sales
of Securities on Market Price."
This Prospectus incorporates information related to the registration by the
Company for its own account of 1,450,000 shares of Common Stock pursuant to a
separate Prospectus (the "Primary Offering Prospectus") filed with the
Registration Statement of which this Prospectus is a part. This Prospectus,
except for this Cover Page, the back Cover Page and the information contained
herein under the headings "Selling Security Holders" and "Plan of Distribution"
is identical to the Primary Offering Prospectus. This Prospectus includes
certain information that may not be pertinent to the sale of the Selling
Security Holders' Shares by the Selling Security Holders.
Prior to this Offering, there has been no public market for the Common Stock
and there can be no assurance that such a market will exist after this Offering.
------------------------
THE COMMON STOCK IS HIGHLY SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND
"DILUTION" BEGINNING ON PAGES 8 AND 21,
RESPECTIVELY.
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 April 9, 1997
<PAGE>
The sale of the Selling Security Holders' Shares may be effected from time
to time in transactions (which may include block transactions by or for the
account of the Selling Security Holders) in the over-the-counter market, in
negotiated transactions or otherwise. Subject to certain restrictions imposed by
the National Association of Securities Dealers, Inc., sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. See "Plan of Distribution." If any Selling Security Holder
sells his, her or its Selling Security Holders' Shares pursuant to this
Prospectus at a fixed price or at a negotiated price which is, in either case,
other than the prevailing market price or in a block transaction to a purchaser
who resells, or if any Selling Security Holder pays compensation to a
broker-dealer that is other than the usual and customary discounts, concessions
or commissions, or if there are any arrangements either individually or in the
aggregate that would constitute a distribution of the Selling Security Holders'
Shares, a post-effective amendment to the Registration Statement of which this
Prospectus is a part would need to be filed and declared effective by the
Securities and Exchange Commission before such Selling Security Holder could
make such sale, pay such compensation or make such a distribution. The Company
is under no obligation to file a post-effective amendment to the Registration
Statement of which this Prospectus is a part under such circumstances.
SS-2
<PAGE>
SELLING SECURITY HOLDERS
An aggregate of 1,199,481 shares of Common Stock and 200,000 shares of
Common Stock issuable by the Company upon the exercise in full of the Consultant
Warrants are being registered in this Offering for the account of the Selling
Security Holders. Subject to certain contractual restrictions, all of the
Selling Security Holders' Shares (other than the 200,000 shares of Common Stock
issuable by the Company upon exercise of the Consultant Warrants) may be sold by
the Selling Security Holders or their respective transferees commencing on the
date of this Prospectus. The 200,000 shares of Common Stock issuable by the
Company upon exercise of the Consultant Warrants may be sold by the applicable
Selling Security Holders or their respective transferees only after the
Consultant Warrants have been exercised by such Selling Security Holders in
accordance with their terms. Sales of shares of Common Stock by the Selling
Security Holders or their respective transferees may depress the price of the
Common Stock in any market that may develop therefor. See "Risk
Factors--Possible Adverse Effect of Future Sales of Securities on Market Price."
The following table sets forth certain information with respect to persons
for whom the Company is registering such shares of Common Stock for resale to
the public. The Company will not receive any of the proceeds from the sale of
such shares of Common Stock by the Selling Security Holders, although the
Company will receive the proceeds from the exercise, if any, of the Consultant
Warrants. None of the Selling Security Holders has had any position, office or
material relationship with the Company or its affiliates during the last three
years except for: (i) the three holders of the Consultant Warrants, each of whom
provided the Company with certain corporate development consulting services
during 1996 as consideration for the Company's issuance of the Consultant
Warrants to him; (ii) Gabriel Kaplan, who made a loan of $150,000 to the Company
in February 1997 in exchange for a promissory note and warrants to purchase
Common Stock; (iii) and Mr. Grayson, who entered into a settlement agreement
with the Company in February 1997 and (iv) Mr. Del Rey, a co-founder and former
officer of the Company whose shares of common stock in the Company's predecesser
were redeemed in November 1995. See "Description of Capital Stock--Warrants" and
"Certain Transactions." The Selling Security Holders' Shares are not being
underwritten by the Underwriters.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OWNED NUMBER OF SHARES OWNED
NAME OF SELLING BEFORE SHARES BEING AFTER
SECURITY HOLDER(1) OFFERING REGISTERED OFFERING(2)
- ------------------------------------------------------------------ -------------- ------------ ---------------
<S> <C> <C> <C>
Stanley S. Arkin.................................................. 33,333 33,333 0
Lestor C. Aroh.................................................... 16,667 16,667 0
Paulette Marie Brodchandel........................................ 50,000 50,000 0
Tobey Cotsen(3)................................................... 8,333 8,333 0
Michael Del Rey................................................... 64,527 64,527 0
Steven Eagon...................................................... 70,833(4) 70,833 0
Gerald F. Edelstein............................................... 4,167 4,167 0
Nathan Eisen...................................................... 8,333 8,333 0
John Ellison, Jr. and Mia C. Ellison.............................. 33,333 33,333 0
Karl Engdahl...................................................... 30,000 15,000 15,000
Robert A. Finkelstein............................................. 40,000 40,000 0
Robert Gault & Thelma Gault....................................... 33,333 33,333 0
Larry R. Gordon................................................... 165,000(5) 165,000 0
Stephen P. Grayson(6)............................................. 121,385 15,094 106,291
Stephen P. Grayson Profit Sharing Plan(6)......................... 73,429 13,208 60,221
The Jonathan Stanton Co., Inc.(7)................................. 33,333 33,333 0
Gabriel Kaplan.................................................... 123,333(8) 123,333 0
Gabriel Kaplan, P/ADM City National Bank C/F Rotunda Productions,
Inc. MPD........................................................ 83,333(8) 83,333 0
Martin Katz....................................................... 16,667 16,667 0
</TABLE>
SS-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OWNED NUMBER OF SHARES OWNED
NAME OF SELLING BEFORE SHARES BEING AFTER
SECURITY HOLDER(1) OFFERING REGISTERED OFFERING(2)
- ------------------------------------------------------------------ -------------- ------------ ---------------
Mildred Koenigsberg............................................... 8,333 8,333 0
<S> <C> <C> <C>
Benjamin Lehrer................................................... 8,333 8,333 0
Marc Levin........................................................ 16,667 16,667 0
Lexington Ventures, Inc.(9)....................................... 28,333 28,333 0
Staffan Lofgren................................................... 12,000 6,000 6,000
Fred and Barbara Martell.......................................... 16,667 16,667 0
Henri Mastey...................................................... 25,000 25,000 0
Jean Yves Mastey.................................................. 25,000 25,000 0
DeLane E. Matthews................................................ 8,333 8,333 0
Dylan McDermott................................................... 8,333 8,333 0
L.A. Moore........................................................ 16,667 16,667 0
Jon Peters........................................................ 66,666 66,666 0
Gordon Rausser.................................................... 50,000 50,000 0
Mark L. Saginor, M.D.............................................. 36,667 36,667 0
Stephen Schmidt................................................... 16,667 16,667 0
Stanley Schneider................................................. 8,333 8,333 0
David G. Shell.................................................... 17,976 8,988 8,988
Arnold H. Simon................................................... 66,666 66,666 0
Michael Srednick.................................................. 16,667 16,667 0
Arthur Steinberg.................................................. 16,667 16,667 0
James E. Upshaw................................................... 16,667 16,667 0
Henry Wilf........................................................ 66,667(10) 66,667 0
A.V. Zehenni(3)................................................... 33,333 33,333 0
</TABLE>
- ------------------------
(1) Information set forth in the table regarding the Selling Security Holders'
Shares is provided to the best knowledge of the Company based on information
furnished to the Company by the respective Selling Security Holders and/or
available to the Company through its securities ledgers.
(2) Assumes that each Selling Security Holder sells all of the Selling Security
Holders' Shares held by such Selling Security Holder or purchasable by such
Selling Security Holder upon exercise in full of his Consultant Warrant.
(3) As trustee.
(4) Includes 66,666 shares issuable upon the exercise of Mr. Eagon's Consultant
Warrant.
(5) Includes 66,667 shares issuable upon the exercise of Mr. Gordon's
Consultant Warrant and excludes 28,333 shares owned by Lexington Ventures,
Inc. of which Mr. Gordon is the principal.
(6) Excludes 11,250 shares issuable upon the exercise of Mr. Grayson's Warrant
from the Company.
(7) Jonathan Alexrod is the principal of the listed Selling Security Holder.
(8) Excludes 15,000 shares issuable upon the exercise of Mr. Kaplan's Bridge
Warrant.
(9) Larry R. Gordon is the principal of the listed Selling Security Holder.
(10) Shares issuable upon the exercise of Mr. Wilf's Consultant Warrant.
SS-4
<PAGE>
PLAN OF DISTRIBUTION
The sale of the Selling Security Holders' Shares may be effected from time
to time in transactions (which may include block transactions by or for the
account of the Selling Security Holders) in the over-the-counter market, in
negotiated transactions or otherwise. Subject to certain restrictions imposed by
the National Association of Securities Dealers, Inc. ("NASD"), sales may be made
at fixed prices which may be changed, at market prices prevailing at the time of
sale, or at negotiated prices. If any Selling Security Holder sells his, her or
its Selling Security Holders' Shares pursuant to this Prospectus at a fixed
price or at a negotiated price which is, in either case, other than the
prevailing market price or in a block transaction to a purchaser who resells, or
if any Selling Security Holder pays compensation to a broker-dealer that is
other than the usual and customary discounts, concessions or commissions, or if
there are any arrangements either individually or in the aggregate that would
constitute a distribution of the Selling Security Holders' Shares, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part would need to be filed and declared effective by the Securities and
Exchange Commission before such Selling Security Holder could make such sale,
pay such compensation or make such a distribution. The Company is under no
obligation to file a post-effective amendment to the Registration Statement of
which this Prospectus is a part under such circumstances.
The Selling Security Holders may effect transactions in their Selling
Security Holders' Shares by selling such securities directly to purchasers,
through broker-dealers acting as agents for the Selling Security Holders or to
broker-dealers who may purchase the Selling Security Holders' Shares as
principals and thereafter sell such 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 Security Holders and/or the
purchasers for whom such broker-dealers may act as agents or to whom they may
sell as principals or both. In the event that any of the Selling Security
Holders are released from their lock-up agreements, the NASD has required that
any NASD member acquiring released shares from the Selling Security Holders must
(i) notify the NASD of the lock-up release and disclose the purchase price and
other material terms of the sale of such released shares, (ii) to the extent
that the NASD member acquires the released shares at more than a 5% discount to
the market price of the Common Stock at the time of the trade, obtain
pre-approval of the terms of such trade from the NASD. Further, no NASD member
acquiring released shares from Selling Security Holders may, at the time of the
trade, have a short position in the Common Stock (other than short positions, if
any, that will be covered by exercise of the 15% over-allotment option granted
by the Company).
During the time each Selling Security Holder is engaged in a "distribution"
(as defined under Regulation M under the Securities Exchange Act of 1934, as
amended) of the securities covered by this Prospectus, such Selling Security
Holder must comply with Regulation M under the Securities Exchange Act of 1934,
as amended, and pursuant thereto: (i) shall not engage in any stabilization
activity in connection with the Company's securities; and (ii) shall not bid for
or purchase any securities of the Company or attempt to induce any person to
purchase any of the Company's securities other than as permitted under the
Securities Exchange Act of 1934, as amended. Any Selling Security Holders who
may be "affiliated purchasers" of the Company as defined in Regulation M have
been further advised that they must coordinate their sales under this Prospectus
with each other and the Company for purposes of Regulation M. Each Selling
Security Holder must also furnish copies of this Prospectus to each broker
through which the securities registered hereby are sold.
In connection with the acquisition of the Selling Security Holders' Shares,
substantially all of the Selling Security Holders have agreed not to sell,
pledge, assign or otherwise transfer any shares of Common Stock during the
one-year period following the effective date of this Prospectus; provided that
Messrs. Grayson, Wilf and Finklestein have agreed to a 90 day "lock-up" with
respect to 28,302, 66,667 and 20,000 shares of Common Stock, respectively.
However, any of such "lock-up" restrictions may be waived by the Representative
in its sole discretion. In such event, the Representative may require any such
sales to be effected through the Representative or such other broker-dealer(s)
as the Representative may allow
SS-5
<PAGE>
and the Representative (or such other broker-dealer) will be entitled to receive
its customary compensation in connection therewith. Although the Representative
does not have any plans, proposals, arrangements or understandings with any
Selling Security Holders regarding the waiver of any such lock-ups, any
permitted sales by the Selling Security Holders during such 12-month period
could adversely affect the price of and any market for the Common Stock.
The Selling Security Holders 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 such securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
SS-6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN ITS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS NOT QUALIFIED TO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 19
Dividend Policy................................ 19
Capitalization................................. 20
Dilution....................................... 21
Selected Financial Data........................ 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 23
Business....................................... 28
Management..................................... 36
Certain Transactions........................... 45
Principal Stockholders......................... 47
Selling Security Holders....................... 49
Description of Capital Stock................... 51
Shares Eligible for Future Sale................ 53
Plan of Distribution........................... 56
Legal Matters.................................. 58
Experts........................................ 58
Additional Information......................... 58
Index to Financial Statements.................. F-1
</TABLE>
1,199,481 Shares of Common Stock and 200,000 Shares of
Common Stock Issuable Upon
Exercise of Consultant Warrants
SCOOP, INC.
----------------
PROSPECTUS
------------------
APRIL 9, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation (the "Certificate") and Bylaws
include provisions which eliminate the directors' personal liability for
monetary damages to the fullest extent permitted by Delaware Law or other
applicable law (the "Director Liability Provision"). The Director Liability
Provision eliminates the liability of Directors to the Registrant and its
stockholders for monetary damages arising out of any violation by a director of
his fiduciary duty of due care. Under Delaware Law, however, the Director
Liability Provision does not eliminate the personal liability of a director for
(i) breach of the director's duty of loyalty, (ii) acts or omissions not in good
faith or involving intentional misconduct or knowing violation of law, (iii)
payment of dividends or repurchases or redemptions of stock other than from
lawfully available funds, or (iv) any transaction from which the director
derived an improper benefit. The Director Liability Provision also does not
affect a director's liability under the federal securities laws or the recovery
of damages by third parties. Furthermore, pursuant to Delaware Law, the
limitation on liability afforded by the Director Liability Provision does not
eliminate a director's personal liability for breach of the director's duty of
due care. Although the directors would not be liable for monetary damages to the
corporation or its stockholders for negligent acts or omissions in exercising
their duty of due care, the Directors remain subject to equitable remedies, such
as actions for injunction or rescission, although such remedies, whether as a
result of timeliness or otherwise, may not be effective in all situations. With
regard to directors who also are officers of the Registrant, these persons would
be insulated from liability only with respect to their conduct as directors and
would not be insulated from liability for acts or omissions in their capacity as
officers.
Delaware Law provides a detailed statutory framework covering
indemnification of directors, officers, employees or agents of the Registrant
against liabilities and expenses arising out of legal proceedings brought
against them by reason of their status or service as directors, officers,
employees or agents. Section 145 of the Delaware General Corporation Law
("Section 145") provides that a director, officer, employee or agent of a
corporation (i) shall be indemnified by the corporation for expenses actually
and reasonably incurred in defense of any action or proceeding if such person is
sued by reason of his service to the corporation, to the extent that such person
has been successful in defense of such action or proceeding, or in defense of
any claim, issue or matter raised in such litigation, (ii) may, in actions other
than actions by or in the right of the corporation (such as derivative actions),
be indemnified for expenses actually and reasonably incurred, judgments, fines
and amounts paid in settlement of such litigation, even if he is not successful
on the merits, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation (and in a
criminal proceeding, if he did not have reasonable cause to believe his conduct
was unlawful), and (iii) may be indemnified by the corporation for expenses
actually and reasonably incurred (but not judgments or settlements) of any
action by the corporation or of a derivative action (such as a suit by a
stockholder alleging a breach by the director or officer of a duty owed to the
corporation), even if he is not successful, provided that he acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, provided that no indemnification is permitted
without court approval if the director has been adjudged liable to the
corporation.
Delaware Law also permits a corporation to elect to indemnify its officers,
directors, employees and agents under a broader range of circumstances than that
provided under Section 145. The Certificate contains a provision that takes full
advantage of the permissive Delaware indemnification laws (the "Indemnification
Provision") and provides that the Registrant is required to indemnify its
officers, directors, employees and agents to the full extent permitted by law,
including those circumstances in which indemnification would otherwise be
discretionary, provided, however, that prior to making such discretionary
indemnification, the Company must determine that such person acted in good faith
and in a manner he
II-1
<PAGE>
or she believed to be in the best interests of the Company and, in the case of
any criminal action or proceeding, such person had no reason to believe his or
her conduct was unlawful.
In furtherance of the objectives of the Indemnification Provision, the
Registrant has also entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Registrant's Certificate and Bylaws (the "Indemnification Agreement"). The
Registrant believes that the Indemnification Agreements are necessary to attract
and retain qualified directors and executive officers. Pursuant to the
Indemnification Agreements, an indemnitee will be entitled to indemnification to
the extent permitted by Section 145 or other applicable law. In addition, to the
maximum extent permitted by applicable law, an indemnitee will be entitled to
indemnification for any amount or expense which the indemnitee actually and
reasonably incurs as a result of or in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, preparing to be a witness, or
otherwise participating in any threatened, pending or completed claim, suit,
arbitration, inquiry or other proceeding (a "Proceeding") in which the
indemnitee is threatened to be made or is made a party or participant as a
result of his or her position with the Registrant, provided that the indemnitee
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Registrant and had no reasonable cause
to believe his or her conduct was unlawful. If the Proceeding is brought by or
in the right of the Registrant and applicable law so provides, the
Indemnification Agreement provides that no indemnification against expenses
shall be made in respect of any claim, issue or matter in the Proceeding as to
which the indemnitee shall have been adjudged liable to the Registrant.
The provisions eliminating personal liability and affording indemnification
described above are, and for some period following the consummation of this
Offering will be, limited in certain respects by California law. See
"Description of Capital Stock--Governing Law and Certain Charter and Bylaw
Provisions."
The Company maintains directors' and officers' liability insurance in favor
of its directors and executive officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following tables sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions and non-accountable expense allowance.
All of the amounts shown are estimates except the Securities and Exchange
Commission registration and NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 5,525
NASD fees and expenses............................................ 2,325
NASDAQ listing fee................................................ 10,000
Representative's non-accountable expense allowance................ 195,750
Accounting fees and expenses...................................... 110,000
Printing and engraving expenses................................... 70,000
Transfer agent and registrar fees and expenses.................... 10,000
Blue Sky fees and expenses (including counsel fees)............... 60,000
Other legal fees and legal expenses............................... 250,000
Miscellaneous expenses............................................ 36,401
---------
Total........................................................... $ 750,000
---------
---------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In October 1995, the Registrant entered into a written agreement with
Stanley Berk and Associates ("SBA"), a partnership comprised of two principal
stockholders of the Company, pursuant to which SBA agreed to establish a
$400,000 revolving line of credit in favor of the Registrant in exchange for the
II-2
<PAGE>
Registrant's 8% convertible promissory note (the "1995 Note"). Upon delivery of
the 1995 Note, SBA loaned the Registrant the principal sum of $150,000. In June
1996, $155,000 in principal and accrued interest then due on the 1995 Note was
converted into 71,760 shares of Common Stock pursuant to the terms of the 1995
Note. The 1995 Note was placed on a private basis to SBA as an "accredited
investor" as defined in Securities Act Rule 501(a). The issuance of the 1995
Note and shares of Common Stock to SBA was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof. In February
1997, in settlement of various disputes arising between the Registrant and Berk,
the Registrant granted a warrant to one of the partners of SBA exercisable into
11,250 shares of the Registrant's common stock at an exercise price equal to
120% of the price of the Company's Common Stock in the Company's initial public
offering (or $7.20 if there is no public offering by March 31, 1997). The
issuance of this warrant was exempt from the registration requirements of the
Securities Act pursuant to Sections 3(a)(11) and 4(2) thereof.
Effective as of November 1995, the Company redeemed all of the shares of the
Company's outstanding Common Stock then owned by Mr. Michael Del Rey, a
California resident and co-founder of the Company, for $100,000 pursuant to a
written agreement. Pursuant to the terms of such agreement, the Company issued
64,527 shares of Common Stock to Mr. Del Rey for $100 in cash in July, 1996. The
issuance of such shares of Common Stock was exempt from the registration
requirements of the Securities Act pursuant to Sections 3(a)(9), 3(a)(11) and
4(2) of the Securities Act.
Between February and April 1996, the Registrant conducted a private offering
of its Common Stock (the "February 1996 Private Placement"). Pursuant to the
February 1996 Private Placement, the Registrant issued a total of 113,248 shares
of Common Stock for total cash consideration of $225,000. The February 1996
Private Placement was made on a private basis only to an aggregate of seven
persons who were "accredited investors" as defined in Securities Act Rule
501(a). The issuance of Common Stock to such seven persons was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
In April 1996, the Registrant conducted a private offering of its short-term
10% promissory notes (the "April 1996 Bridge Financing"). Pursuant to the April
1996 Bridge Financing, the Registrant issued $400,000 in principal amount of
such notes for total cash consideration of $400,000. The April 1996 Bridge
Financing was made on a private basis only to an aggregate of five persons who
were "accredited investors" as defined in Securities Act Rule 501(a). The
issuance of such notes to such five persons was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
In April 1996, the Registrant issued an aggregate of 34,663 shares of Common
Stock as stock bonuses to an aggregate of fourteen officers and key employees
of, or consultants to, the Registrant for past services rendered at a deemed
issuance price equal to $2.00 per share (the "Stock Bonus Awards"). All of such
fourteen persons were California residents. The issuance of Common Stock
pursuant to the Stock Bonus Awards to such fourteen persons was exempt from the
registration requirements of the Securities Act pursuant to Sections 3(a)(11)
and 4(2) thereof.
From April 1996 through January 1997, the Company granted an aggregate of
812,500 Options at exercise prices per share ranging from $2.00 to the public
offering price of the Common Stock to its directors, key employees and
consultants pursuant to the Stock Incentive Plan. The issuance of such Options
was exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) and Rule 701 thereof.
During June 1996, the Registrant issued an aggregate of 20,000 shares of
Common Stock to an aggregate of nine of the stockholders of the Company's former
general outside legal counsel, for total cash consideration of $40,000. All of
such nine persons were California residents. The issuance of Common Stock to
such nine persons was exempt from the registration requirements of the
Securities Act pursuant to Sections 3(a)(11) and 4(2) thereof.
II-3
<PAGE>
During May and June 1996, the Registrant conducted a private offering of its
equity securities (the "May 1996 Private Placement"). Pursuant to the May 1996
Private Placement, a total of four Units were sold at a price equal to $100,000
per Unit. Each Unit consisted of 40,000 shares of Common Stock and Cancelable
Warrants to purchase 40,000 additional shares of Common Stock at an exercise
price equal to $2.50 per share of Common Stock covered thereby. Upon the
effectiveness of this Registration Statement, all of the Cancelable Warrants
issued in the May 1996 Private Placement will automatically become null and void
in accordance with their terms. The May 1996 Private Placement was made on a
private basis only to an aggregate of five persons who were the investors in the
April 1996 Bridge Financing and who were "accredited investors" as defined in
Securities Act Rule 501(a). The five investors in the May 1996 Financing
cancelled the principal amount of their notes issued in the Bridge Financing as
consideration for the Units. The issuance of the Units in the May 1996 Private
Placement to such persons was exempt from the registration requirements of the
Securities Act pursuant to Sections 4(2) and 4(6) thereof and Rule 506 of
Regulation D thereunder. In consideration for its services as dealer manager for
the May 1996 Private Placement, the Registrant paid The Boston Group, L.P. (the
"Dealer Manager") aggregate commissions and fees of $52,000. The Registrant also
issued to the Dealer Manager warrants to purchase 16,000 shares of Common Stock.
Such warrants have the same basic terms as the Cancelable Warrants issued in the
May 1996 Private Placement except that they are not cancelable, are exercisable
at a price equal to $3.30 for each share of Common Stock covered thereby and may
be exercised on a cashless basis. The issuance of these warrants to the Dealer
Manager was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
During June and July 1996, the Registrant conducted a private offering of
its equity securities (the "June 1996 Private Placement"). Pursuant to the June
1996 Private Placement, a total of 23 Units were sold at a cash price equal to
$100,000 per Unit or an aggregate of $2,300,000. Each Unit consisted of 33,333
shares of Common Stock and Cancelable Warrants to purchase 33,333 additional
shares of Common Stock at an exercise price equal to $3.00 per share of Common
Stock covered thereby. Upon the effectiveness of this Registration Statement,
all of the Cancelable Warrants issued in the June 1996 Private Placement will
automatically become null and void in accordance with their terms. The June 1996
Private Placement was made on a private basis only to persons who were
"accredited investors" as defined in Securities Act Rule 501(a). The issuance of
the Units in the June 1996 Private Placement to such persons was exempt from the
registration requirements of the Securities Act pursuant to Sections 4(2) and
4(6) thereof and Rule 506 of Regulation D thereunder. In consideration for its
services as dealer manager for the June 1996 Private Placement, the Registrant
paid the Dealer Manager aggregate commissions and fees of $299,000. The
Registrant also issued to the Dealer Manager warrants to purchase 76,667 shares
of Common Stock. Such warrants have the same basic terms as the Cancelable
Warrants issued in the June 1996 Private Placement except that they are not
cancelable, are exercisable at a price equal to $3.30 for each share of Common
Stock covered thereby, may be exercised on a cashless basis. The issuance of
these warrants to the Dealer Manager was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
In July 1996, the Registrant issued the Consultant Warrants to three
consultants to the Company in consideration of such consultant agreements to
provide certain corporate development services to the Company. The Consultant
Warrants are exercisable for a period of five years at an exercise price equal
to $2.55 per share of Common Stock covered thereby. All three consultants were
California residents. The issuance of the Consultant Warrants to such three
consultants was exempt from the registration requirements of the Securities Act
pursuant to Sections 3(a)(11) and 4(2) thereof.
In July 1996, the Registrant issued 5,000 shares of Common Stock as a stock
bonus to an employee for past services rendered at a deemed issuance price equal
to $2.50 per share. The employee was a California resident. The issuance of
Common Stock pursuant to the stock bonus to such employee was exempt from the
registration requirements of the Securities Act pursuant to Sections 3(a)(11)
and 4(2) thereof.
II-4
<PAGE>
In October 1996, Registrant issued a warrant to Bell & Howell in connection
with entering into a license agreement with UMI. The warrant gives Bell & Howell
the right to purchase 550,000 shares of Common Stock and is exercisable for a
period of three years. The warrant is exercisable at the following exercise
prices: 300,000 shares at $6.50 per share, 150,000 shares at $10.00 per share,
and 100,000 shares at $15.00 per share. Bell & Howell also will have the right
to purchase up to an additional 200,000 shares if it exercises the warrant for
the first 300,000 shares by September 1997. The issuance of the warrant to Bell
& Howell was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
In February 1997, Registrant borrowed $150,000 from a shareholder of
Registrant. The loan was made at 9.75% simple interest payable together with
principal on April 30, 1997. The principal amount of the loan can be increased
up to $350,000 by endorsement by Registrant and the lender. As additional
consideration for the loan, Registrant issued warrants to the lender exercisable
into 15,000 shares of Registrant's Common Stock at $4.50 per share. In the event
the lender increases the principal amount of the loan, the lender will receive
200 additional warrants for every $1,000 in additional principal amount. These
warrants are not exercisable until February 1998 and expire in February 2002 if
not previously exercised. Registrant has granted certain registration rights
with respect to the shares of Common Stock issuable on exercise of the warrants.
The lender is an "accredited investor" as defined in Securities Act Rule 501(a).
The issuance of these warrants was exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof.
In February 1997, Registrant established a $150,000 line of credit. As
additional consideration for the line of credit, Registrant issued a warrant to
the lender exercisable into 7,500 shares of Common Stock at $5.50 per share
thirteen months after issuance and expiring five years after issuance. The
lender will receive another 50 warrants for every $1,000 of principal drawn on
the line of credit up to $120,000 and 75 warrants for every $1,000 of principal
drawn above $120,000 to $150,000, up to a maximum aggregate of 15,750 shares, on
the same terms as the initial 7,500 Warrants. The lender is an "accredited
investor" as defined in Securities Act Rule 501(a). The issuance of these
warrants was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
See "Certain Transactions" for additional information concerning the
Registrant's issuances of securities for the past three years.
II-5
<PAGE>
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of Scoop, Inc.
3.2 Bylaws of Scoop, Inc.
4.1 Form of Common Stock Certificate
4.2 Form of Representative Warrant
4.3 Form of Consultant Warrant
4.4 Warrant dated October 18, 1996 issued to Bell & Howell+
4.5 Form of Subscription Supplement and Registration Rights Agreement+
4.6 Form of Lock-Up Agreement
5.1 Opinion of Latham & Watkins
10.1 1996 Stock Incentive Plan of Scoop, Inc. dated April 23, 1996
10.2 Promissory Note dated February 19, 1997 payable to City National Bank C/F Gabriel Kaplan, Trustee,
Rotunda Productions, Inc. MPPP ("Kaplan")
10.3 Common Stock Purchase Warrant dated February 19, 1997 granted to Kaplan
10.4 Contract between the Company and Investor's Business Daily
10.5 Lease Agreement between Scoop, Inc. and Village Plaza Associates, LLC dated September 9, 1996+
10.6 Agreement between the Company and UMI Company dated October 17, 1996+
10.7 Form of Indemnification Agreement
10.8 Consulting Agreement with Michael Baum
10.9 Settlement Agreement and General Release dated February 24, 1997 between the Company and Stanley Berk ET
AL
10.10 Common Stock Purchase Warrant dated February 24, 1997 granted to Stephen P. Grayson
10.11 Option Agreement between Karl Karlsson and Stanley Berk dated February 24, 1997
10.12 Amendment to Agreement between the Company and UMI Company dated February 25, 1997
11.1 Computation of Pro Forma Net Loss Per Share
23.1 Consent of Latham & Watkins (included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney+
27.1 Financial Data Schedule+
</TABLE>
- ------------------------
+ Previously filed
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act.
II-6
<PAGE>
(ii) To reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) To include any material 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 at that time 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.
Insofar as indemnification for liabilities arising under 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 whether such indemnification by it is against policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes to file (i) one or more
supplements to the Prospectus in the event the Representative enters into
transactions or waives lock-up agreements with Selling Security Holders
involving from five percent (5%) to ten percent (10%) of the Selling Security
Holders' Shares and (ii) one or more post-effective amendments to the
Registration Statement in the event the Representative enters into transactions
or waives lock-up agreements with Selling Security Holders involving more than
ten percent (10%) of the Selling Security Holders' Shares.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 2
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of Santa Ana, State of California, on April 7, 1997.
SCOOP, INC.
By:/s/ MARK A. DAVIDSON
------------------------------------------
Mark A. Davidson, President
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities described below on April 7, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
/s/ KARL-MAGNUS S. KARLSSON Director, Chairman of the Board
- -------------------------------------------
Karl-Magnus S. Karlsson
/s/ MARK A. DAVIDSON President and Chief Financial Officer
- -------------------------------------------
Mark A. Davidson
* Director and Vice Chairman of the Board
- -------------------------------------------
Michael Baum
* Director
- -------------------------------------------
K.C. Craichy
* Director
- -------------------------------------------
Nils B.A. Andersson
* Director
- -------------------------------------------
Michael K. Boone
* Director
- -------------------------------------------
John P. Kensey
*By: /s/ MARK A. DAVIDSON
---------------------------------------
Mark A. Davidson
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
Exh. 1.1
1,300,000 Shares of Common Stock
SCOOP, INC.
UNDERWRITING AGREEMENT
----------------------
Los Angeles, California
________________, 1997
SHAMUS GROUP, INC.
As Representative of the
Several Underwriters
Named in Schedule I Hereto
33 Whitehall Street
New York, New York 10004
Ladies and Gentlemen:
Scoop, Inc., a Delaware corporation (the "Company") and successor to Scoop,
Inc., a California corporation ("Scoop California"), confirms its agreement with
the several Underwriters named in SCHEDULE I attached hereto and incorporated
herein by this reference (the "Underwriters") with respect to the sale by the
Company and the purchase by the Underwriters, severally and not jointly, of an
aggregate of 1,300,000 shares ("Firm Shares") of the Company's common stock,
$.001 par value (the "Common Stock"). The Company shall also sell to the
Underwriters, severally and not jointly, an aggregate of up to 195,000 shares of
Common Stock for the purpose of covering over-allotments, if any (the "Option
Shares"), in accordance with the provisions of Section 3(b) hereof. The Firm
Shares and the Option Shares are hereinafter referred to collectively as the
"Securities" and are more fully described in the Registration Statement and the
Prospectus referred to below. The Company also proposes to issue and sell to
the Shamus Group, Inc., a ________________ corporation (the "Representative") or
its designees, individually and not in its capacity as Representative, a warrant
(the "Representative Warrant") pursuant to the Representative's Warrant
Agreement (the "Representative Warrant Agreement"), for the purchase of an
additional (130,000) shares of Common Stock (the "Representative's Shares").
Further, the following additional shares of Common Stock (collectively, the
"Selling Stockholder Shares") are being registered in connection with this
offering, but are not being underwritten by the Underwriters, for the account of
certain non-affiliated selling security holders (collectively, the "Selling
Stockholders"): (i) up to 200,000 shares of Common Stock that may be issued
upon exercise of warrants (the "Consultant Warrants") previously issued to
certain consultants of the Company (the "Consultant Warrant Shares"), and (ii)
1,205,152 shares of Common Stock for the account of certain non-affiliated
stockholders in accordance with previously granted registration rights.
Capitalized terms used herein without definition have the meanings ascribed to
them in the Registration Statement (as defined below).
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each of the Underwriters as of the date hereof,
and as of the Closing Date and each Option Closing Date (as such terms are
defined below), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form SB-2 (Registration
<PAGE>
No. 333-15129), including any related preliminary prospectus (the
"Preliminary Prospectus"), for the registration of the Shares under the
Securities Act of 1933, as amended (the "Act"). 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) and any replacement registration
statement on Form S-3 or other appropriate form; the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
Registration Statement or any amendments 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: (i) if the Company relies on Rule 434 under the Act, the
Term Sheet relating to the Securities 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, (ii) 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 (iii) if the Company does not rely
on Rule 434 under the Act and if no prospectus is required to be filed
pursuant to Rule 424(b) under the Act, the prospectus included in the
Registration Statement; and the term "Term Sheet" means any term sheet that
satisfies the requirements of Rule 434 under the Act. Any reference hereto
to the "date" of a Prospectus that includes a Term Sheet shall mean the date
of such Term Sheet. For purposes hereof, "Rules and Regulations" means the
rules and regulations adopted by the Commission under the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus or any part of any of the
foregoing, and no proceedings for a stop order suspending the effectiveness of
the Registration Statement or any part thereof have been initiated or are
pending, contemplated or threatened. Each Preliminary Prospectus and the
Registration Statement (including each amendment thereto), at the time of filing
thereof, complied in all material respects with the requirements of the Act and
the Rules and Regulations, and neither any Preliminary Prospectus nor the
Registration Statement, at the time of filing thereof, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(c) The Company has filed a Form 8-A with the Commission providing
for the registration under the Exchange Act of its Common Stock, which
registration shall become effective concurrently with the effectiveness of the
Registration Statement.
(d) The Company does not own an interest in any corporation,
partnership, trust, joint venture or other entity. The Company has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly qualified
and licensed and in good standing as a foreign corporation, in each jurisdiction
in which it owns or leases property or in which the conduct of its business, as
currently being conducted, requires such qualification or licensing, except
where the failure to be so qualified, licensed or in good standing, singularly
or in the aggregate, would not have a material adverse effect on the condition
(financial or otherwise), earnings, business affairs, position, stockholders'
equity, operations, properties, businesses or results of operations of the
Company taken as a whole (a "Material Adverse Effect"). The Company has all
requisite corporate power and authority, and has obtained any and all
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials, agencies,
authorities and bodies (including, without limitation, those having jurisdiction
over environmental, health or similar matters) necessary to own
2
<PAGE>
or lease its properties and conduct its business as described in the
Prospectus other than those authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
regulatory officials, agencies, authorities and bodies (including, without
limitation, those having jurisdiction over environmental, health or similar
matters) which, singularly or in the aggregate, the failure to obtain would
not have a Material Adverse Effect. The Company is and has been doing
business in substantial compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all federal, state
and local laws, rules, regulations and orders; and the Company has not
received any notice of proceedings relating to the revocation or modification
of any such authorizations, approvals, orders, licenses, certificates,
franchises or permits which, singularly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or supplement
thereto, under "Capitalization" and "Description of Capital Stock" and will have
the adjusted capitalization set forth therein on the Closing Date (as
hereinafter defined) and each Option Closing Date, if any, based upon the
assumptions set forth therein. The Company is not a party to or bound by any
instrument, agreement or other arrangement or understanding providing for or
requiring it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Representative Warrant Agreement, the
warrant to Bell & Howell for up to 750,000 shares of Common Stock, the warrant
to The Boston Group, L.P. for 92,667 shares of Common Stock, the warrant to
Stephen Grayson for 11,250 shares of Common Stock, the Bride Warrant, the LOC
Warrant, the Company's 1996 Stock Incentive Plan (the "1996 Plan"), and the
Consultant Warrants. The Securities and all other securities issued or issuable
by the Company conform or, when issued and paid for, will conform, in all
material respects to the description thereof contained in the Registration
Statement and the Prospectus. All issued and outstanding securities of the
Company have been duly authorized and validly issued and are fully paid and non-
assessable; and the holders thereof have no rights of rescission with respect
thereto; and none of such securities was issued in violation of the preemptive
rights or other similar rights of any holders of any security of the Company.
The Securities are not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof, will be validly
issued, fully paid and non-assessable; all corporate action required to be taken
for the authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities, when delivered
by the Company, will be in due and proper form. Upon the issuance and delivery
of the Securities pursuant to the terms hereof and the Representative Warrant
Agreement and Representative Warrant and Representative's Shares to be sold by
the Company hereunder and thereunder, respectively, the Underwriters and the
Representative, respectively, will own to such Securities and Representative
Warrant and Representative's Shares, free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction of any kind
whatsoever.
(f) The financial statements of the Company and the notes thereto
included in the Registration Statement and the Prospectus fairly present the
financial position, results of operations and cash flow and changes in
financial position and stockholders' equity of the Company at the respective
dates and for the respective periods to which they apply, and such financial
statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied
throughout the periods involved. The as adjusted and/or pro forma combined
financial information included in the Registration Statement and the
Prospectus present fairly the information shown therein, have been prepared
in conformity with the Rules and Regulations and have been properly compiled
on the basis described therein consistent with the historical financial
statements included in the Registration Statement and the Prospectus. The
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assumptions underlying such as adjusted and/or pro forma financial
information are reasonable, and the adjustments made therein are appropriate
to give effect to the transactions or circumstances referred to therein.
There has been no material adverse change, or development involving a
material prospective change, in the condition (financial or otherwise),
earnings, business affairs, position, stockholders' equity, operations,
obligations, properties, businesses or results of operations of the Company,
whether or not arising in the ordinary course of business, since the date of
the financial statements included in the Registration Statement and the
Prospectus, except as described therein. The financial information set forth
in the Prospectus under the headings "Prospectus Summary--Summary Financial
Data," "Dilution," "Capitalization," "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" fairly presents the information set forth therein and such
financial information has been derived from or compiled on a basis consistent
with that of the audited financial statements included in the Registration
Statement and the Prospectus as described above.
(g) The Company (i) has paid all federal, state and local taxes for
which it is liable, including, but not limited to, withholding taxes and amounts
payable under Chapters 21 through 24 of the Internal Revenue Code of 1986, as
amended (the "Code"), and any other assessments, fines or penalties leveled
against it, to the extent any of the foregoing is due and payable or are being
contested, except for any of the foregoing which is currently being contested in
good faith by appropriate proceedings or as described or contemplated by the
Prospectus, and has furnished all information returns it is required to furnish
pursuant to the Code or otherwise, (ii) has established adequate reserves for
such taxes, assessments, fines or penalties which are not due and payable and
(iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it, except where such deficiencies, claims or failure to pay
taxes, assessments, fines or penalties, furnish information returns or establish
reserves, singularly or in the aggregate, would not have a Material Adverse
Effect.
(h) [intentionally omitted]
(i) The Company maintains insurance policies, including, without
limitation, general liability, property and personal liability insurance, which
insure the Company, its employees and such other persons to whom such entities
may become liable against such losses and risks generally insured against by
comparable businesses.
(j) To the Company's best knowledge, there is no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or governmental or
other proceeding (including, without limitation, those pertaining to
environmental, health or similar matters) pending, or threatened, to which the
Company is subject or to which any property or assets (tangible or intangible)
of the Company is subject which (i) questions the validity of the capital stock
of the Company, of this Agreement, of the Representative Warrant Agreement or of
any action or transaction contemplated by this Agreement, the Representative
Warrant Agreement, the Registration Statement or the Prospectus, (ii) is
required to be disclosed in the Registration Statement which is not so disclosed
(and such proceedings as are summarized in the Registration Statement are
accurately summarized in all material respects) or (iii) might, if adversely
determined, have a Material Adverse Effect, except as disclosed in the
Prospectus.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this
Agreement and the Representative Warrant Agreement and to consummate the
transactions contemplated in such agreements, the Registration Statement and
the
4
<PAGE>
Prospectus; and this Agreement has been duly and properly authorized,
executed and delivered by the Company.
(l) None of (i) the issuance, delivery and sale of the Securities,
(ii) the execution, delivery or performance of this Agreement or Representative
Warrant Agreement, (iii) the consummation of the transactions contemplated
herein and in the Representative Warrant Agreement, and Prospectus, (iv) the
consummation of the Merger (as hereinafter defined) or (v) the conduct of the
Company's business as described in the Registration Statement, the Prospectus
and any amendments thereof or supplements thereto, conflicts or will conflict
with, or results or will result in any breach or violation of any of the terms,
covenants, conditions or provisions of, or constitutes or will constitute (with
notice, the lapse of time or both) a default under, or results or will result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon any property or assets (tangible or intangible) of the Company (except as
described in the Prospectus) pursuant to the terms of, (x) the Certificate of
Incorporation or bylaws of the Company, (y) any license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, purchase order, note, loan or credit
agreement or any other material agreement or instrument evidencing an obligation
for borrowed money, or any other material agreement or instrument to which the
Company is a party or by which it is or may be bound or to which any of its
properties or assets (tangible or intangible) is or may be subject except where
such conflict, breach, violation, lien or other restriction would not have a
Material Adverse Effect, or (z) any law, statute, judgment, decree, order, rule
or regulation applicable to the Company of any arbitrator, court, administrative
agency or other governmental or regulatory official, agency authority or body
(including, without limitation, those having jurisdiction over environmental,
health or similar matters) having jurisdiction over the Company or any of its
activities or properties, except where such conflict or violation would not have
a Material Adverse Effect.
(m) No consent, approval, authorization, registration, qualification,
or order of, and no filing with, any court, administrative agency or other
government or regulatory official, agency, authority or body is required for the
issuance, delivery and sale of the Securities pursuant to this Agreement, the
Prospectus and the Registration Statement, the performance of this Agreement and
the Representative Warrant Agreement and the consummation of the transactions
contemplated hereby and by the Representative Warrant Agreement, and Prospectus,
except such as have been or may be obtained under the Act, state securities or
"blue sky" laws and the rules of the National Association of Securities Dealers,
Inc. (the "NASD") in connection with the Underwriters' purchase and distribution
of the Securities, and except where the Company's failure to obtain any of the
foregoing would not have a Material Adverse Effect.
(n) All agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed or required to be filed
as exhibits to the Registration Statement to which the Company is a party or by
which it may be bound are accurately described and fairly present the
information required to be shown with respect thereto by Form SB-2 or the Rules
and Regulations; there are no agreements, contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required; and the exhibits which have been filed are complete and correct copies
of the agreements, contracts or other documents of which they purport to be
copies.
(o) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
done, or agreed to do, any of the following, (i) issued any
5
<PAGE>
securities or incurred any liability or obligation, direct, indirect or
contingent, for borrowed money, (ii) entered into any transaction other than
in the ordinary course of business or (iii) declared or paid any dividend or
made any other distribution on or in respect of any class of its capital
stock; and, subsequent to such dates, there has not been any change in the
capital stock or any change in the debt (long- or short-term) or liabilities
or obligations or any material change in the condition (financial or
otherwise), earnings, business affairs, position, prospects, stockholders'
equity, operations, properties, businesses or results of operations of the
Company except for debt, liabilities and obligations incurred in the normal
course of business consistent with past practices.
(p) No material default exists, and no event has occurred which, with
notice, lapse of time or both, would constitute a material default in the due
performance and observance of any term, covenant, condition or provision of any
license, contract, indenture, mortgage, installment sale agreement, lease, deed
of trust, voting trust agreement, stockholders' agreement, purchase order, note,
loan or credit agreement or any other material agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which it is or may be bound or
its properties or assets (tangible or intangible) are or may be subject, except
where such default would not have a Material Adverse Effect.
(q) The Company has generally enjoyed a satisfactory employer-
employee relationship with its employees and it is in substantial compliance
with all federal, state and local laws, rules, regulations and orders respecting
employment and employment practices, including, without limitation, terms and
conditions of employment and wages and hours. There are no pending
investigations involving the Company by the U.S. Department of Labor, the
Department of Justice - Immigration and Naturalization Service or any other
governmental or regulatory official, agency, authority or body responsible for
the enforcement of such federal, state or local laws, rules, regulations and
orders, except where such investigation would not have a Material Adverse
Effect. There is no unfair labor practice charge or complaint pending or, to
the best of the Company's knowledge, threatened against the Company before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending, threatened or contemplated against or involving
the Company and none has ever occurred. There are no existing collective
bargaining agreements with the Company. To the best of the Company's knowledge,
no representation question exists respecting the employees of the Company and no
collective bargaining agreement or modification thereof is currently being
negotiated by or on behalf of the Company. No grievance or arbitration
proceeding is pending or threatened under any expired collective bargaining
agreements of the Company. No labor dispute with the employees of the Company
is pending or threatened.
(r) [Intentionally omitted]
(s) [Intentionally omitted]
(t) The Company owns all trademarks, trade names, service marks,
service names, copyrights, patents and patent applications or any licenses or
rights to the foregoing, which, individually or in the aggregate, are material
to its condition (financial or otherwise), earnings, business affairs, position,
stockholders' equity, operations, properties, businesses or results of
operations, and, except as specifically disclosed in the Prospectus and, to the
best of the Company's knowledge, no such trademarks, trade names, service marks,
service names, copyrights or patents are in dispute or are in conflict with any
right of any other person or entity.
(u) To the best of the Company's knowledge, the Company has the right
to use all trade secrets, know-how (including, without limitation, all
unpatented and/or unpatentable proprietary or
6
<PAGE>
confidential information, systems or procedures), inventions, technology,
designs, processes, works of authorship, computer programs and technical data
and information that are material to the development, manufacture, operation
and sale of all products and services sold or proposed to be sold by the
Company, free and clear of and without violating any right, lien or claim of
others, including, without limitation, former employers of their employees.
(v) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property owned
or leased by it.
(w) Deloitte & Touche, L.L.P., whose report is filed with the
Commission as a part of the Registration Statement, each Preliminary Prospectus
and the Prospectus, is an accounting firm of independent certified public
accountants as required by the Act and the Rules and Regulations.
(x) [Intentionally omitted]
(y) There are no claims, payments, issuances, agreements,
arrangements or understandings, whether oral or written, for services in the
nature of a finder's fee, brokerage fee, origination fee or otherwise with
respect to the offerings contemplated by this Agreement, the Representative
Warrant Agreement, the Registration Statement and the Prospectus or any other
arrangements, agreements, understandings, payments or issuances that may affect
the Underwriters' compensation as determined by the NASD other than as disclosed
in the Registration Statement and Prospectus and other than as the
Representative may itself have agreed to with third parties.
(z) The Securities have been approved for quotation on the Nasdaq
SmallCap Market (the "SCM").
(aa) Neither the Company nor any officer, stockholder, employee, agent
nor any other person acting on behalf of the Company has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or any
official or employee of any governmental agency or instrumentality of any
government or any political party or candidate for office or any other person
who was, is or may be in a position to help or hinder the business of the
Company (or assist them in connection with any actual or proposed transactions)
which might subject the Company or any other such person to any damage or
penalty in any civil, criminal or governmental action, suit, inquiry,
investigation, litigation or proceeding.
(ab) Except as set forth in the Prospectus under "Certain
Transactions" and except for transaction(s) that would not be required to be
disclosed in the Registration Statement pursuant to the Rules and Regulations,
to the best of the Company's knowledge, no officer, director or stockholder of
the Company, and no affiliate or associate (as those terms are defined in the
Rules and Regulations) of any of the foregoing persons or entity, has or has
had, either directly or indirectly, (i) an interest in any person or entity
which (A) furnishes or sells services or products which are furnished or sold or
are proposed to be furnished or sold by the Company or (B) purchases from or
sells or furnishes to the Company any products or services or (ii) a beneficial
interest in any contract, arrangement, understanding or agreement to which the
Company is a party or by which the Company or any of its property or assets
(tangible or intangible) may be bound or affected. Except as set forth in the
Prospectus under "Certain Transactions" there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company and
any officer or director of the Company or any person listed in
7
<PAGE>
the "Principal Stockholders" section of the Prospectus, or, to the best of
the Company's knowledge, any affiliate or associate of any of the foregoing
persons or entity.
(ac) The minute books of the Company have been made available to
the Representative and contain a complete summary of all meetings and actions
of the directors, including any committee thereof, and stockholders of the
Company since the time of its incorporation, and reflect all transactions
referred to in such minutes accurately in all material respects.
(ad) Except as described in the Registration Statement, no person,
corporation, trust, partnership, association or other entity has the right to
include or register any securities of the Company in the Registration
Statement or to require that any registration statement be filed by the
Company or, if filed, to include any security in such registration statement.
(ae) Any certificate signed by any officer of the Company
designated as an "Officer's Certificate" and delivered to the Representative
or to the Underwriters' Counsel shall be deemed a representation and warranty
by the Company to the Underwriters as to the matters covered thereby.
(af) [Intentionally omitted]
(ag) The Representative Warrant Agreement has been duly and validly
authorized by the Company and, assuming due execution by the Representative,
constitutes or will constitute a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its 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). The Company
has reserved and available for issuance a sufficient number of shares of
Common Stock to be issued upon exercise of the Representative Warrant.
(ah) [Intentionally omitted]
(ai) The Company is familiar with the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its
affairs in such a manner as to ensure that it will not become an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(aj) The books, records and accounts of the Company accurately and
fairly reflect, in reasonable detail, the transactions and dispositions of
the assets of the Company. The system of internal accounting controls
maintained by the Company is sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary (A) to
permit preparation of financial statements in accordance with generally
accepted accounting principals and (B) to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any difference.
(ak) All transactions necessary to complete the merger (the "Merger")
of Scoop California with and into the Company in accordance with the terms of
that certain Agreement and Plan of Merger, dated February 25, 1997 (the "Merger
Agreement"), between the Company and Scoop California have been consummated and
the Merger was effectuated on March ___, 1997 (the "Merger
8
<PAGE>
Date"). Each of the Company and Scoop California had all requisite corporate
power and authority to execute, deliver and perform the Merger Agreement.
All necessary corporate proceedings of the Company and Scoop California had
been duly taken to authorize the execution, delivery and performance of the
Merger Agreement. The Merger Agreement had been duly authorized, executed
and delivered by the Company and/or Scoop California, as the case may be, is
the legal, valid and binding obligation of the Company and/or Scoop
California, as the case may be, and is enforceable as to the Company and/or
Scoop California, as the case may be, in accordance with its terms. The
Company has obtained all consents, authorizations, approvals, orders,
licenses, certificates or permits of or from, or declaration or filing with,
any federal, state, local or other governmental authority or any court of
other tribunal which is required by the Company or Scoop California for the
execution, delivery, or performance of any Merger Agreement, except where the
Company's failure to obtain any of the foregoing would not have a Material
Adverse Effect. The Company has obtained all consents, approvals or
authorizations of any party to any material license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, purchase order, note, loan or credit
agreement or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument
to which the Company or Scoop California is a party or by which either of
them is or may be bound or to which either of their properties or assets
(tangible or intangible) are or may be subject, necessary for the execution,
delivery or performance by the Company or Scoop California of the Merger
Agreement, except where the Company's failure to obtain any of the foregoing
would not have a Material Adverse Effect. The execution, delivery and
performance of the Merger Agreement by the Company and Scoop California did
not conflict with and did not result in any breach or violation of any of the
terms, covenants, conditions or provisions of, did not constitute (with
notice, the lapse of time or both) a default under, result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever upon
any property or assets (tangible or intangible) of the Company or Scoop
California pursuant to the terms of, (i) the Certificate or Articles of
Incorporation or bylaws of the Company or Scoop California, (ii) any
contract, material license, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders' agreement,
purchase order, note, loan or credit agreement or any other material
agreement or instrument evidencing an obligation for borrowed money, or any
other material agreement or instrument to which the Company or Scoop
California was a party at the Merger Date or by which they were bound at the
Merger Date or to which any of their properties or assets (tangible or
intangible) were subject at the Merger Date or (iii) any law, statute,
judgment, decree, order, rule or regulation applicable to the Company or
Scoop California at the Merger Date of any arbitrator, court, administrative
agency or other governmental or regulatory official, agency authority or body
(including, without limitation, those having jurisdiction over environmental,
health or similar matters) having jurisdiction over the Company, Scoop
California or either of their activities or properties, except where such
conflict, breach, violation, default, lien, charge, claim, encumbrance,
pledge, security interest defect or other restriction or equity of any kind
would not have a Material Adverse Effect.
(al) The Company has all content provider and distributor
authorizations, permits, licenses and other approvals necessary for the
Company to conduct its business as described in the Prospectus other than
those authorizations, approvals, licenses and permits of and from content
providers and distributors which, singularly or in the aggregate, the failure
to obtain would not have a Material Adverse Effect. The Company is and has
been doing business in substantial compliance with all such authorizations,
approvals, licenses, and permits; and the Company has not received any notice
of violation, revocation or modification of any such authorizations,
approvals, licenses or permits which, singularly or in the aggregate, would
have a Material Adverse Effect.
9
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2. [Intentionally omitted]
3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters the Firm Shares,
and each of the Underwriters agrees, severally and not jointly, to purchase
from the Company that number of the Firm Shares set forth opposite such
Underwriter's name, in Schedule I to this Agreement at a price equal to
$______ per Share.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters to purchase all or any part of the Option Shares at a price
equal to $________ per share. The Option Shares shall be purchased, if the
option is exercised as provided herein, from the Company for the accounts of
the several Underwriters, severally and not jointly, in proportion to the
aggregate number of Firm Shares set forth opposite such Underwriter's name in
Schedule I to this Agreement, except that the respective purchase obligations
of each Underwriter may be adjusted by the Representative so that no
Underwriter shall be obligated to purchase fractional Option Shares. The
option granted hereby will expire, to the extent unexercised, forty-five (45)
days after the date hereof, and may be exercised, in the Representative's
sole discretion, in whole or in part from time to time, only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Firm Shares, upon notice by the Representative to the
Company setting forth the number of Option Shares as to which the
Underwriters are then exercising the option and the time and date of payment
for and delivery of any such Option Shares. Any such time and date of
delivery (an "Option Closing Date") shall be determined by the
Representative, but shall not be later than four (4) full business days after
the exercise of said option, or in any event prior to the Closing Date,
unless otherwise agreed upon by the Representative and the Company. Nothing
herein contained shall in any way obligate the Underwriters to exercise the
option granted hereby. No Option Shares shall be delivered unless the Firm
Shares shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates evidencing, the Firm Shares shall be made at the offices of
Latham & Watkins, counsel to the Company, at 650 Town Center Drive, 20th
Floor, Costa Mesa, California, or at such other place as shall be agreed upon
by the Representative and the Company. Such delivery and payment shall be
made at 6:30 a.m. (Los Angeles time) on ____________ ___, 1997 or at such
other time and date as shall be agreed upon by the Representative and the
Company (such time and date of payment and delivery being herein called the
"Closing Date"). In addition, in the event that any or all of the Option
Shares are purchased by the Underwriters, payment of the purchase price for,
and delivery of certificates for, such Option Shares shall be made at the
above-mentioned office of the Representative or at such other place as shall
be agreed upon by the Representative and the Company with respect to each
applicable Option Closing Date as specified in the relevant notice from the
Representative to the Company. Delivery of the certificates representing the
Firm Shares and the Option Shares, if any, shall be made to the
Representative against payment by the Underwriters of the purchase price for
the Firm Shares and the Option Shares, if any, to the order of the Company by
certified or official bank checks payable in Los Angeles Clearing House funds
(next day funds). Certificates representing the Firm Shares and the Option
Shares, if any, respectively, shall be in definitive, fully registered form,
shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Representative may request in writing at
least two (2) business days prior to the Closing Date or the relevant Option
Closing Date, as the case may be. The certificates representing the Firm
Shares and
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the Option Shares, if any, shall be made available to the Representative at
such offices or such other place as the Representative may designate for
inspection, checking and packaging no later than 9:30 a.m. Los Angeles time
on the last business day prior to the Closing Date or the relevant Option
Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to you,
individually and not in your capacity as the Representative, or to your
designees, the Representative Warrant for an aggregate purchase price of
fifty dollars ($50), which warrant shall entitle the holders thereof to
purchase an aggregate of an additional One Hundred Ninety-Five Thousand
(195,000) shares of Common Stock. The Representative Warrant shall be issued
pursuant to the Representative Warrant Agreement, substantially in the form
filed as Exhibit 4.2 to the Registration Statement. Payment for the
Representative Warrant shall be made on the Closing Date. The Representative
Warrant and the Representative's Shares underlying them shall be registered
in the Registration Statement and such Registration Statement shall be kept
effective as required by the Representative Warrant Agreement.
4. PUBLIC OFFERING OF THE SECURITIES. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Firm Shares and such of the
Option Shares as the Representative may determine at the initial price and
upon the other terms set forth in the Prospectus. The Underwriters may from
time to time increase or decrease the public offering price of the Securities
to such extent as the Representative, in its sole discretion, deems
advisable. The Underwriters may enter into one or more agreements as they,
in their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective
simultaneously with or as promptly as practicable after the date of this
Agreement and will not at any time, whether before or after the effective
date of the Registration Statement, file any amendment to the Registration
Statement or Term Sheet or supplement to the Prospectus or file any document
under the Act or the Exchange Act before termination of the offering of the
Securities to the public by the Underwriters of which the Representative
shall not previously have been advised and furnished with a copy or to which
the Representative shall have reasonably objected (unless the Company's
outside counsel reasonably determines in a written opinion that such
amendment or supplement is required to be filed pursuant to applicable law)
or which is not in compliance with the Act, the Exchange Act or the Rules and
Regulations. The Company shall use its best efforts to maintain the
effectiveness of the Registration Statement (by filing supplements or
post-effective amendments or as otherwise may be required under the Act and
the Rules and Regulations) until the earlier of the time that all
Representative's Shares have been sold pursuant to such registration
statement or the date which is five (5) years from the date the
Representative Warrant is initially issued.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the same in
writing (i) when the Registration Statement, as amended, becomes effective,
when any post-effective amendment to the Registration Statement becomes
effective and, if the provisions of Rule 430A promulgated under the Act will
be relied upon, when the Prospectus has been filed in accordance with said
Rule 430A, (ii) of the issuance by the Commission or any State or other
regulatory body of any stop order or other order, or of the initiation or the
threat or contemplation of any proceeding, the outcome of which may result in
the
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<PAGE>
suspension of the effectiveness of the Registration Statement or any order
preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement or Term Sheet thereto, or the
institution of any proceedings for that purpose, (iii) of the issuance by the
Commission or any State or other regulatory body of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale
in any jurisdiction or of the initiation or the threat or contemplation of
any proceeding for that purpose, (iv) of the receipt of any comments from the
Commission and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or
for additional information. If the Commission or any state or other
regulatory body shall enter a stop order or other order suspending the
effectiveness of the Registration Statement or preventing or suspending the
use of the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, or suspend such qualification at any time, the Company
will make every effort to obtain promptly the lifting of such order or
suspension.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) under the Act (or, if applicable
and if reasonably consented to by the Representative, pursuant to Rule
424(b)(4)) within the time period specified in Rule 424(b)(1) (or if
applicable, Rule 424(b)(4)) or shall deliver and shall file with the
Commission a Term Sheet (in form and substance satisfactory to the
Representative) in accordance with Rule 434 under the Act.
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendments) or any amendment or supplement or
Term Sheet to the Prospectus (including any revised prospectus which the
Company proposes for use in connection with the offering of any of the
Securities which differs from the corresponding prospectus on file at the
Commission at the time the Registration Statement becomes effective, whether
or not such revised prospectus is required to be filed pursuant to Rule
424(b) under the Act), and will furnish the Representative with copies of any
such amendment or supplement or Term Sheet a reasonable amount of time prior
to such proposed filing or use, as the case may be, and will not file any
such amendment or supplement to which the Representative or Jeffer, Mangels,
Butler & Marmaro LLP, the Underwriters' counsel (the "Underwriters'
Counsel"), shall reasonably object unless the Company's outside counsel
reasonably determines in a written opinion that such amendment or supplement
or Term Sheet is required to be filed pursuant to applicable law.
(e) The Company shall use its best efforts, at or prior to the
time the Registration Statement becomes effective, to qualify the Securities
for offering and sale under the securities or "blue sky" laws of such
jurisdictions as the Underwriters may reasonably designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such
documents and furnish such information as may be required for such purpose;
PROVIDED, HOWEVER, the Company shall not be required to qualify as
a foreign corporation or to execute a general consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will use its best efforts to file and make
such statements or reports at such times as are or may be required by the
laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall comply in all material respects with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended, and by the Rules and Regulations, as from time to
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<PAGE>
time in force, so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If at any time when a
prospectus relating to the Securities is required to be delivered under the
Act, any event shall have occurred as a result of which, in the opinion of
the Company or counsel for the Company or the Representative or the
Underwriters' Counsel, the Prospectus, as then amended or supplemented, would
include an 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, in the light of the circumstances in which they were made, not
misleading, or if it is necessary at any time to amend or supplement the
Prospectus to comply with the Act, the Company will promptly notify the
Representative and prepare and file, at the Company's expense, with the
Commission an appropriate amendment or supplement to the Registration
Statement or an amendment or supplement to the Prospectus which will correct
such statement or omission, or effect such compliance, each such amendment or
supplement to be reasonably satisfactory to the Representative and the
Underwriters' Counsel, and the Company will furnish to the Underwriters
copies of such amendment or supplement as soon as available and in such
quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the twelve (12) month period beginning
after the effective date of the Registration Statement, the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) under the Act, and to the Representative, an earnings statement
which will comply with the provisions of Section 11(a) of the Act and Rule
158(a) promulgated under the Act.
(h) During the three (3) year period commencing on the date
hereof, so long as the Company has securities which are registered under the
Act or the Exchange Act or otherwise publicly tradeable and Common Stock
continues to be outstanding, the Company, at its expense, will furnish to its
stockholders, as soon as practicable, annual reports (including financial
statements audited by independent certified public accountants) and will
deliver to the Representative:
(i) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(ii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD,
Nasdaq or any securities exchange;
(iii) as soon as they are available, all press releases,
material news items or articles of interest to the financial community in
respect of the Company or its affairs which are released by or on behalf of
the Company; and
(iv) any additional information of a public nature concerning
the Company or its businesses which the Representative may request.
During such three (3) year period, if the Company has active
subsidiaries or is a partner or member in any venture or limited liability
company, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiaries
(including any venture or company of which it is a partner or member) are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary (as defined in the Rules and Regulations) which is not
so consolidated.
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(i) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which
may be the same entity as the transfer agent) for the Common Stock.
(j) The Company will furnish to the Representative and the
Underwriters, without charge and at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement
and any pre-effective or post-effective amendments thereto (two of which will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any
prospectus prepared after the effective date of the Registration Statement
and any Term Sheet, in each case as soon as available and in such quantities
as the Representative may reasonably request.
(k) The Company will assist the Representative's efforts to obtain
the agreement of Karl Karlsson (the "Principal Stockholder"), Stanley Berk,
Michael Del Rey, each of the holders of the Consultant Warrants, and each
executive officer and director of the Company, for a period of twelve (12)
months following the effective date of the Registration Statement, not to,
directly or indirectly, offer, offer to sell, sell, grant an option for the
purchase or sale of, transfer, assign, pledge, hypothecate or otherwise
encumber or enter into any agreement to do any of the foregoing with respect
to any securities issued or issuable by the Company, whether or not owned by
or registered in the name of such person, or dispose of any interest therein
(whether pursuant to Rule 144 under the Act or otherwise), without the prior
written consent of the Representative (collectively, the "Lock-Up
Agreements"). On or before the Closing Date, the Company shall deliver
instructions to its transfer agent authorizing such transfer agent to place
appropriate legends on the certificates representing the securities subject
to the Lock-Up Agreements and to place appropriate stop transfer orders on
the Company's ledgers. The Company agrees that, for a period of twelve (12)
months commencing with the effective date of the Registration Statement,
except as contemplated hereby, it shall not, without the prior written
consent of the Representative, issue, sell, grant an option for the sale of,
assign, transfer, pledge, distribute or otherwise dispose of, directly or
indirectly, or agree or offer to do any of the foregoing, any shares of
Common Stock or any option, warrant or other contract right or security
convertible, directly or indirectly, into shares of Common Stock, other than
grants of options under the 1996 Plan as described (including, without
limitation, as to the maximum number of shares of Common Stock issuable
thereunder) in the Registration Statement and the issuance of shares of
Common Stock upon the exercise of options granted under the 1996 Plan and
Warrants outstanding as of the effective date of the Registration Statement.
(l) The Company will not take, and will take appropriate measures
to prevent any of its officers, directors, stockholders or affiliates (within
the meaning of the Rules and Regulations) from taking, directly or
indirectly, any action designed to illegally stabilize or manipulate the
price of any securities of the Company or which might be expected to cause or
result in, under the Exchange Act or otherwise, the illegal stabilization or
manipulation of the price of any security of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities offered to the public in the manner set forth under the caption
"Use of Proceeds" in the Prospectus and will file any and all required Form
SR's in a timely manner. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all registrations, reports,
forms or other documents as may be required (including, without limitation,
any Form SR required by Rule 463 under the Act) from time to time under the
Act, the Exchange Act and the Rules and Regulations, all such registrations,
reports, forms and other documents shall comply in all material respects as
to form and
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<PAGE>
substance with the applicable requirements under the Act, the Exchange Act and
the Rules and Regulations. The Company shall promptly provide to the
Representative and, upon request, the Underwriters copies of such registrations,
regulations, reports, forms or other documents.
(o) The Company shall furnish to the Representative as early as
practicable but in no event later than two (2) full business days prior to the
Closing Date and each Option Closing Date, a copy of the latest available
preliminary unaudited interim financial statements of the Company (which in no
event shall be as of a date more than forty-five (45) days prior to the date
hereof, the Closing Date or the relevant Option Closing Date, as the case may
be) which have been read by the Company's independent certified public
accountants, as stated in their letters to be furnished pursuant to Sections
7(i) and 7(j) hereof.
(p) The Company shall cause the Securities to be quoted on the SCM or
some other nationally recognized stock exchange and for a period of five (5)
years from the date hereof, the Company shall maintain the appropriate SCM or
stock exchange listing of the Securities so long as the Company continues to
have securities registered under the Act or the Exchange Act or otherwise
publicly tradeable and Securities continue to be outstanding and shall comply in
all material respects with all registration, filing, reporting and other
requirements of the SCM or such stock exchange, which may from time to time be
applicable to the Company.
(q) [Intentionally omitted]
(r) [Intentionally omitted]
(s) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, the
Company shall file a Form 8-A with the Commission providing for the registration
under the Exchange Act of the Securities, which registration shall become
effective concurrently on such effective date, and (ii) but in no event more
than one hundred twenty (120) days after the effective date of the Registration
Statement, the Company shall take all necessary and appropriate actions to be
included in Standard & Poor's Corporation Manual and Moody's Investors Services,
Inc. Manual and to continue such inclusion for a period of not less than five
(5) years or so long as the Company has securities which are registered under
the Act or the Exchange Act or otherwise publicly tradeable and Common Stock
continues to be outstanding.
(t) [Intentionally omitted]
(u) Until the completion of the distribution (as such term would be
applied under Rule 10b-6 promulgated under the Exchange Act) of the Firm Shares
and, if applicable, the Option Shares, to the public, the Company shall not,
without the prior written consent of the Representative, issue, directly or
indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations or except as specifically required by law as advised to the
Company by its outside counsel.
(v) Prior to the earlier of (i) the date which is six (6) years from
the effective date of the Registration Statement and (ii) the date of the
completion of the sale to the public of all of the Representative's Shares, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form S-1 or SB-2 or, commencing one year from the date hereof,
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<PAGE>
Form S-3 (or other appropriate form), for the registration under the Act of the
Representative's Shares.
(w) For a period of three (3) years after the effective date of the
Registration Statement, the Company shall permit one (1) individual selected in
writing from time-to-time by Representative to attend all meetings of the
Company's board of directors as a non-voting advisor and to receive all notices
and other correspondence and communications sent by the Company to members of
its board of directors. Such advisor shall receive no compensation from the
Company. Such advisor shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings, including, without
limitation, food, lodging and transportation in accordance with the policy
established by the independent members of the Board of Directors. The Company
hereby agrees to indemnify and hold such advisor harmless, to the maximum extent
permitted by law, against any and all actions, suits, proceedings, inquiries,
arbitrations, investigations, litigation, governmental or other proceedings and
awards and judgments arising out of such individual's service as an advisor and,
in the event the Company maintains a liability insurance policy affording
coverage for the acts of its officers or directors, and/or in the event that the
Company has entered into an indemnification agreement with any of its officers
or directors, the Company agrees to include such advisor as an insured under
such insurance policy and/or to enter into an indemnification agreement with
such advisor which is at least as favorable to such individual as any
indemnification agreement that the Company has entered into with any of its
officers or directors. The rights and benefits of such indemnification and the
benefits of such insurance shall, to the maximum extent possible, extend to the
Representative insofar as it may be or may be alleged to have any obligation or
liability in connection with an action or inaction of such director or advisor.
(x) [Intentionally omitted]
(y) For a period of seven (7) years from the effective date of the
Registration Statement, the Company and all of its subsidiaries shall obtain and
maintain insurance policies, including, without limitation, general liability,
property, and personal liability insurance, and surety bonds which insure such
entities, their employees and such other persons to whom such entities may
become liable against such losses and risks generally insured against by
comparable businesses.
(z) For a period of five (5) years from the date hereof, the Company
will retain Deloitte & Touche LLP (or such other nationally-recognized
accounting firm qualified to practice in front of the Commission as is
reasonably acceptable to the Representative) as its independent certified public
accountants and, during such period, the Company will promptly submit to the
Representative, upon written request, copies of all accountant's management
reports, Company representation letters and similar correspondence between the
Company's accountants and the Company.
(aa) The Company shall at all times following the Closing Date have
reserved and available for issuance a sufficient number of shares of Common
Stock to be issued upon exercise of the Representative Warrant.
(ab) When the Registration Statement becomes effective and at all
times subsequent thereto up to and including the Closing Date and each Option
Closing Date, if any, and during such other periods as a prospectus may be
required to be delivered in connection with sales by any Underwriter or a
dealer, the Registration Statement and the Prospectus will contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and will comply in all material respects with
the requirements of the Act and the Rules and Regulations, and at and through
such dates, neither the Registration Statement, the Prospectus nor any
amendment
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<PAGE>
thereof or supplement thereto will 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, in light of the circumstances in which
they were made, not misleading.
6. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay (such payment to be made on
the Closing Date as part of the closing on such date and on each Option
Closing Date as part of the closing on such date (to the extent not paid on
the Closing Date or a previous Option Closing Date)) all expenses and fees
(other than fees of the Underwriters' Counsel not specifically provided for
in this Section 6) incident to the issuance, offer, sale and delivery of the
Securities and the performance of the obligations of the Company under this
Agreement and the Representative Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of each Preliminary Prospectus, the Registration Statement and the
Prospectus and any amendments and supplements or Term Sheets thereto and the
printing, mailing (including the payment of postage with respect thereto) and
delivery of this Agreement, all other underwriting documents (including
Agreements Among Underwriters, Underwriter's Questionnaires, Underwriter's
Powers of Attorneys and Selected Dealer Agreements), the Representative
Warrant Agreement and agreements with selected dealers, and related
documents, including the cost of all copies thereof and of each Preliminary
Prospectus and of the Prospectus and any amendments thereof or supplements
thereto supplied to each of the Underwriters and such dealers as the
Underwriters may request, in such quantities as the Underwriters may
reasonably request, (iii) all costs and expenses (including issue and
transfer taxes) incurred in connection with the printing, engraving,
issuance, sale and delivery of the Securities, including (x) the purchase by
each of the Underwriters, severally and not jointly, of the number of the
Securities from the Company set forth opposite its name on Schedule I to this
Agreement, (y) the consummation by the Company of any of its obligations
under this Agreement and the Representative Warrant Agreement and (z) the
resale of the Securities by each of the Underwriters in connection with the
distribution contemplated hereby, (iv) all costs and expenses incurred in
connection with the qualification of the Securities under state securities or
"blue sky" laws and the determination of the status of such securities under
legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and
the "Legal Investments Survey," if any, (v) the fees, costs and expenses
incurred in connection with any required filing with the NASD and obtaining a
determination from the NASD with respect to the fairness and reasonableness
of the underwriting terms and arrangements and disbursements and fees of
Jeffer, Mangels, Butler & Marmaro LLP in connection with such determinations,
filings, documents and qualifications of the Securities, (vi) all advertising
costs and expenses, including costs and expenses in connection with "road
shows," information meetings and presentations, bound volumes and prospectus
memorabilia and "tombstone" advertisements, (vii) all costs and expenses
incurred in connection with due diligence investigations by an independent
third party, subject to the Company's prior approval which shall not be
unreasonably withheld, including the fees of any independent counsel (other
than Jeffer, Mangels, Butler & Marmaro LLP) or consultants, (viii) the fees
and expenses of a transfer agent and registrar for the Securities, (ix) the
fees payable to the Commission and (x) the fees and expenses incurred in
connection with the listing of the Securities on the SCM and any other
exchange.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 7 or 12 hereof, or if the transactions
contemplated hereby are not consummated by the Company for any reason, the
Company shall reimburse and indemnify the Underwriters for all
17
<PAGE>
of their accountable expenses, including, without limitation, all of the fees
and disbursements of Underwriters' Counsel (including, without limitation,
the fees of the Underwriters' Counsel specifically provided for herein).
(c) The Company further agrees that, in addition to the expenses
payable pursuant to Section 7(a) hereof, it will pay to you, individually and
not in your capacity as the Representative, on the Closing Date by certified or
bank cashier's check, or, at your election, by deduction from the proceeds of
the offering of the Firm Shares, a non-accountable expense allowance equal to
three percent (3.0%) of the aggregate offering proceeds from the sale of the
Firm Shares. In the event the Underwriters elect to exercise all or any part of
the over-allotment option described in Section 4(b) hereof, the Company agrees
to pay to you, individually and not in your capacity as the Representative, on
each Option Closing Date, by certified or bank cashier's check, or, at your
election, by deduction from the proceeds of the Option Shares purchased on such
Option Closing Date, a non-accountable expense allowance equal to three percent
(3.0%) of the aggregate offering proceeds from the sale of such Option Shares.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of each
of the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date and each Option Closing Date, if
any, of the statements of officers of the Company made and certificates of
officers of the Company delivered pursuant to the provisions hereof; and the
performance by the Company and on and as of the Closing Date and each Option
Closing Date, if any, of all of its covenants and obligations hereunder which
are possible to perform on and as of such date and to the following further
conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representative, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceedings for that purpose shall have been initiated or shall be
pending, threatened or contemplated by the Commission or any State or other
regulatory body and any request on the part of the Commission or any State or
other regulatory body for additional information shall have been complied with
to the reasonable satisfaction of the Representative and the Underwriters'
Counsel. If the Company has elected to rely upon Rule 430A under the Act, the
price of the Securities and any price-related information previously omitted
from the effective Registration Statement pursuant to such Rule 430A shall have
been transmitted to the Commission for filing pursuant to Rule 424(b) under the
Act within the prescribed time period or shall have been delivered and shall
have been filed with the Commission as required by Rule 434 under the Act, as
applicable, and, prior to the Closing Date, the Company shall have provided
evidence satisfactory to the Representative of such timely filing, or a post-
effective amendment providing such information shall have been promptly filed
and declared effective in accordance with the requirements of Rule 430A under
the Act. Neither the Registration Statement nor the Prospectus nor any
amendment thereto or supplement thereof (including a Term Sheet) shall have been
filed to which the Representative shall have reasonably objected after it shall
have had the chance to review such amendment or supplement unless the Company's
outside counsel reasonably determines in a written opinion that such amendment
or supplement is required to be filed pursuant to applicable law.
(b) No Underwriter shall have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is
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<PAGE>
material, or omits to state a fact which, in the Representative's opinion, is
material and is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading, or that the Prospectus, or any amendment or supplement
(including any Term Sheet) thereto, contains an untrue statement of fact
which, in the Representative's opinion, is material, or omits to state a fact
which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading.
(c) On or prior to the Closing Date, the Representative shall have
received from the Underwriters' Counsel such opinion or opinions with respect to
the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Representative may request and the Underwriters' Counsel shall have received
such papers and information as it may request in order to enable it to pass upon
such matters.
(d) At the Closing Date, the Representative shall have received the
favorable opinion of Latham & Watkins, counsel to the Company, and Daniel
Pelekoudas, the Company's General Counsel, each dated as of the Closing Date,
addressed to the Representative, in form and substance satisfactory to the
Underwriters' Counsel and subject to customary qualifications and conditions,
with respect to the matters set forth in Schedules II and III, respectively,
attached hereto and incorporated herein by this reference.
In rendering its opinion, Latham & Watkins may rely as to matters of
fact, to the extent it deems proper, on certificates and written statements of
responsible officers of the Company and certificates or other written statement
of officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company, provided
that copies of any such opinions, statements or certificates shall be delivered
to the Representative and the Underwriters' Counsel.
At each Option Closing Date, if any, the Representative shall have
received the favorable opinion of Latham & Watkins and Daniel Pelekoudas, dated
as of such Option Closing Date, addressed to the Representative and in form and
substance satisfactory to Underwriters' Counsel confirming as of such Option
Closing Date the statements made by Latham & Watkins and Daniel Pelekoudas in
their respective opinions delivered on the Closing Date.
(e) On or prior to the Closing Date and each Option Closing Date, if
any, the Underwriters' Counsel shall have been furnished with such documents,
certificates and opinions as it may reasonably require for the purpose of
enabling it to review or pass upon the matters referred to in Section 7(c)
hereof, or in order to evidence the accuracy, completeness or satisfaction of
any of the representations, warranties or conditions of the Company herein
contained.
(f) Prior to the Closing Date and each Option Closing Date, if any,
(i) there shall have been no adverse change or development involving a
prospective adverse change in the condition (financial or otherwise), earnings,
business affairs, position, stockholders' equity, operations, properties,
businesses or results of operations of the Company from the latest dates as of
which such matters are set forth in the Registration Statement and the
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business and consistent with past practices, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and the Prospectus, which may in any
way be materially adverse to the Company; (iii) the Company shall not be in
default, and no event shall have occurred which, with notice, lapse of time or
both, would constitute a default, under any provision of any agreement,
19
<PAGE>
instrument or other document relating to any outstanding indebtedness, except
where such a default or event would not have a Material Adverse Effect; (iv) the
Company shall not have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class, and there shall not have been any change in the capital
stock, or any change in the debt (long- or short-term) or liabilities or
obligations (contingent or otherwise), of the Company except as provided for
herein; (v) no material amount of the property or assets (tangible or
intangible) of the Company shall have been pledged, mortgaged or otherwise
encumbered; and (vi) no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding (including,
without limitation, those pertaining to environmental, health or similar
matters) shall be pending or threatened to which the Company is subject or to
which any property or assets (tangible or intangible) of the Company are subject
wherein an unfavorable decision, ruling or finding would have a Material Adverse
Effect and except as set forth in the Registration Statement and Prospectus and
except for debts, liabilities and obligations incurred in the normal course of
business consistent with past practices.
(g) At the Closing Date and each Option Closing Date, if any, the
Representative shall have received a certificate of the Company, signed by the
principal executive officer, the chief financial or chief accounting officer of
the Company, each such certificate to be dated the Closing Date or such Option
Closing Date, as the case may be, to the effect that the person(s) executing the
certificate has carefully examined the Registration Statement, the Prospectus
and this Agreement, and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects, as if made on and as of
the Closing Date or such Option Closing Date, and that the Company has complied
in all material respects with all agreements and covenants and satisfied all
conditions contained in this Agreement to be performed or satisfied at or prior
to the Closing Date or such Option Closing Date, as the case may be;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been initiated or are pending, contemplated or threatened;
(iii) the Registration Statement, the Prospectus and each
amendment and supplement thereto, if any, contain all statements and information
required to be included therein, and neither the Registration Statement nor any
amendment thereto, at the time such Registration Statement or amendment became
effective and as of the date of such certificate included any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and neither
any Prospectus nor any supplement thereto, at the date of such Prospectus or
supplement thereto and at the date of such certificate, included any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; and
(iv) subsequent to the latest respective dates as of which
information is given in the Registration Statement and the Prospectus, (A) the
Company has not incurred any liabilities or obligations, direct, indirect or
contingent, other than in the ordinary course of business; (B) the Company has
not paid or declared any dividends or other distributions on its capital stock
or other ownership interests; (C) the Company has not entered into any
transactions not in the ordinary course of business; (D) there has not been any
change in the capital stock, long-term debt or short-term debt (other than any
increase in short-term debt in the ordinary course of business) of the Company;
(E) other than ordinary wear and tear, the Company has not sustained any
material loss or damage to
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its property or assets (tangible and intangible), whether or not insured; (F)
there is no litigation which is pending or threatened against the Company
which is required to be set forth in an amended or supplemented Prospectus
which has not been so set forth; and (G) there has occurred no event required
to be set forth in an amended or supplemented Prospectus which has not been
so set forth.
References to the Registration Statement and the Prospectus in this Section 8(g)
are to such documents as amended and supplemented at the date of such
certificate.
(h) By the effective date of the Registration Statement, the
Representative shall have received clearance from the NASD as to the amount of
compensation allowable or payable to the Underwriters, in the amount as
described in the Registration Statement.
(i) At or prior to the time this Agreement is executed, the
Representative shall have received a letter, dated such date, addressed to the
Representative and in form and substance satisfactory in all respects to the
Representative from Deloitte & Touche, L.L.P.:
(i) confirming that it is an accounting firm of independent
certified public accountants with respect to the Company within the meaning of
the Act and the Rules and Regulations;
(ii) stating its opinion that the financial statements and
schedules of the Company included in the Registration Statement comply as to
form in all material respects with the applicable accounting requirements of the
Act and the Rules and Regulations and that each of the Underwriters may rely
upon the opinion of Deloitte & Touche, L.L.P. with respect to such financial
statements and schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and the board of directors, including any
committees of the board of directors, of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to its attention which would lead it to believe that (A) the unaudited
financial statements and schedules of the Company included in the Registration
Statement do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement or (B) at a
specified date not more than five (5) days prior to the effective date of the
Registration Statement, there has been any change in the capital stock, short-
term debt or long-term debt of the Company, or any decrease in the stockholders'
equity or net current assets or net assets of the Company as compared with
amounts shown in the December 31, 1996 balance sheet included in the
Registration Statement or, if there was any change or decrease, setting forth
the amount of such change or decrease, or (C) during the period from January 1,
1997 to a specified date not more than five (5) days prior to the effective date
of the Registration Statement, there was any decrease in revenues, net income or
net earnings per share of Common Stock, in each case as compared with the
corresponding period beginning January 1, 1996, or, if there was any such
decrease, setting forth the amount of such decrease;
(iv) stating that it has compared specific dollar amounts,
numbers of shares, percentages, statements and other financial information
pertaining to the Company set forth in the
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Registration Statement, in each case to the extent that such amounts,
numbers, percentages, statements and information may be derived from the
general accounting records, including work sheets or analysis, of the Company
with the results obtained from the application of specific readings,
inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
(v) stating it has read the unaudited financial statements
referred to in Section 5(o) hereof; and
(vi) statements as to such other matters as the Representative
may reasonably request.
(j) At the Closing Date and each Option Closing Date, if any, the
Representative shall have received from Deloitte & Touche, L.L.P. a letter,
dated as of the Closing Date or such Option Closing Date, as the case may be, to
the effect that (i) it reaffirms that statements made in the letter furnished
pursuant to Section 6(i) hereof, (ii) if the Company has elected to rely on Rule
430A under the Act or a Term Sheet under Rule 434, to the further effect that it
has carried out procedures as specified in clause (iv) of such Section 6(i) with
respect to certain amounts, numbers, percentages, statements and other financial
information as specified by the Representative and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) or 434 and has found such
amounts, numbers, percentages, statements and other financial information to be
in agreement with the documents specified in such clause (iv); and (iii) it has
read the unaudited financial statements referred to in Section 5(o) hereof.
(k) On the Closing Date and each Option Closing Date, if any, there
shall have been duly tendered to the Representative the appropriate number of
Securities.
(l) No order suspending the sale of the shares in any jurisdiction
designated by the Representative pursuant to Section 5(e) hereof shall have been
issued on either the Closing Date or any Option Closing Date, and no proceedings
for that purpose shall have been initiated or shall be pending, contemplated or
threatened.
(m) On or before the Closing Date, the Company shall have executed
and delivered to you, individually and not in your capacity as the
Representative, the Representative Warrant Agreement, substantially in the form
filed as Exhibit 4.2 to the Registration Statement. The executed version of the
Representative Warrant Agreement shall be reasonably satisfactory to you.
(n) On or before the effective date of the Registration Statement,
the Securities shall have been duly approved for quotation on the SCM.
(o) On or before the effective date of the Registration Statement,
the Company shall provide the Representative with true copies of executed Lock-
Up Agreements.
(p) The Company shall provide the Representative with such additional
documents and certificates as the Representative may reasonably request.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or at any Option Closing Date, as the case may
be, is not so fulfilled, the Underwriters may terminate this Agreement, without
liability to any of the Underwriters, or, if the Representative
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<PAGE>
so elects in its sole discretion, it may waive any such conditions which have
not been fulfilled or extend the time for their fulfillment.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter (for purposes of this Section 8, "Underwriters" shall include the
officers, directors, partners, employees, agents and counsel of each
Underwriter), and each person, if any, who controls any of the Underwriters, as
applicable ("controlling person"), within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses (including, without limitation, reasonable attorneys,
fees and expenses) or liabilities and all actions, suits, proceedings,
inquiries, arbitrations, investigations, litigation or governmental or other
proceedings (in this Section 8, collectively, "actions") in respect thereof,
whatsoever (including, without limitation, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any action,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which any Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained (i) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; (iii) in any application or other
document or written communication (in this Section 8, collectively,
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities or "blue sky" laws thereof or filed with the Commission,
any state securities commission or agency, the NASD or the SCM or any other
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in light of the circumstances in which they were made), unless
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company by the Selling Stockholders or the
Representative with respect to an Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement (including any Term Sheet) thereto, or in any
application, as the case may be. In addition to its other obligations under
this Section 8(a), the Company agrees that, as an interim measure during the
pendency of any action arising out of or based upon any untrue statement or
omission, or alleged untrue statement or alleged omission as described in this
Section 8(a), it will reimburse each Underwriter (and, to the extent applicable,
each controlling person), on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such action,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligations to reimburse each Underwriter and
(and, to the extent applicable, each controlling person), for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement is so held to have been improper as to the Company, each
Underwriter (and, to the extent applicable, each controlling person), shall
promptly return it to the Company together with interest compounded daily, based
on the "reference rate" announced from time to time by Bank of America NTSA (the
"Prime Rate"), but in no case more than is allowed by applicable law. Any such
interim reimbursement payments which are not made to an Underwriter, or a
controlling person, as applicable, within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request. Notwithstanding the foregoing or anything to the contrary in this
Agreement, the Company shall provide no indemnity and shall not hold harmless
the Representative or any Underwriter for any claims arising from or relating to
a Preliminary Prospectus where the Representative or Underwriter
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<PAGE>
failed to circulate a revised Preliminary Prospectus (if a revised
Preliminary Prospectus is prepared by the Company) or deliver the Final
Prospectus.
The indemnity agreement in this Section 8(a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) Each Underwriter severally, but not jointly, agrees to
indemnity and hold harmless the Company (for purposes of this Section 8,
"Company" shall include the officers, directors, partners, employees, agents
and counsel of the Company) and each other person, if any, who control the
Company ("controlling person") within the meaning of the Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but
only with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any amendment
thereof or supplement (including any Term Sheet) thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company by the Representative with respect to
such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment thereof or
supplement (including any Term Sheet) thereto or in any application. The
Company acknowledges that the statements set forth under the heading
"Underwriting" (other than statements regarding Pete Peterson), the risks
factors entitled "Inexperienced Representative" and "Representative's
Potential Influence on the Market," statements regarding waiver or release of
lock-up restrictions, and the stabilization legend in the Prospectus have
been furnished by the Representative with respect to the Underwriters
expressly for use therein and constitute the only information furnished in
writing by the Representative with respect to the Underwriters for inclusion
in any Preliminary Prospectus, the Registration Statement or the Prospectus.
In addition to its other obligations under this Section 8(b), each
Underwriter severally, but not jointly, agrees that, as an interim measure
during the pendency of any action arising out of or based upon any untrue
statement or omission, or alleged untrue statement or alleged omission as
described in this Section 8(b), it will reimburse Company and (and, to the
extent applicable, each controlling person) on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating
or defending any such action, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of such Underwriter's
obligations to reimburse the Company (and, to the extent applicable, each
controlling person) for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement is so held
to have been improper as to such Underwriter, such Underwriter (and, to the
extent applicable, each controlling person) shall promptly return it to the
Company, together with interest compounded daily, based on the Prime Rate,
but in no case more than is allowed by applicable law. Any such interim
reimbursement payments which are not made to the Company within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request. Notwithstanding the provisions of this
Section 8(b), no Underwriter shall be required to indemnify or hold harmless
the Company, or any controlling person for, in the aggregate, any amounts in
excess of the underwriting discount applicable to the Securities purchased by
such Underwriter hereunder.
The indemnity agreement in this Section 8(b) shall be in addition to any
liability which each Underwriter severally, but not jointly, may have at
common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure to so notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 8 except to the extent that it has been materially
prejudiced by such failure). In case any such action is
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<PAGE>
brought against any indemnified party, and it notifies an indemnifying party
or parties of the commencement thereof, the indemnifying party or parties
shall be entitled to participate therein, and to the extent it or they may
elect by written notice delivered to the indemnified party or parties
promptly after receiving the aforesaid notice from such indemnified party or
parties, to assume the defense thereof with counsel reasonably satisfactory
to such indemnified party. Notwithstanding the foregoing, an indemnified
party shall have the right to employ its own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party or parties in connection with
the defense of such action at the expense of the indemnifying party or
parties, (ii) the indemnifying party or parties shall not have employed
counsel reasonably satisfactory to such indemnified party to have charge of
the defense of such action within a reasonable time after notice of
commencement of the action or (iii) such indemnified party shall have
reasonably concluded that there may be one or more defenses available to it
which are different from or additional to those available to one or all of
the indemnifying parties (in which case the indemnifying parties shall not
have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses
of one additional counsel (in addition to appropriate local counsel) shall be
borne by the indemnifying parties. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition
to appropriate local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 9 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement
of any claim or action effected without its written consent; PROVIDED,
HOWEVER, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 8, 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 this Section 8 provide for
indemnification in such case or (ii) contribution under the Act may be
required on the part of any indemnified party, then each indemnifying party
shall contribute to the amount paid as a result of such losses, claims,
damages, expenses or liabilities (or actions in respect thereof) (A) in such
proportion as is appropriate to reflect the relative benefits received by
each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (A) above but also the relative fault of each
of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company, on
the one hand, and the Underwriters, on the other hand, shall be deemed to be
in the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) bear to the total underwriting
discounts received by the Underwriters hereunder, in each case as set forth
in the table on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company, or by
the Representative with respect to an Underwriter, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to in the first sentence of this Section
8(d) shall be deemed to include any
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<PAGE>
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), no Underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Securities purchased by such Underwriter hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act and the cases and promulgations thereunder) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8(d), each
person, if any, who controls the Company, or an Underwriter within the
meaning of the Act, each officer of the Company who has signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Underwriters, or the Company, as the case may
be, subject in each case to the provisions of this Section 9(d). Any party
entitled to contribution will, promptly after receipt of notice of
commencement of any action against such party in respect to which a claim for
contribution may be made against another party or parties under this Section
8(d), notify such party or parties from whom contribution may be sought, but
the omission to so notify such party or parties shall not relieve the party
or parties from whom contribution may be sought from any obligation it or
they may have hereunder or otherwise than under this Section 8(d) except to
the extent it has been materially prejudiced by such failure. The
contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or otherwise.
The Underwriters' obligations in this Section 8(d) to contribute are several
in proportion to their respective underwriting obligations and not joint.
(e) The indemnity and contribution agreements contained in this
Section 9 and the representations and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter, the Company, its directors or
officers or any person controlling the Company, (ii) acceptance of any
Securities and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter or any person controlling any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
(including any Term Sheet) thereto, each party against whom contribution may
be sought under this Section 8 hereby consents to the jurisdiction of any
court having jurisdiction over any other contributing party, agrees that
process issuing from such court may be served upon him or it by any other
contributing party and consents to the service of such process and agrees
that any other contributing party may join him or it as an additional
defendant in any such proceeding in which such other contributing party is a
party.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties, covenants and agreements contained in this
Agreement, or contained in certificates of officers of the Company or
delivered pursuant hereto, shall be deemed to be representations, warranties,
covenants and agreements at the Closing Date and at each Option Closing Date,
as the case may be, and such representations, warranties, covenants and
agreements of the Company and the respective indemnity and contribution
agreements contained in Section 8. hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Representative, any of the Underwriters or the Company and shall survive the
termination of this Agreement and the issuance, sale and delivery of the
Securities to the Underwriters.
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10. EFFECTIVE DATE. This Agreement shall become effective at 10:00
a.m., New York City time, on the date hereof, or at such earlier time after
the Registration Statement becomes effective as the Representative, in its
sole discretion, shall release the Securities for sale to the public;
PROVIDED, HOWEVER, that the provisions of Sections 6, 8 and 11 hereof shall
at all times be effective. For purposes of this Section 10, the Securities
to be purchased hereunder shall be deemed to have been so released upon the
earlier of dispatch by the Representative of telegrams or facsimile
transmissions to securities dealers releasing such Securities for offering or
the release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Securities.
11. TERMINATION.
(a) The Representative shall have the right to terminate this
Agreement after it becomes effective, the exercise of which shall be
determined in the Representative's sole discretion, if: (i) any domestic or
international event or act or occurrence has, as determined in the
Representative's sole judgment, disrupted, or in the Representative's sole
judgment will in the immediate future materially disrupt, the financial
markets; or (ii) any material adverse change, as determined in the
Representative's sole judgment, in the financial markets shall have occurred;
or (iii) trading on the New York Stock Exchange, the American Stock Exchange,
the SCM, Nasdaq National Market or the over-the-counter market shall have
been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required
on the over-the-counter market by the NASD or the Commission or any other
governmental authority having jurisdiction; or (iv) the United States shall
have become involved in a war or in hostilities, or there shall have been an
escalation in an existing war or hostilities or a national emergency shall
have been declared in the United States; or (v) a banking moratorium shall
have been declared by any Delaware, California or federal authority or body;
or (vi) a moratorium in foreign exchange trading shall have been declared; or
(vii) the Company shall have sustained a material or substantial loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act which, whether or not such loss shall have been
insured, will, in the Representative's sole judgment, make it inadvisable to
proceed with the offering, sale or delivery of the Securities; or (viii)
there shall have been a material adverse change or development involving a
material prospective change, in the condition (financial or otherwise),
earnings, business affairs, position, prospects, stockholders' equity,
operations, obligations, properties, businesses, management or results of
operations of the Company taken as a whole, whether or not arising in the
ordinary course of business, or (ix) if there shall have been a material
adverse change in the general market, political or economic conditions,
whether in the United States or elsewhere, as in the Representative's sole
judgment would make it inadvisable to proceed with the offering, sale or
delivery of the Securities.
(b) Notwithstanding any contrary provision contained in this
Agreement, in the event of any termination of this Agreement (including,
without limitation, pursuant to Sections 7, 11(a) or 12 hereof), and whether
or not this Agreement is otherwise carried out, the provisions of Sections 6
and 8 hereof shall remain effective and shall not in any way be affected by
such termination or failure to carry out the terms of this Agreement or any
part hereof.
12. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell and deliver hereunder on
such date, then this Agreement shall terminate (or, if such default shall
occur with respect to any Option Shares to be purchased on an Option Closing
Date, the Underwriters may, in the Representative's sole discretion, by
notice from the Representative to the Company, terminate the Underwriters'
obligation to purchase such Option Shares from the Company on such
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date) with no liability whatsoever on the part of any non-defaulting party
other than pursuant to Sections 6, 8 and 11 hereof. No action taken pursuant
to this Section 12 shall relieve the Company from liability, if any, in
respect of such default.
13. SUBSTITUTION OF UNDERWRITERS. If any Underwriter defaults in its
obligation to purchase the number of Securities which it has agreed to
purchase under this Agreement, the non-defaulting Underwriters shall be
obligated to purchase (in the respective proportions which the number of
Securities set forth opposite the name of each non-defaulting Underwriter in
Schedule I to this Agreement bears to the total number of Securities set
forth opposite the names of all the non-defaulting Underwriters in Schedule I
to this Agreement) the Securities which the defaulting Underwriter agreed but
failed to purchase; except that the non-defaulting Underwriters shall not be
obligated to purchase any of the Securities if the total number of Securities
which the defaulting Underwriter or Underwriters agreed but failed to
purchase exceeds 10% of the total number of Securities, and any
non-defaulting Underwriter shall not be obligated to purchase more than 110%
of the number of Securities set forth opposite its name in Schedule I to this
Agreement plus the total number of Option Shares purchasable by it pursuant
to the terms of Section 3(b) hereof. If the foregoing maximums are exceeded,
the non-defaulting Underwriters, and any other underwriters satisfactory to
you who so agree, shall have the right, but shall not be obligated, to
purchase (in such proportions as may be agreed upon among them) all the
Securities. If the non-defaulting Underwriters or the other underwriters
satisfactory to you do not elect to purchase the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase, this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter, the Company except for the payment of expenses to be borne by
the Company as provided in Section 6(a) hereof and the indemnify and
contribution agreements of the Company and the Underwriters contained in
Section 8 hereof; PROVIDED, HOWEVER, that this provision shall not affect any
Closing which at the time of such termination already shall have taken place.
Nothing contained herein shall relieve a defaulting Underwriter of
any liability it may have for damages caused by its default. If the other
underwriters satisfactory to you are obligated or agreed to purchase the
Securities of a defaulting Underwriter, either you or the Company may
postpone the Closing Date for up to seven full Business Days in order to
effect any changes that may be necessary in the Registration Statement, the
Prospectus or in any other document or agreement, and to file promptly any
amendments or any supplements to the Registration Statement or the Prospectus
which in your opinion may thereby be made necessary.
14. NOTICES. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed, delivered by hand or transmitted by
any standard form of telecommunication. Notices to the Underwriters shall be
directed to the Representative at 33 Whitehall Street, New York, New York
10004, Attention: Jim Sheehan, with a copy to Jeffer, Mangels, Butler &
Marmaro LLP, 2121 Avenue of the Stars, 10th Floor, Los Angeles, California
90067, Attention: Steven J. Insel, Esq. Notices to the Company shall be
directed to the Company at 2540 Red Hill Avenue, Suite 100, Santa Ana,
California 92705, Attention: President, with a copy to, Latham & Watkins, 650
Town Center Drive, Twentieth Floor, Costa Mesa, California 92626, Attention:
William J. Cernius, Esq.
15. PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters and the Company and the controlling
persons, officers, directors and others referred to in Section 9 hereof, and
their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right,
remedy or claim under or in
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respect of or by virtue of this Agreement or any provisions herein contained.
No purchaser of Securities from an Underwriter shall be deemed to be a
successor merely by reason of such purchase.
16. CONSTRUCTION. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California, without
giving effect to conflict of laws principles thereof.
17. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an
original, and all of which taken together shall be deemed to he one and the
same instrument. Delivery of executed copies of this Agreement by facsimile
transmission shall be deemed to be delivery of an original, executed copy of
this Agreement by the transmitting party.
18. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
Representative Warrant Agreement constitute the entire agreement of the
parties hereto concerning the subject matter hereof and supersede all prior
written or oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may not be amended, modified or
altered except in a writing signed by the Representative and the Company.
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If the foregoing correctly sets forth the understanding among the
parties hereto, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
SCOOP, INC., A DELAWARE CORPORATION
By:
----------------------------------
Name: Mark Davidson
Title: President
Confirmed and accepted as of
the date first above written.
SHAMUS GROUP, INC.
AS REPRESENTATIVE FOR THE
SEVERAL UNDERWRITERS NAMED
IN SCHEDULE I ATTACHED HERETO
By:
--------------------------------
Jim Sheehan
Title:
30
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SCHEDULE I
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UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
Shamus Group, Inc.
TOTAL 1,300,000
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CERTIFICATE OF INCORPORATION
OF
SCOOP, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes
hereinafter stated, under the provisions and subject to the requirements of
the laws of the State of Delaware (particularly Chapter 1, Title 8 of the
Delaware Code and the acts amendatory thereof and supplemental thereto, and
known, identified and referred to as the "General Corporation Law of the
State of Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter the "Corporation") is:
Scoop, Inc.
SECOND: The address, including street, number, city and county, of
the registered office of the Corporation in the State of Delaware is:
THE CORPORATION TRUST COMPANY
Corporation Trust Center
1209 Orange Street
Wilmington, New Castle County, Delaware 19801
THIRD: The nature of the business and the purposes to be conducted
and promoted by the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The Corporation shall have authority to issue 25,000,000
shares of stock, consisting of 20,000,000 shares of Common Stock, par value
$0.001 per share, and 5,000,000 shares of Preferred Stock, par value $0.001
per share.
FIFTH: The shares of Preferred Stock may be issued from time to time
in one or more series. The Board of Directors is authorized to fix by
resolution the designations, powers, preferences and relative, participating,
optional or other special rights (including voting rights, if any, and
conversion rights, if any), and qualifications, limitations or restrictions
thereof, of any such series of Preferred Stock, and the number of shares
constituting any such series, or all or any of them; and to increase or
decrease the number of shares of any series subsequent to the issue of shares
of that series, but not below the number of shares then outstanding. Except
as otherwise provided (i) by law, (ii) by this Certificate of Incorporation
as amended from time to time, or (iii) by resolutions of the Board of
Directors fixing the powers and preferences of any class or series of shares
as to which the Board of Directors has been expressly vested with authority
to fix the powers and preferences, (a) the Common Stock shall possess the
full voting power of the Corporation and (b) the number of authorized shares
of any class or classes of stock may be increased or
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decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote.
SIXTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
SEVENTH: The name and the mailing address of the incorporator are as
follows:
Rita K. Pfetzing
650 Town Center Drive, Suite 2000
Costa Mesa, California 92626-1925
EIGHTH: The Corporation is to have perpetual existence.
NINTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all
of the expenses, liabilities or other matters referred to in or covered by
said section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any Bylaw, agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such person.
TENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the Corporation by
this certificate of incorporation are granted subject to the provisions of
this Article TENTH. In addition to the other powers expressly granted by
statute, the Board of Directors shall have the power to adopt, repeal, alter,
amend and rescind the Bylaws of the Corporation.
Signed on October 11, 1996
/s/ RITA K. PFETZING
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Rita K. Pfetzing
Incorporator
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BYLAWS
OF
SCOOP, INC.,
a Delaware corporation
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TABLE OF CONTENTS
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Page
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ARTICLE I OFFICES......................................................... 1
Section 1.1 Registered Office......................................... 1
Section 1.2 Other Offices............................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS........................................ 1
Section 2.1 Place of Meetings......................................... 1
Section 2.2 Annual Meeting of Stockholders............................ 1
Section 2.3 Quorum; Adjourned Meetings and Notice Thereof............. 1
Section 2.4 Voting.................................................... 2
Section 2.5 Proxies................................................... 2
Section 2.6 Special Meetings.......................................... 2
Section 2.7 Notice of Stockholder's Meetings.......................... 2
Section 2.8 Stockholder Proposals..................................... 2
Section 2.9 Maintenance and Inspection of Stockholder List............ 3
ARTICLE III DIRECTORS...................................................... 3
Section 3.1 Number, Election and Tenure............................... 3
Section 3.2 Vacancies................................................. 4
Section 3.3 Notification of Nomination................................ 4
Section 3.4 Powers.................................................... 5
Section 3.5 Directors' Meetings....................................... 5
Section 3.6 Regular Meetings.......................................... 5
Section 3.7 Special Meetings.......................................... 5
Section 3.8 Quorum.................................................... 5
Section 3.9 Action Without Meeting.................................... 6
Section 3.10 Telephonic Meetings....................................... 6
Section 3.11 Committees of Directors................................... 6
Section 3.12 Minutes of Committee Meetings............................. 6
Section 3.13 Compensation of Directors................................. 6
Section 3.14 Indemnification........................................... 7
ARTICLE IV OFFICERS........................................................ 9
Section 4.1 Officers.................................................. 9
Section 4.2 Election of Officers...................................... 9
Section 4.3 Subordinate Officers...................................... 9
Section 4.4 Compensation of Officers.................................. 9
Section 4.5 Term of Office; Removal and Vacancies..................... 9
Section 4.6 Chairman of the Board..................................... 9
Section 4.7 President.................................................10
Section 4.8 Vice President............................................10
Section 4.9 Secretary................................................ 10
Section 4.10 Assistant Secretaries.................................... 10
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TABLE OF CONTENTS (Cont')
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Page
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Section 4.11 Chief Financial Officer................................. 10
Section 4.12 Assistant Treasurer..................................... 11
ARTICLE V CERTIFICATES OF STOCK.......................................... 11
Section 5.1 Certificates............................................ 11
Section 5.2 Signatures on Certificates.............................. 11
Section 5.3 Statement of Stock Rights, Preferences, Privileges...... 11
Section 5.4 Lost Certificates....................................... 12
Section 5.5 Transfers of Stock...................................... 12
Section 5.6 Fixing Record Date...................................... 12
Section 5.7 Registered Stockholders................................. 12
ARTICLE VI GENERAL PROVISIONS............................................ 13
Section 6.1 Dividends............................................... 13
Section 6.2 Payment of Dividends.................................... 13
Section 6.3 Checks.................................................. 13
Section 6.4 Fiscal Year............................................. 13
Section 6.5 Corporate Seal.......................................... 13
Section 6.6 Manner of Giving Notice................................. 13
Section 6.7 Waiver of Notice........................................ 13
Section 6.8 Annual Statement........................................ 13
Section 6.9 Minutes and Accounting Records.......................... 14
ARTICLE VII AMENDMENTS................................................... 14
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BYLAWS
OF
SCOOP, INC.,
a Delaware corporation
ARTICLE I
OFFICES
--------
Section 1.1 REGISTERED OFFICE. The registered office shall be in the
City of Dover, County of Kent, State of Delaware.
Section 1.2 OTHER OFFICES. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held
at any place within or without the State of Delaware designated by the Board
of Directors. In the absence of any such designation, stockholders' meetings
shall be held at the principal executive office of the corporation.
Section 2.2 ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
Board of Directors. At each annual meeting directors shall be elected and
any other proper business may be transacted.
Section 2.3 QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority
of the stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws. A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue
to transact business until adjournment. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, a majority of
the voting stock represented in person or by proxy may adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until a quorum shall be present or represented. At such adjourned meeting at
which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days,
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or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote thereat.
Section 2.4 VOTING. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes, or the Certificate of Incorporation, or these Bylaws, a different
vote is required in which case such express provision shall govern and
control the decision of such question.
Section 2.5 PROXIES. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize
another person or persons to act for him by proxy appointed by an instrument
in writing subscribed by such stockholder and bearing a date not more than
three years prior to said meeting, unless said instrument provides for a
longer period. All proxies must be filed with the Secretary of the
corporation at the beginning of each meeting in order to be counted in any
vote at the meeting. Each stockholder shall have one vote for each share of
stock having voting power, registered in his name on the books of the
corporation on the record date set by the Board of Directors as provided in
Article V, Section 5.6 hereof. All elections shall be had and all questions
decided by a plurality vote.
Section 2.6 SPECIAL MEETINGS. Special meetings of the stockholders of
the corporation for any purpose or purposes may be called at any time by the
Board of Directors, the Chairman of the Board of Directors, the President of
the corporation or stockholders holding shares entitled to cast not less than
10% of the votes at such meeting. Special meetings of the stockholders of
the corporation may not be called by any other person or persons.
Section 2.7 NOTICE OF STOCKHOLDER'S MEETINGS. Whenever stockholders
are required or permitted to take any action at a meeting, a written notice
of the meeting shall be given which notice shall state the place, date and
hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. The written notice of any meeting
shall be given to each stockholder entitled to vote at such meeting not less
than ten nor more than sixty days before the date of the meeting. If mailed,
notice is given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of
the corporation.
Section 2.8 STOCKHOLDER PROPOSALS. At an annual meeting of
stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been brought before the annual meeting (a)
by, or at the direction of, a majority of the directors, or (b) by any
stockholder of the corporation who complies with the notice procedures set
forth in this Section 2.8. For a proposal to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely,
a stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the corporation not less than 60 days prior to
the scheduled annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if less
than 70 days' notice or prior public disclosure of the date of the scheduled
annual meeting is given or made, notice by the
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stockholder, to be timely, must be so delivered or received not later than
the close of business on the tenth day following the earlier of the day on
which such notice of the date of the scheduled annual meeting was mailed or
the day on which such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the proposal
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business and any other stockholders known by such stockholder to be
supporting such proposal, (c) the class and number of shares of the
corporations's stock which are beneficially owned by the stockholder on the
date of such stockholder notice and by any other stockholders known by such
stockholder to be supporting such proposal on the date of such stockholder
notice, and (d) any financial interest of the stockholder in such proposal.
The presiding officer of the annual meeting shall determine and declare
at the annual meeting whether the stockholder proposal was made in accordance
with the terms of this Section 2.8. If the presiding officer determines that
a stockholder proposal was not made in accordance with the terms of this
Section 2.8, he shall so declare at the annual meeting and any such proposal
shall not be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports,
no new business shall be acted upon at such annual meeting unless stated,
filed and received as herein provided.
Section 2.9 MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The
officer who has charge of the stock ledger of the corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is
present.
ARTICLE III
DIRECTORS
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Section 3.1 NUMBER, ELECTION AND TENURE. The authorized number of
directors which shall constitute the whole Board shall not be less than five
(5) nor more than nine (9). The exact number of directors shall be fixed by
a resolution duly adopted by the Board of Directors.
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When permitted under applicable law, the directors shall be divided into
three classes, as nearly equal in number as possible, with a term of three
years each, and the term of office of one class shall expire each year. One
class shall hold initially for a term expiring at the first annual meeting of
the stockholders following classification of the Board, another class shall
hold office initially for a term expiring at the second annual meeting of the
stockholders following classification of the Board, and another class shall
hold office initially for a term expiring at the third annual meeting of
stockholders following classification of the Board. Beginning with the first
annual meeting of the stockholders and each succeeding annual meeting of
stockholders, the directors of the class of directors whose term expires at
such meeting will be elected to hold office for a term expiring at the third
succeeding annual meeting. Each director will hold office for the term for
which the is elected and until his successor is duly elected and qualified;
provided, however, that unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any or all of the directors of the corporation
may be removed from office by the stockholders at any annual or special
meeting of stockholders by the affirmative vote of a majority of the
outstanding shares of Common Stock of the corporation, the notice of which
shall state that the removal of a director or directors is among the purposes
of the meeting.
Section 3.2 VACANCIES. Vacancies on the Board of Directors by reason
of death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors shall be filled solely by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the new directorship
created or the directorship in which the vacancy occurred and until such
director's successor shall have been duly elected and qualified. No decrease
in the number of directors constituting the Board of Directors shall shorten
the term of any incumbent director.
Section 3.3 NOTIFICATION OF NOMINATION. Subject to the rights, if any,
of the holders of shares of Preferred Stock then outstanding, if any, only
persons who are nominated in accordance with the following procedures shall
be eligible for election as directors. Nominations of person for election to
the Board of Directors of the corporation may be made at a meeting of
stockholders by or at the direction of the Board of Directors, by any
nominating committee or person appointed by the Board, or by any stockholder
of the corporation entitled to vote for the election of directors at the
meeting who complies with the notice procedures set forth in this Section
3.3. Such nominations, other than those made by or at the direction of the
Board or by any nominating committee or person appointed by the Board, shall
be made pursuant to timely notice in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the corporation
not less than 60 days prior to the scheduled annual meeting, regardless of
any postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the scheduled annual meeting is given or made,
notice by the stockholder, to be timely, must be so delivered or received not
later than the close of business on the tenth day following the earlier of the
day on which such notice of the date of the scheduled annual meeting was
mailed or the day on which such public disclosure was made. A stockholder's
notice to the Secretary shall set forth
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(a) as to each person whom the stockholder proposes to nominate for election
or reelection as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal number of shares of
capital stock of the corporation which are beneficially owned by the person
and (iii) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice, (i) the name and address, as they appear
on the corporation's books, of the stockholder and (ii) the class and number
of shares of the corporation's stock which are beneficially owned by the
stockholder on the date on such stockholder notice. The corporation may
require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as director of the corporation.
The presiding officer of the annual meeting shall determine and declare
at the annual meeting whether the nomination was made in accordance with the
terms of this Section 3.3. If the presiding officer determines that a
nomination was not made in accordance with the terms of this Section 3.3, he
shall so declare at the annual meeting and any such defective nomination
shall be disregarded.
Section 3.4 POWERS. The property and business of the corporation shall
be managed by or under the direction of its Board of Directors. In addition
to the powers and authorities by these Bylaws expressly conferred upon them,
the Board may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done
by the stockholders.
Section 3.5 DIRECTORS' MEETINGS. The directors may hold their meetings
and have one or more offices, and keep the books of the corporation outside
of the State of Delaware.
Section 3.6 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from
time to time be determined by the Board.
Section 3.7 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President on forty-eight hours' notice to each
director, either personally or by mail or by telegram; special meetings shall
be called by the President or the Secretary in like manner and on like notice
on the written request of two directors unless the Board consists of only one
director; in which case special meetings shall be called by the President or
Secretary in like manner or on like notice on the written request of the sole
director.
Section 3.8 QUORUM. At all meetings of the Board of Directors a
majority of the authorized number of directors shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the
vote of a majority of the directors present at any meeting at which there is
a quorum, shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute, by the Certificate of
Incorporation or by these Bylaws. If a quorum shall not be present at any
meeting of the Board of Directors the directors present
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thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum.
Section 3.9 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee.
Section 3.10 TELEPHONIC MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such
meeting.
Section 3.11 COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to
all papers which may require it; but no such committee shall have the power
or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the Bylaws of the corporation; and, unless the resolution or the Certificate
of Incorporation expressly so provide, no such committee shall have the power
or authority to declare a dividend or to authorize the issuance of stock.
Section 3.12 MINUTES OF COMMITTEE MEETINGS. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 3.13 COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, the Board of Directors
shall have the authority to fix the compensation of directors. The directors
may be paid their expenses, if any, of attendance at each meeting of the
Board of Directors and may be paid a fixed sum for attendance at each meeting
of the Board of Directors or a stated salary as director. No such payment
shall preclude any director from serving the corporation in any other
capacity and receiving
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compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
Section 3.14 INDEMNIFICATION.
(a) The corporation shall indemnify any person who was or
is made a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an 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 corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or 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 he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The 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 or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no such
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only
to the extent that the Court of Chancery of Delaware or the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or
agent of the corporation shall be successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in paragraphs (a) and
(b), or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
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(d) Any indemnification under paragraphs (a) and (b)
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in paragraphs
(a) and (b). Such determination shall be made (1) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the
Board of Directors in the manner provided in paragraph (d) upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation as authorized in this Section
3.14.
(f) The indemnification provided by this Section 3.14
shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(g) The Board of Directors may authorize, by a vote of a
majority of a quorum of the Board of Directors, the corporation to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under the provisions of this Section 3.14.
(h) For the purposes of this Section 3.14, references to
"the corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, limited liability company, trust or other enterprise, shall stand in
the same position under the provisions of this Section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise
8
<PAGE>
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this section.
ARTICLE IV
OFFICERS
----------
Section 4.1 OFFICERS. The officers of this corporation shall be chosen
by the Board of Directors and shall include a Chairman of the Board, a
President, a Secretary, and a Chief Financial Officer. The corporation may
also have at the discretion of the Board of Directors such other officers as
are desired, including one or more Vice Presidents, one or more Assistant
Secretaries and Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 4.3 hereof. In the
event there are two or more Vice Presidents, then one or more may be
designated as Executive Vice President, Senior Vice President, or other
similar or dissimilar title. At the time of the election of officers, the
directors may by resolution determine the order of their rank. Any number of
offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
Section 4.2 ELECTION OF OFFICERS. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall choose the officers
of the corporation.
Section 4.3 SUBORDINATE OFFICERS. The Board of Directors may appoint
such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board.
Section 4.4 COMPENSATION OF OFFICERS. The salaries of all officers and
agents of the corporation shall be fixed by the Board of Directors.
Section 4.5 TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the
corporation shall hold office until their successors are chosen and qualify
in their stead. Any officer elected or appointed by the Board of Directors
may be removed at any time by the affirmative vote of a majority of the Board
of Directors. If the office of any officer or officers becomes vacant for
any reason, the vacancy shall be filled by the Board of Directors.
Section 4.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
an officer be elected, shall, if present, preside at all 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 these Bylaws. If there is no President, the Chairman of the
9
<PAGE>
Board shall in addition be the Chief Executive Officer of the corporation and
shall have the powers and duties prescribed in Section 4.7 of this Article IV.
Section 4.7 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 Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of
the corporation. He shall preside at all meetings of the stockholders 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 be an ex-officio member of all
committees and shall have the general powers and duties of management usually
vested in the office of President and Chief Executive Officer of
corporations, and shall have such other powers and duties as may be
prescribed by the Board of Directors or these Bylaws.
Section 4.8 VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board
of Directors, or if not ranked, the 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 duties as from time to
time may be prescribed for them, respectively, by the Board of Directors.
Section 4.9 SECRETARY. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose; and
shall perform like duties for the standing committees when required by the
Board of Directors. He shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or these
Bylaws. He shall keep in safe custody the seal of the corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and
when so affixed it shall be attested by his signature or by the signature of
an Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 4.10 ASSISTANT SECRETARIES. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors, or if there be no such determination, the Assistant
Secretary designated by the Board of Directors, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of
the Secretary and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
Section 4.11 CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall have the custody of the corporate funds and securities and shall keep
full and accurate accounts of receipts and disbursements in books belonging
to the corporation and shall deposit all moneys, and other valuable effects
in the name and to the credit of the corporation, in such depositories 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, taking proper
vouchers for such disbursements, and shall render to the Board of Directors,
at its regular meetings, or when the Board of Directors so
10
<PAGE>
requires, an account of all his transactions as Chief Financial Officer and
of the financial condition of the corporation. If required by the Board of
Directors, he shall give the corporation a bond, in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors, for
the faithful performance of the duties of his office and for the restoration
to the corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 4.12 ASSISTANT TREASURER. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by
the Board of Directors, or if there be no such determination, the Assistant
Treasurer designated by the Board of Directors, shall, in the absence or
disability of the Chief Financial Officer, perform the duties and exercise
the powers of the Chief Financial Officer and shall perform such other duties
and have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE V
CERTIFICATES OF STOCK
---------------------
Section 5.1 CERTIFICATES. Every holder of stock of the corporation
shall be entitled to have a certificate signed by, or in the name of the
corporation by, the Chairman or Vice Chairman of the Board of Directors, or
the President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Chief Financial Officer or an Assistant Treasurer of the
corporation, certifying the number of shares represented by the certificate
owned by such stockholder in the corporation.
Section 5.2 SIGNATURES ON CERTIFICATES. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent,
or registrar who has signed or whose facsimile signature has been placed upon
a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue.
Section 5.3 STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualification, limitations or restrictions of
such preferences and/or rights shall be set forth in full or summarized on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, provided that, except as otherwise
provided in section 202 of the General Corporation Law of Delaware, in lieu
of the foregoing requirements, there may be set forth on the face or back of
the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights
11
<PAGE>
of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights.
Section 5.4 LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board
of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 5.5 TRANSFERS OF STOCK. Upon surrender to the corporation, or
the transfer agent of the corporation, of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 5.6 FIXING RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or 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 change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of Directors
may fix a record date which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5.7 REGISTERED STOCKHOLDERS. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder
in fact thereof and accordingly shall not be bound to recognize any equitable
or other claim or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
12
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
------------------
Section 6.1 DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 6.2 PAYMENT OF DIVIDENDS. Before payment of any dividend there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive
to the interests of the corporation, and the directors may abolish any such
reserve.
Section 6.3 CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 6.4 FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 6.5 CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the
words "Corporate Seal, Delaware". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 6.6 MANNER OF GIVING NOTICE. Whenever, under the provisions of
the statutes or of the Certificate of Incorporation or of these Bylaws,
notice is required to be given to any director or stockholder, it shall not
be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address
as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the
same shall be deposited in the United States mail. Notice to directors may
also be given by telegram.
Section 6.7 WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed to be equivalent.
Section 6.8 ANNUAL STATEMENT. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
13
<PAGE>
Section 6.9 MINUTES AND ACCOUNTING RECORDS. The minutes of proceedings
of the shareholders, Board of Directors, and Committees of the Board, and the
accounting books and records shall be kept at the principal executive office
of the Corporation, or at such other place or places as designated by the
Board of Directors. The minutes shall be kept in written form, and the
accounting books and records shall be kept either in written form or in a
form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection during usual
business hours on the written demand of any shareholder or holder of a voting
trust certificate, for a purpose reasonably related to the holder's interests
in the Corporation. The inspection may be made in person or by an agent or
attorney, and includes the right to copy and make extracts.
ARTICLE VII
AMENDMENTS
----------
The Board of Directors is expressly empowered to adopt, amend or repeal
bylaws of the corporation, without the approval of the stockholders. Any
adoption, amendment or repeal of bylaws of the corporation by the Board of
Directors shall require the approval of a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any resolution providing for adoption,
amendment or repeal is presented to the Board). The stockholders shall also
have power to adopt, amend or repeal the bylaws of the corporation. In
addition to any vote of the holders of any class or series of stock of this
corporation required by law or by the Certificate of Incorporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the outstanding shares of Common Stock of the corporation shall
be required to adopt, amend or repeal any provision of the bylaws of the
corporation.
14
<PAGE>
CERTIFICATE OF SECRETARY
OF
SCOOP, INC.,
a Delaware corporation
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of Scoop, Inc., a
Delaware corporation; and
(2) That the foregoing bylaws, comprising fourteen (14) pages,
constitute the bylaws of said corporation as duly adopted by Unanimous
Written Consent of the Board of Directors of said corporation as of October
15, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 15th day of
October, 1996.
/s/ DANIEL L. PELEKOUDAS
---------------------------
Daniel L. Pelekoudas
Secretary
15
<PAGE>
Number Shares
SI
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE
CUSIP 809136 10 4
SCOOP!
--------------------
INFORMATION SERVICES
--------------------
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
SCOOP, INC.
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered
by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Daniel L. Pelekoudas /s/ Mark A. Davidson
---------------------------- ------------------------------------
GENERAL COUNSEL AND SECRETARY PRESIDENT AND CHIEF FINANCIAL OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made
to the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-.....Custodian.......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act..........................
in common (State)
UNIF TRF MIN ACT-.......Custodian (until age.......)
(Cust)
............under Uniform Transfers
(Minor)
to Minors Act......................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,_____________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________
__________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated______________________
X_________________________________________________
X_________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
NOTICE: CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By___________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SCOOP, INC.
and
SHAMUS GROUP, INC.
____________________
REPRESENTATIVE WARRANT AGREEMENT
Dated as of , 1997
____________________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE WARRANT AGREEMENT
THIS REPRESENTATIVE WARRANT AGREEMENT (the "Agreement"), dated as of
_______________ ___, 1997, is made and entered into by and between SCOOP, INC.,
a Delaware corporation (the "Company"), and SHAMUS GROUP, INC. (the
"Representative").
The Company agrees to issue and sell to the Representative and the
Representative agrees to purchase from the Company, for the price of $50, a
warrant, as hereinafter described (the "Warrant" and together with any warrants
subsequently issued hereunder, the "Warrants"), to purchase up to 130,000
shares, as may be adjusted from time to time as set forth herein, of the
Company's common stock, par value $0.001 per share (the "Common Stock"), in
connection with a public offering (the "Offering") by the Company of 1,300,000
shares of Common Stock pursuant to an underwriting agreement (the "Underwriting
Agreement"), dated as of _____________ __, 1997, by and between the Company and
the Representative, as representative of the several Underwriters named therein.
The shares of Common Stock purchasable upon exercise of the Warrants, as may be
adjusted from time to time as set forth herein, are hereinafter referred to as
the "Warrant Stock." The Warrant shall be issued pursuant to this Agreement on
the closing date of the Offering (the "Closing Date").
In consideration of the foregoing and for the purpose of defining the terms
and provisions of the Warrants, the Warrant Stock and the respective rights and
obligations thereunder, the Company and the Representative, for value received,
hereby agree as follows:
SECTION 1. TRANSFERABILITY AND FORM OF WARRANTS.
1.1 REGISTRATION. All Warrants shall be numbered and shall be
registered on the books of the Company when issued.
1.2 TRANSFER. The Warrants shall be transferable only on the books
of the Company maintained at its principal office, wherever its principal office
may then be located, upon delivery thereof duly endorsed by a Warrant holder (a
"Warrantholder") or by its duly authorized attorney or representative and with
the signatures properly guaranteed, accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver a new certificate evidencing
each such Warrant to each person entitled thereto.
1.3 LIMITATIONS ON TRANSFER OF THE WARRANTS. Warrants shall not be
sold, transferred, assigned or hypothecated by the Representative until 6:30
a.m., Pacific time, on ____________ __, 1998 [ONE YEAR FOLLOWING THE EFFECTIVE
DATE]. The Warrants may be divided or combined, upon request to the Company by
a Warrantholder, into a certificate or certificates representing the right to
purchase the same aggregate number of Warrant Stock. Unless the context
indicates otherwise, the term "Warrantholder" shall include the Representative
and any transferee or transferees of the Warrants pursuant to this subsection
1.3 and as otherwise permitted by this Agreement, and the term "Warrants" shall
include any and all Warrants outstanding pursuant to this Agreement, including
those evidenced by a certificate or certificates issued upon division, exchange,
substitution or transfer pursuant to this Agreement.
1.4 FORM OF WARRANTS. The text of the Warrants and of the form of
election to purchase Warrant Stock shall be substantially as set forth in
Exhibit A attached hereto. The aggregate number of shares of Common Stock
issuable upon exercise of the Warrants is subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Warrants
shall be executed on behalf of the Company by its Chief Executive Officer or
its President and attested to by its Chief Financial Officer
1
<PAGE>
or its Secretary. A Warrant bearing the signature of an individual who was
at any time the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such office
prior to the delivery of such Warrant or did not hold such office on the date
of this Agreement or at any time thereafter.
The Warrants shall be dated as of the date of signature thereof
by the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
1.5 LEGEND ON WARRANTS AND WARRANT STOCK. Each certificate
evidencing a Warrant (or Warrant Stock issued upon exercise of a Warrant)
initially issued upon exercise of a Warrant shall bear the following legend,
unless, at the time of exercise, such Warrant Stock is subject to a currently
effective Registration Statement under the Securities Act of 1933, as amended
(the "Act"):
"'THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR
TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH SECTION
11 OF THE REPRESENTATIVE WARRANT AGREEMENT PURSUANT TO WHICH
THEY WERE ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to an effective registration statement under
the Act, of the securities represented thereby) shall also bear the above legend
unless, in the opinion of the Company's counsel, the securities represented
thereby need no longer be subject to such restrictions.
SECTION 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate
may be exchanged for another certificate or certificates entitling the
Warrantholder to purchase a like aggregate number of shares of Warrant Stock as
the certificate or certificates surrendered then entitled such Warrantholder to
purchase. Any Warrantholder desiring to exchange a Warrant certificate shall
make such request in writing delivered to the Company, and shall surrender,
properly endorsed, the certificate evidencing the Warrant to be so exchanged.
Thereupon, the Company shall execute and deliver to the person entitled thereto
a new Warrant certificate or certificates as so requested.
SECTION 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, the Warrantholder
shall have the right, at any time during the period commencing at 6:30 a.m.,
Pacific Time, on _________ ___, 1998 [ONE YEAR FOLLOWING EFFECTIVE DATE] and
ending at 5:00 p.m., Pacific Time, on _____________, 2002 [FIVE YEARS FOLLOWING
EFFECTIVE DATE] (the "Termination Date"), to purchase from the Company up to the
number of fully paid and nonassessable shares of Warrant Stock to which the
Warrantholder may at the time be entitled to purchase pursuant to this
Agreement, upon surrender to the Company, at its principal office, of the
certificate evidencing the Warrants to be exercised, together with the purchase
form on the reverse thereof duly completed and executed, and upon payment to the
Company of the Warrant Price (as defined in and determined in accordance with
the provisions of this Section 3 and Sections 7 and 8 hereof) for the number of
shares of Warrant Stock in respect of which such Warrants are then exercised,
but in no event for less than 100 shares of Warrant Stock (unless less than an
aggregate of 100 shares of Warrant Stock are then purchasable under all
outstanding Warrants held by such Warrantholder). This Warrant, when
exercisable, may be exercised from time to time in whole or in part.
2
<PAGE>
(b) Payment of the Warrant Price shall be made in cash, by
certified or official bank check in Los Angeles Clearing House funds (next day
funds), or any combination thereof.
(c) In addition to the method of payment set forth in Section
3(b) above and in lieu of any cash payment required thereunder, unless otherwise
prohibited by law, the Warrantholders shall have the right at any time, when
exercisable, and from time to time to exercise the Warrants in full or in part
(i) by receiving from the Company the number of shares of Warrant Stock equal to
the number of shares of Warrant Stock otherwise issuable upon such exercise less
the number of shares of Warrant Stock having an aggregate value on the date of
exercise equal to the Warrant Price multiplied by the number of shares of
Warrant Stock for which this Warrant is being exercised and/or (ii) by
delivering to the Company the number of shares of Common Stock having an
aggregate value on the date of exercise equal to the Warrant Price multiplied by
the number of shares of Warrant Stock for which this Warrant is being exercised.
For purposes hereof, the "value" of a share of Common Stock on a given date
shall equal to the Current Market Price on such date as defined in Section 9 of
this Agreement.
(d) Upon surrender of the Warrants and payment of the Warrant
Price as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Warrantholder, and in
such name or names as the Warrantholder may designate, a certificate or
certificates for the number of full shares of Warrant Stock so purchased upon
such exercise of the Warrant, together with cash, as provided in Section 9
hereof, in respect of any fractional shares otherwise issuable upon such
surrender. Such certificate or certificates, to the extent permitted by law,
shall be deemed to have been issued and any person so designated to be named
therein shall be defined to have become a holder of record of such securities as
of the date of surrender of the Warrants and payment of the Warrant Price, as
aforesaid, notwithstanding that the certificate or certificates representing
such securities shall not actually have been delivered or that the stock
transfer books of the Company shall then be closed. The Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that a Warrant is exercised in respect of less
than all of the shares of Warrant Stock specified therein at any time prior to
the Termination Date, a new Warrant evidencing the remaining shares of the
Warrant Stock purchasable by such Warrantholders hereunder shall be issued by
the Company to such Warrantholders.
SECTION 4. VALIDITY; PAYMENT OF TAXES. All securities delivered upon
exercise of a Warrant shall be duly and validly issued and non-assessable. The
Company shall pay all documentary stamp taxes, if any, attributable to the
initial issuance of the Warrants and the shares of Warrant Stock issuable upon
the exercise of the Warrants; provided, however, the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the Warrant Stock.
SECTION 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of such Warrant and receipt by the Company of an
indemnity of lost warrant certificate reasonably satisfactory in form and
substance to the Company at the applicant's cost. Applicants for such
substitute Warrant certificate or certificates shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company may
prescribe.
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SECTION 6. RESERVATION OF SHARES. The Company represents and warrants
to the Warrantholder that there has been reserved, and the Company shall at all
times keep reserved so long as the Warrants remain outstanding, out of its
authorized Common Stock, such number of shares of Common Stock as shall be
subject to purchase under the Warrants. Every transfer agent for the Common
Stock and other securities of the Company issuable upon the exercise of the
Warrants shall be irrevocably authorized and directed at all times to reserve
such number of authorized shares and other securities as shall be requisite for
such purpose. The Company shall keep a copy of this Agreement on file with
every transfer agent for the Common Stock and other securities of the Company
issuable upon the exercise of the Warrants. The Company shall supply every such
transfer agent with duly executed stock and other certificates, as appropriate,
for such purpose and shall provide or otherwise make available any cash which
may be payable in lieu of the issuance of fractional shares, as provided in
Section 9 hereof.
SECTION 7. WARRANT PRICE. The price per share at which shares of
Warrant Stock shall be purchasable upon the exercise of the Warrants shall be
$______ [120% OF IPO PRICE], subject to adjustment pursuant to Section 8 hereof
(as so adjusted from time to time, the "Warrant Price").
SECTION 8. ADJUSTMENTS OF NUMBER OF SHARES OF WARRANT STOCK AND WARRANT
PRICE. The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
8.1 ADJUSTMENTS. The number of shares of Warrant Stock purchasable
upon the exercise of each Warrant and the Warrant Price shall be subject to
adjustment as follows:
(a) In case the Company shall (i) pay a dividend or make a
distribution on its Common Stock in shares of its capital stock or other
securities, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares, (iii) combine its outstanding Common Stock into a smaller
number of shares or (iv) issue, by reclassification of its Common Stock, shares
of its capital stock or other securities of the Company (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), the number of shares of Warrant Stock
purchasable upon exercise of a Warrant immediately prior thereto shall be
adjusted so that the Warrantholder shall be entitled to receive the kind and
number of shares of Warrant Stock, shares of its capital stock and other
securities of the Company which such holder would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 8.1(a) shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.
(b) In case the Company shall issue rights, options (other than
options or awards issued under, and pursuant to, the Company's 1996 Stock
Incentive Plan (the "Option Plan")), warrants or convertible securities to all
holders of its Common Stock, without any charge to such holders, containing the
right to subscribe for or purchase Common Stock, the number of shares of Warrant
Stock thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of shares of Warrant Stock theretofore
purchasable upon exercise of a Warrant by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding immediately prior to
the issuance of such rights, options, warrants or convertible securities plus
the number of additional shares of Common Stock offered for subscription or
purchase, and of which the denominator shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such rights, options,
warrants or convertible securities. Such adjustment shall be made whenever such
rights, options, warrants or convertible securities are issued, and shall become
effective immediately upon issuance of such rights, options, warrants or
convertible securities.
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(c) In case the Company shall distribute to all holders of its
Common Stock evidences of its indebtedness or assets (excluding cash dividends
or distributions out of current earnings made in the ordinary course of business
consistent with past practices), then in each case the number of shares of
Warrant Stock thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of shares of Warrant Stock theretofore
purchasable upon exercise of such Warrant by a fraction, of which the numerator
shall be the then Current Market Price (as defined below) on the date of such
distribution, and of which the denominator shall be such Current Market Price on
such date minus the then fair value (determined as provided in subsection 8(f)
below) of the portion of the assets or evidences of indebtedness so distributed
applicable to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective on the date of
distribution.
(d) No adjustment in the number of shares of Warrant Stock
purchasable pursuant to subsections 8.1(b) or (c) hereof shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the aggregate number of shares of Warrant Stock then purchasable upon
the exercise of the Warrants or, if the Warrants are not then exercisable, the
number of shares of Warrant Stock purchasable upon the exercise of the Warrants
on the first date thereafter that the Warrants would become exercisable;
provided, however, that any adjustments which by reason of this subsection
8.1(d) are not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(e) Whenever the number of shares of Warrant Stock purchasable
upon the exercise of a Warrant is adjusted as herein provided, the Warrant Price
payable upon exercise of the Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of shares of Warrant Stock purchasable upon the
exercise of such Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of shares of Warrant Stock purchasable
immediately thereafter.
(f) To the extent not covered by subsections 8.1(b) or (c)
hereof, in case the Company shall sell or issue Common Stock or rights, options
(other than options or awards issued under and pursuant to the Option Plan),
warrants or convertible securities containing the right to subscribe for,
purchase or exchange into shares of Common Stock at a price per share
(determined, in the case of such rights, options, warrants or convertible
securities, by dividing (i) the total amount received or receivable by the
Company in consideration of the sale or issuance of such rights, options,
warrants or convertible securities, plus the total consideration payable to the
Company upon exercise, conversion or exchange thereof, by (ii) the total number
of shares covered by such rights, options, warrants or convertible securities)
lower than the then Current Market Price in effect immediately prior to such
sale or issuance, then the Warrant Price shall be reduced to a price (calculated
to the nearest cent) determined by dividing (I) an amount equal to the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
sale or issuance multiplied by the then existing Warrant Price, plus (B) the
consideration received or receivable by the Company upon such sale or issuance,
by (II) the total number of shares of Common Stock outstanding immediately after
such sale or issuance. The number of shares of Warrant Stock purchasable upon
the exercise of a Warrant shall thereafter be that number determined by
multiplying the number of shares of Warrant Stock purchasable upon exercise
immediately prior to such adjustment by a fraction, of which the numerator shall
be the Warrant Price in effect immediately prior to such adjustment and the
denominator shall be the Warrant Price as so adjusted. For the purposes of such
adjustments, the Common Stock which the holders of any such rights, options,
warrants or convertible securities shall be entitled to subscribe for, purchase
or exchange into shall be deemed issued and outstanding as of the date of such
sale or issuance and the consideration received by the Company therefor shall be
deemed to be the consideration received by the Company for such rights, options,
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warrants or convertible securities, plus the consideration or premiums stated in
such rights, options, warrants or convertible securities to be payable for the
Common Stock covered thereby. In case the Company shall sell or issue Common
Stock or rights, options, warrants or convertible securities containing the
right to subscribe for, purchase or exchange into Common Stock for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then, in determining the "price per share" of Common Stock and
the "consideration received by the Company" for purposes of the first sentence
of this subsection 8.1(f), the Board of Directors shall determine the fair value
of said property, and such determination, if based upon the Board of Directors,
good faith business judgment, shall be binding upon the Warrantholders. In
determining the "price per share" of Common Stock, any underwriting discounts or
commissions paid to brokers, dealers or other selling agents shall not be
deducted from the price received by the Company for sales of securities
registered under the Act or issued in a private placement. There shall be no
adjustment of the Warrant Price pursuant to this subsection 8.1(f) if the amount
of such adjustment would be less than $.05 per share of Common Stock; provided,
however, that any adjustment which by reason of this provision is not required
to be made immediately shall be carried forward and taken into account in any
subsequent adjustment.
This subsection 8.1(f) does not apply to:
(1) the exercise of the Warrants, or the conversion, exchange or
exercise of other securities convertible, exchangeable or exercisable for
Common Stock,
(2) Common Stock issued to the Company's employees under bona fide
employee benefit plans adopted by the Board of Directors and approved by
the holders of Common Stock when required by law, if such Common Stock
would otherwise be covered by this subsection 8.1(f) (but only to the
extent that the aggregate number of shares excluded hereby and issued after
the date of this Warrant Agreement shall not exceed 5% of the Common Stock
outstanding at the time of the adoption of each such plan, exclusive of
antidilution adjustments thereunder),
(3) Common Stock upon the exercise of rights or warrants issued to
the holders of Common Stock,
(4) Common Stock issued to shareholders of any person which merges
into the Company in proportion to their stock holdings of such person
immediately prior to such merger, upon such merger,
(5) Common Stock issued in a bona fide public offering pursuant to a
firm commitment underwriting or
(6) Common Stock issued in a bona fide private placement through a
placement agent which is a member firm of the National Association of
Securities Dealers, Inc. (except to the extent that any discount from the
current market price attributable to restrictions on transferability of the
Common Stock, as determined in good faith by the Board of Directors and
described in a Board resolution, shall exceed 20%).
(g) For the purpose of this Section 8, the term "Common Stock"
shall mean (i) the class of stock designated as the Common Stock of the Company
at the date of this Agreement or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value. In the event that at any time, as a result of an adjustment made
pursuant to this Section 8, a Warrantholder shall become entitled to purchase
any securities of the Company other than Common
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Stock, (i) if the Warrantholder's right to purchase is on any other basis
than that available to all holders of the Company's Common Stock, the Company
shall obtain an opinion of a reputable investment banking firm valuing such
other securities and (ii) thereafter the number of such other securities so
purchasable upon exercise of a Warrant and the Warrant Price of such
securities 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 this Section 8.
(h) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the number of
shares of Warrant Stock purchasable upon exercise of a Warrant and the Warrant
Price, to the extent a Warrant has not then been exercised, shall, upon such
expiration, be readjusted and shall thereafter be such number and such price as
they would have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) on the basis of (A) the fact
that the only shares of Common Stock issued in respect of such rights, options,
warrants or conversion privileges were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion privileges, and (B) the fact that such shares of Common Stock, if
any, were issued or sold for the consideration actually received by the Company
upon such exercise plus the consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion privileges whether or not exercised; provided, however, that no such
readjustment shall have the effect of decreasing the numbers of shares of
Warrant Stock purchasable upon exercise of a Warrant or increasing the Warrant
Price by an amount in excess of the amount of the adjustment made in respect of
the issuance, sale or grant of such rights, options, warrants or conversion
privileges.
(i) Whenever the number of shares of Warrant Stock purchasable
upon the exercise of a Warrant or the Warrant Price is adjusted pursuant to this
Section 8, the Company shall cause to be promptly mailed to each Warrantholder
by first class mail, postage prepaid, notice of such adjustment or adjustments
and a certificate of the chief financial officer of the Company setting forth
the number of shares of Common Stock, capital stock and other securities
purchasable upon the exercise of such Warrantholder's Warrant and the applicable
Warrant Price after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
8.2 NO ADJUSTMENT FOR DIVIDENDS, OPTION PLAN OR REINVESTMENT PLAN.
Except as specifically provided in subsection 8.1, no adjustment in respect of
any cash dividends or distributions on the Company's Common Stock out of current
earnings made in the ordinary course of business consistent with past practices
shall be made during the term of the Warrants or upon the exercise of the
Warrants. No adjustment in respect to options or awards issued under, and
pursuant to, the Option Plan shall be made during the term of the Warrants or
upon the exercise of the Warrants. No adjustment shall be made for rights to
purchase Common Stock pursuant to a Company plan for reinvestment of dividends
or interest.
8.3 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION OR
CONSOLIDATION. In case of any consolidation of the Company with or merger of
the Company into another corporation or other entity or in case of any sale,
lease, conveyance or other transfer to another corporation, person or other
entity of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, person or other entity, as the case may be, shall execute with the
Warrantholder, and the agreements governing such consolidation, merger, sale,
lease, conveyance or other transfer shall require such execution of, an
agreement that the Warrantholder shall have the right thereafter upon payment of
the Warrant Price in effect immediately prior to such event, upon exercise of
the Warrants, to receive the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive after the
happening of such consolidation,
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merger, sale, lease, conveyance or other transfer had the Warrants (and each
underlying security) been exercised immediately prior to such action. The
Company shall promptly mail to each Warrantholder by first class mail,
postage prepaid, notice of the execution of any such agreement. In the event
of a merger described in Section 368(a)(2)(E) of the Internal Revenue Code of
1986, in which the Company is the surviving corporation, the right to
purchase shares of Warrant Stock under the Warrants shall terminate on the
date of such merger and thereupon the Warrants shall become null and void,
but only if the controlling corporation shall agree to substitute for the
Warrants its warrant which entitles the holder thereof to purchase upon its
exercise the kind and amount of shares and other securities and property
which it would have owned or been entitled to receive had the Warrants been
exercised immediately prior to such merger. Any such agreements referred to
in this subsection 8.3 shall provide for adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
Section 8 hereof, and shall provide for terms and provisions at least as
favorable to the Warrantholder as those contained in this Agreement. The
provisions of this subsection 8.3 shall similarly apply to successive
consolidations, mergers, sales, leases, conveyances or other transfers.
8.4 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any action
which would cause an adjustment effectively reducing the portion of the Warrant
Price allocable to each share of Warrant Stock below the then par value per
share, if any, of the Warrant Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Stock upon exercise of the Warrants.
8.5 INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain Deloitte
& Touche, LLP (or such other accounting firm qualified to practice in front of
the securities and Exchange Commission (the "Commission") as is reasonably
acceptable to the Representative) to make any computation required under this
Section 8, and a certificate signed by such firm shall be conclusive evidence of
the correctness of any computation made under this Section 8.
8.6 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement, provided that such expression
shall in no way affect the number of shares of Warrant Stock actually
purchasable upon the exercise of such Warrants.
SECTION 9. FRACTIONAL SHARES; CURRENT MARKET PRICE. The Company shall
not be required to issue fractional shares of Common Stock on the exercise of a
Warrant. If any fraction of a share of Common Stock would, except for the
provisions of this Section 9, be issuable upon the exercise of a Warrant (or
specified portion thereof), the Company shall in lieu thereof pay an amount in
cash equal to the then Current Market Price multiplied by such fraction. For
purposes of this Agreement, the term "Current Market Price" shall mean (i) if
the Common Stock is traded on the Nasdaq National Market ("NNM") or on a
national securities exchange, the per share closing price of the Common Stock in
the NNM or on the principal stock exchange on which it is listed, as the case
may be, on the date of exercise of the Warrant or, with respect to any
adjustment pursuant to Section 8.1 hereof, on the date immediately preceding the
announcement of the event causing such adjustment or (ii) if the Common Stock is
traded in the over-the-counter market and not in the NNM or on any national
securities exchange, the average of the per share closing bid prices of the
Common Stock on the thirty (30) consecutive trading days immediately preceding
the date in question, as reported by The Nasdaq SmallCap Market (or an
equivalent generally accepted reporting service if quotations are not reported
on The Nasdaq SmallCap Market). The closing price referred to in clause (i)
above shall be the last reported sale price or, in the case no such reported
sale takes place on such day, the average of the reported closing bid and asked
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prices, in either case in the NNM or on the principal stock exchange on which
the Common Stock is then listed. For purposes of clause (ii) above, if trading
in the Common Stock is not reported by The Nasdaq SmallCap Market, the bid price
referred to in said clause shall be the lowest bid price as reported in the
Nasdaq Electronic Bulletin Board or, if not reported thereon, as reported in the
"pink sheets" published by National Quotation Bureau, Incorporated, and, if such
Common Stock is not so reported, shall be the price of a share of Common Stock
determined by the Company's Board of Directors in good faith.
SECTION 10. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER. Except
as expressly provided herein, nothing contained in this Agreement or in the
Warrants shall be construed as conferring upon the Warrantholder or its
transferees any rights as a shareholder of the Company, including the right to
vote, receive dividends, consent or receive notices as a shareholder in respect
of any meeting of shareholders for the election of directors of the Company or
any other matter. If, however, at any time prior to the expiration of the
Warrants and prior to their exercise, any one or more of the following events
shall occur:
(a) any action which would require an adjustment pursuant to
Section 8.1 or 8.3 hereof;
(b) an issuance by the Company of rights, options, warrants or
convertible securities to all or substantially all holders of its Common Stock,
without any charge to such holders, containing the right to subscribe for or
purchase Common Stock; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety or substantially as an entirety) shall be
proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 13 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to any relevant dividend,
distribution or other rights or for the determination of stockholders entitled
to vote on such proposed dissolution, liquidation or winding up. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to mail or receive such notice or any defect therein shall
not affect the validity of any action taken with respect thereto.
SECTION 11. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS; OBLIGATIONS
IN REGISTRATION.
(a) The Warrantholder agrees that prior to making any
disposition of the Warrants or the Warrant Stock, other than to persons or
entities identified in the first sentence of Section 1.3, the Warrantholder
shall give written notice to the Company describing briefly the manner in which
any such proposed disposition is to be made; and no such disposition shall be
made unless the Warrantholder has notified, or currently with such disposition
notifies, the Company that in the opinion of counsel reasonably satisfactory to
the Company a registration statement, application or other notification, filing
or post-effective amendment or supplement thereto (hereinafter collectively a
"Registration Statement") under the Act or the state securities or "blue sky"
laws of any applicable jurisdiction is not required with respect to such
disposition and no such Registration Statement has been filed by the Company
with, and declared effective, if necessary, by, the Commission or state
securities commission or agency. The Warrantholder agrees that it shall use its
reasonable best efforts to obtain from any transferee who acquires any Warrants
in a private transaction with the Warrantholder an agreement by such transferee
that it agrees to be bound by any transfer restrictions set forth in this
subsection 11(a) then applicable to such transferees.
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(b) The Company shall be obligated to the registered holders of
the Warrants and the Warrant Stock to maintain the currency and effectiveness of
the Registration Statement currently covering the Warrant and the Warrant Stock
(the "Current Registration Statement") or any replacement Registration Statement
continuously through 2003 [SIX YEARS FOLLOWING EFFECTIVE DATE], or upon the
transfer of all shares of the Warrant Stock. The Company shall not be deemed to
have used its reasonable best efforts to keep a Registration Statement effective
during the applicable period if it intentionally or voluntarily takes any action
that could reasonably be expected to result in such Warrantholders not being
able to sell such Warrant Stock, unless such action was (i) required by
applicable law or (ii) pursuant to Section 11(c).
(c) The Company may suspend the use of a prospectus included in
the Registration Statement for a period not to exceed 45 days in any three month
period or two periods not to exceed an aggregate of 75 days in any 12 month
period for valid business reasons including the acquisition or divestiture of
assets, public filings with the Commission, pending corporate developments and
similar events.
(d) All fees, disbursements and out-of-pocket expenses (other
than the Warrantholder's brokerage fees and commissions and legal fees of
counsel to the Warrantholder, if any) in connection with the filing of any
replacement Registration Statement or maintaining the currency and
effectiveness of the Current Registration Statement (or obtaining the opinion
of counsel with respect to sales under Rule 144) and in complying with
applicable federal securities and state securities and blue sky laws shall be
borne by the Company. The Company at its expense shall supply any
Warrantholder and any holder of Warrant Stock with copies of such
Registration Statement and the prospectus included therein and other related
documents and any opinions and no-action letters in such quantities as may be
reasonably requested by such Warrantholder or holder of Warrant Stock.
(e) The Company shall not be required by this Section 11 to
maintain the currency and effectiveness of the Current Registration Statement
if, in the opinion of counsel for the Warrantholders, which counsel shall be
reasonably satisfactory to the Company, or in the opinion of another counsel
experienced in securities law matters acceptable to counsel for such
Warrantholders and the Company, the proposed public offering or other transfer
as to which such Registration Statement is requested is exempt from applicable
federal securities and state securities and blue sky laws and would result in
all proposed sales being made under Rule 144 under the Act.
(f) [Intentionally Omitted].
(g) The Company agrees that until all the Warrants and Warrant
Stock have been sold under a Registration Statement or pursuant to Rule 144
under the Act, it shall keep current in filing all materials required to be
filed with the Commission in order to permit the holders of such securities to
sell the same under Rule 144.
(h) The Company shall:
(i) Prepare and promptly file with the Commission such
amendments and post-effective amendments to a Registration Statement as may be
necessary to keep such Registration Statement continuously effective pursuant to
Section 11(b); cause the related prospectus to be supplemented, by any required
prospectus supplement, and as so supplemented, to be filed pursuant to Rule 424
under the Act; and comply with the provisions of the Act with respect to the
disposition of all Warrant Stock covered by such Registration Statement during
the applicable period in accordance with the intended methods of disposition as
set forth in such Registration Statement or supplement to such prospectus;
provided,
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however, that before filing a replacement Registration Statement or
prospectus or any amendments or supplements thereto, the Company will furnish
to the Warrantholders, their counsel, and the underwriters, if any, to be
engaged in connection with the offering and sale by the Warrantholders (for
purposes of this subsection 11(h), the "Public Underwriter"), for their
review, copies of all such documents proposed to be filed, and the Company
will not file any such documents to which the Public Underwriter, if any,
shall reasonably objects;
(ii) As soon as the Company is advised or obtains knowledge
thereof, advise the Warrantholders and confirm the same in writing (A) when the
Registration Statement, as amended, becomes effective and when any post-
effective amendment to the Registration Statement becomes effective, (B) of the
issuance by the Commission or any State or other regulatory body of any stop
order or other order, or of the initiation or the threat or contemplation of any
proceeding, the outcome of which may result in the suspension of the
effectiveness of the Registration Statement or the issuance of any order
preventing or suspending the use of any preliminary prospectus or the
prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (C) of the issuance by the Commission or any State
or other regulatory body of any proceedings for the suspension of the
qualification of any of the Warrant Stock for offering or sale in any
jurisdiction or of the initiation or the threat or contemplation of any
proceeding for that purpose, (D) of the receipt of any comments from the
Commission and (E) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the prospectus related
thereto or for additional information; if the commission or any State or other
regulatory body shall enter a stop order or other order suspending the
effectiveness of the Registration Statement or preventing or suspending the use
of any preliminary prospectus or the prospectus, or any amendment or supplement
thereto, or suspend such qualification at any time, make every effort to obtain
promptly the lifting of such order or suspension;
(iii) If requested in writing by the Public Underwriter,
if any, or any Warrantholder (1) immediately incorporate in a prospectus
supplement or post-effective amendment such information as such Warrantholder
and the Public Underwriter, if any, agree should be included therein relating to
such sale and distribution of the Warrant stock, including, without limitation,
information with respect to the number of shares of Warrant Stock being sold to
such Public Underwriter, the purchase price being paid therefor by such Public
Underwriter and with respect to any other terms of the underwritten offering of
the Warrant Stock to be sold in such offering; (2) make all required filings of
such prospectus supplement or post-effective amendment as soon as notified of
the matters to be so incorporated in such prospectus supplement or post-
effective amendment; and (3) supplement or amend any Registration Statement if
reasonably requested in writing by the Warrantholders or any underwriter of
Warrant Stock;
(iv) Furnish to each of the Warrantholders and their
respective counsel, without charge and at such place as such Warrantholders may
designate, copies of each preliminary prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto, the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement and any term sheet, in each case as
soon as available and in such quantities as each Warrantholder may reasonably
request;
(v) During the time when a prospectus is required to be
delivered under the Act, the Company shall comply with all requirements imposed
upon it by the Act and the Securities Exchange Act, 1934, as amended (the
"Exchange Act"), as now and hereafter amended, and by the rules and regulations
of the Commission, as from time to time in force, so far as necessary to permit
the continuance of sales of or dealings in the Warrant Stock in accordance with
the provisions hereof and the prospectus, or any amendments or supplements
thereto; if at any time when a prospectus relating to the
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Warrant Stock is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of the Company or counsel for
the Company or counsel for the Warrantholders, the prospectus, as then
amended or supplemented, would include an 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, in the light of the circumstances in which
they were made, not misleading, or if it is necessary at any time to amend or
supplement the prospectus to comply with the Act, notify the Public
Underwriter and suspend the use of the prospectus included in the
Registration Statement in accordance with Section 11(c) or prepare and file,
at the Company's expense, with the Commission an appropriate amendment or
supplement to the Registration Statement or an amendment or supplement to the
prospectus which will correct such statement or omission, or effect such
compliance, each such amendment or supplement to be reasonably satisfactory
to the Warrantholders and the counsel for the Warrantholders; and furnish to
the Warrantholders copies of such amendment or supplement as soon as
available and in such quantities as the Warrantholders may request;
(vi) Make generally available to its security holders, in
the manner specified in Rule 158(b) promulgated under the Act, and to the
Representative, an earnings statement which will comply with the provisions of
Section 11(a) of the Act and Rule 158(a) promulgated under the Act;
(vii) Deliver to each of the Warrantholders, their
respective counsel and the Public Underwriter, if any, without charge, as many
copies of the prospectus or prospectuses (including each preliminary prospectus)
and any amendment or supplement thereto as such persons may reasonably request;
the Company consents to the use of any such prospectus or any amendment or
supplement thereto by the Warrantholders and the Public Underwriter, if any, in
connection with the offering and sale of the Warrant Stock covered by such
prospectus or any amendment or supplement thereto;
(viii) Prior to any public offering of Warrant Stock, use
its best efforts, at or prior to the time the Registration Statement becomes
effective, to qualify the Warrant Stock for offering and sale under the
securities or "blue sky" laws of such jurisdictions as the Warrantholders may
reasonably designate to permit the continuance of sales and dealings therein for
as long as may be necessary to complete the distribution, and make such
applications, file such documents and furnish such information as may be
required for such purpose; provided, however, the Company shall not be required
to qualify as a foreign corporation or to execute a general consent to service
of process in any such jurisdiction; in each jurisdiction where such
qualification shall be effected, use its best efforts to file and make such
statements or reports at such times as are or may be required by the laws of
such jurisdiction to continue such qualification;
(ix) Cooperate with the Warrantholders and the Public
Underwriter, if any, to facilitate the timely preparation and delivery of
certificates representing Warrant Stock to be sold, which certificates shall not
bear any restrictive legends; and enable such Warrant Stock to be in such
denominations and registered in such names as the Public Underwriter, if any,
may request at least two (2) business days prior to any sale of Warrant Stock;
(x) Use its reasonable best efforts to cause the Warrant
Stock covered by the Registration Statement to be registered with or approved by
such other governmental bodies, agencies or authorities as may be necessary to
enable the Warrantholders or the Public Underwriter, if any, to consummate the
disposition of such Warrant Stock;
(xi) Make every reasonable effort to cause all Warrant Stock
covered by such Registration Statement to be (1) listed on each securities
exchange, if any, in which equity securities issued by the Company are then
listed or (2) authorized to be quoted on the NNM or Nasdaq SmallCap
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<PAGE>
Market or any exchange if the Company's Common Stock is then authorized to be
quoted on the NNM or Nasdaq SmallCap Market or any exchange;
(xii) Enter into such agreements (including, without
limitation, if applicable, an underwriting agreement, in form, scope and
substance as is customary in underwritten offerings) and take all such other
actions in connection therewith in order to expedite or facilitate the
disposition of such Warrant Stock and, in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration is an
underwritten registration, (1) make such representations and warranties to the
Warrantholders with respect to the business of the Company and its subsidiaries
and the Public Underwriter, if any, the Registration Statement, the prospectus,
the prospectus supplement (if any) and documents, if any, incorporated or deemed
to be incorporated by reference in the Registration Statement, in each case in
such form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (2) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the Warrantholders), addressed to the Warrantholders with
respect to the matters referred to in the preceding clause in such form, scope
and substance as are customarily rendered to underwriters in underwritten
offerings and such other matters as may be reasonably requested by counsel to
the Warrantholders or the Public Underwriter, if any; (3) obtain "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in or incorporated by reference into the Registration Statement)
addressed to the Warrantholders and each of the Public Underwriters, if any,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in connection with
underwritten offerings; (4) if an underwriting agreement is entered into, the
same shall set forth in full the indemnification and contribution provisions and
procedures of Section 12 hereof (or such other provisions and procedures as
shall be acceptable to the Warrantholders and to the Public Underwriter of such
underwritten offering) with respect to all parties to be indemnified pursuant to
said section; and (5) deliver such documents and certificates as may be
reasonably requested by the Warrantholders and the Public Underwriter, if any,
to evidence the continued validity of the representations and warranties made
pursuant to clause (1) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company; the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
(xiii) Make available for inspection by a representative
of the Warrantholders or any Public Underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney or accountant retained
by the Warrantholders or such Public Underwriter, all financial and other
records, pertinent corporate documents and properties and assets of the Company
and its subsidiaries and cause the officers, directors, agents and employees of
the Company and its subsidiaries to supply all information reasonably requested
by any such representative, Public Underwriter, attorney or accountant in
connection with any registration of Warrant Stock; provided, however, that any
records, information or documents that are designated by the Company in writing
at the time of delivery of such records, information or documents as
confidential shall be kept confidential by such persons unless (1) disclosure of
such records, information or documents is required by court or administrative
order or is necessary to respond to inquiries of governmental or regulatory
bodies, agencies or authorities, (2) disclosure of such records, information or
documents is, in the opinion of counsel to the Warrantholders or to any Public
Underwriter, required by law regulations or legal process, (3) such records,
information or documents are otherwise publicly available or (4) such records,
information or documents become available to such person from a source other
than the Company or its agents, accountants and attorneys and such source is not
bound by a confidentiality agreement;
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(xiv) If the Company, in the exercise of its reasonable
judgment, objects to any change reasonably requested by the Warrantholders or
the Public Underwriter, if any, to any Registration Statement or prospectus or
any amendments or supplements thereto (including documents incorporated or
deemed to be incorporated therein by reference) as provided for in this
Subsection 11(h), the Company shall not be obligated to make any such change and
the Warrantholders may withdraw the Warrant and Warrant Stock from such
registration, in which event the Company shall pay all registration expenses
(including, without limitations, attorneys' fees and expenses) incurred by the
Warrantholders in connection with such Registration Statement or prospectus or
any amendment thereto or supplement thereof; provided, that if the Company
provides the Warrantholders with a written opinion of independent counsel (which
counsel may be the Company's regular outside counsel), upon which such
Warrantholders may rely, that the change so requested is not required in order
that the Registration Statement comply with all applicable securities laws
(including any rules and regulations promulgated thereunder), such
Warrantholders may withdraw the Warrants and the Warrant Stock from such
registration but the Company shall not be obligated to pay any registration
expenses incurred by the Warrantholders; and
(xv) Pay all reasonable costs and expenses incident to the
performance of or compliance with the Company's obligations under this
subsection 11(h) (collectively, "Registration Expenses") whether or not any
Registration Statement is filed or becomes effective, including, without
limitation, the fees and disbursements of the Company's auditors, legal counsel,
special legal counsel, legal counsel responsible for qualifying the Warrants and
the Warrant Stock under blue sky laws and with the NASD, all filing fees
(including, without limitation, the Commission, states, NASD, the Nasdaq Stock
Market or any exchange) and printing expenses, all expenses in connection with
the transfer and delivery of the Warrant Stock, and all expenses in connection
with the qualification of the Warrants and the Warrant Stock under applicable
blue sky laws and with the NASD; provided, however, that the Company shall not
bear the Public Underwriter's discount, commission or expenses with respect to,
or any transfer taxes imposed on, the Warrant Stock or the fees and expenses of
counsel to the Warrantholders; provided, further, however, that the Company
shall not be responsible in any way for any fees or expenses of counsel to the
Warrantholders or any underwriter of public offering by the Company, except, in
each case, as provided in Subsection 11(h)(xiv) above.
SECTION 12. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of the filing of any Registration statement
with respect to the Warrant Stock pursuant to Section 11 hereof, the Company
agrees to indemnify and hold harmless the Warrantholders, the underwriter(s) of
any public offering by the Company, and any Holder of Warrant Stock (for
purposes of this Section 12, "Holder" shall include the officers, directors,
partners, employees, agents and counsel of a Warrantholder or a holder of
Warrant Stock), and each person, if any, who controls a Holder ("controlling
person") within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses
(including, without limitation, reasonable attorneys' fees and expenses) or
liabilities and all actions, suits, proceedings, injuries, arbitrations,
investigations, litigation or governmental or other proceedings (in this Section
12, collectively, "actions") in respect thereof, whatsoever (including, without
limitation, any and all expenses whatsoever reasonably incurred in investigating
preparing or defending against any action, commenced or threatened, or any claim
whatsoever), as such are incurred, to which a Holder or such controlling person
may become subject under the Act, the Exchange Act or any other statute or at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained (i) in any preliminary
prospectus, the Current Registration Statement, any replacement Registration
Statement or any prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Warrants; or (iii) in any
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application or other document or written communication (in this Section 12,
collectively, "application") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to qualify
the Warrants or the Warrant Stock under the securities or blue sky laws
thereof or filed with the Commission, any state securities commission or
agency, the National Association of Securities Dealers, Inc. (the "NASD") or
the NNM, Nasdaq SmallCap Market or any other securities exchange; or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
light of the circumstances in which they were made), unless such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to a Holder by or on behalf of such
Holder expressly for use in any preliminary prospectus, the Registration
Statement or any prospectus, or any amendment thereof or supplement thereto,
or in any application, as the case may be. In addition to its other
obligations under this subsection 12(a), the Company agrees that, as an
interim measure during the pendency of any action arising out of or based
upon any untrue statement or omission, or alleged untrue statement or alleged
omission as described in this subsection 12(a), it shall reimburse the
Holders (and, to the extent applicable, each controlling person) on a monthly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such action notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Company's obligations to reimburse the Holders (and, to the extent
applicable, each controlling person) for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement is
so held to have been improper as to the Company, the Holders (and, to the
extent applicable, each controlling person) shall promptly return it to the
Company, together with interest compounded daily, based on the "reference
rate" announced from time to time by Bank of America NTSA (the "Prime Rate").
Any such interim reimbursement payments which are not made to the applicable
Holder within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. In no case shall
any interest be in excess of that permitted by law.
The indemnity agreement in this subsection 12(a) shall be in
addition to any liability which the Company may have at common law or otherwise.
(b) Each Holder severally agrees to indemnify and hold
harmless the Company (for purposes of this Section 12, "Company" shall
include the officers, directors, partners, employees, agents and counsel of
the Company) and each other person, if any, who controls the Company
("controlling person") within the meaning of the Act, to the same extent as
the foregoing indemnity from the Company to the Holders, but only with
respect to statements or omissions, if any, made in any preliminary
prospectus, the Current Registration Statement, the Registration Statement or
any prospectus or any amendment thereof or supplement thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to such Holder by or on
behalf of such Holder expressly for use in any preliminary prospectus, the
Current Registration Statement, the Registration Statement or any prospectus
or any amendment thereof or supplement thereto or in any application,
provided that such written information or omissions only pertain to
disclosures in any preliminary prospectus, the Current Registration
Statement, the Registration Statement or any prospectus directly relating to
the transactions in connection with the offering contemplated hereby. In
addition to its other obligations under this subsection 12(b), each Holder
severally agrees that, as an interim measure during the pendency of any
action arising out of or based upon any untrue statement or omission, or
alleged untrue statement or alleged omission as described in this subsection
12(b), it shall reimburse the Company (and, to the extent applicable, each
controlling person) on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any action
with respect to such Holder notwithstanding the absence of a judicial
determination as to the propriety and enforceability of such Holder's
obligations to reimburse the Company (and, to the extent applicable,
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each controlling person) for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement is so held
to have been improper as to such Holder, the Company (and, to the extent
applicable, each controlling person) shall promptly return it to such Holder,
together with interest compounded daily, based on the Prime Rate. Any such
interim reimbursement payments which are not made to the company within
thirty (30) days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request. In no case shall any interest be
in excess of that permitted by law. Notwithstanding the provisions of this
subsection 12(b), in connection with a registration that includes the
Warrants or Warrant Stock pursuant to subsection 11(b) hereof, no such Holder
shall be required to indemnify or hold harmless the Company or any
controlling person for any amounts in excess of the net proceeds (before
deducting expenses) applicable to the Warrants or Warrant Stock sold by such
Holder pursuant to the Registration Statement. Notwithstanding the
provisions of this subsection 12(b), in connection with a registration that
includes that Holder's Warrants or Warrant Stock pursuant to subsection
11(b), no such Holder shall be required to indemnify and hold harmless the
Company or any controlling person for any amounts in excess of that portion
of all expenses as to which indemnification is properly claimed under this
Agreement equal to such Holder's relevant proportion of all net proceeds
(before deduction of expenses) applicable to all securities sold pursuant to
the Current Registration Statement or the Registration Statement, as
applicable.
(c) Promptly after receipt by an indemnified party under this
Section 12 of notice of the commencement of any action, such indemnified party
shall notify each party against whom indemnification is to be sought in writing
of the commencement thereof (but the failure to so notify an indemnifying party
shall not relieve it from any liability which it may have under this Section 12
except to the extent that it has been materially prejudiced by such failure).
In case any such action is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties shall be entitled to participate therein, and to
the extent it or they may elect by written notice delivered to the indemnified
party or parties promptly after receiving the aforesaid notice from such
indemnified party or parties, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, an indemnified party shall have the right to employ its own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying party or parties in
connection with the defense of such action at the expense of the indemnifying
party or parties, (ii) the indemnifying party or parties shall not have employed
counsel reasonably satisfactory to such indemnified party to have charge of the
defense of such action within a reasonable time after notice of commencement of
the action or (iii) such indemnified party shall have reasonably concluded that
there may be one or more defenses available to it which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses of one additional counsel (in addition to
appropriate local counsel) shall be borne by the indemnifying parties. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to appropriate local counsel) separate from their
own counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. Anything in this Section 12 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 12, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
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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 this Section 12 provide for
indemnification in such case or (ii) contribution under the Act may be
required on the part of any indemnified party, then each indemnifying party
shall contribute to the amount paid as a result of such losses, claims,
damages, expenses or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on
the other hand, in connection with the statements or omissions that resulted
in such losses, claims, damages, expenses or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations.
Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder, and the parties' relative intent,
knowledge, state of mind and access to information and opportunity to correct
or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to in the first sentence
of this subsection 12(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection 12(d), in a registration that includes a
Holder's Warrants or Warrant Stock pursuant to subsection 11(b) hereof, no
Holder shall be required to contribute any amount in excess of the net
proceeds (before deducting expenses) applicable to the shares of Warrants and
Warrant Stock sold by such Holder pursuant to such registration statement and
prospectus. Notwithstanding the provisions of this subsection 12(d), in a
registration that includes a Holder's Warrant Stock pursuant to subsection
11(b), no such Holder shall be required to contribute any amount in excess of
that portion of all expenses as to which contribution is properly claimed
under this Agreement equal to such Holder's relevant portion of all net
proceeds (before deducting expenses) applicable to all securities sold
pursuant to the Current Registration Statement or the Registration Statement,
as applicable. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act and the cases and promulgations
thereunder) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action against such party in respect to which a claim for contribution may be
made against another party or parties under this subsection 12(d), notify
such party or parties from whom contribution may be sought, but the omission
to so notify such party or parties shall not relieve the party or parties
from whom contribution may be sought from any obligation it or they may have
hereunder or otherwise than under this subsection 12(d) except to the extent
it has been materially prejudiced by such failure. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise. Notwithstanding
anything to the contrary contained in this Agreement, no Holder shall be
required to contribute any amount in excess of the lesser of (i) that
proportion of the total of such losses, claims, damages or liabilities
indemnified or contributed against equal to the proportion of the total
securities sold pursuant to the Registration Statement or Current
Registration Statement, as the case may be, which is being sold by it, or
(ii) the proceeds received by it in any such offering. The Holders'
obligations in this Section 12(d) to contribute are several in proportion to
the number of Warrants or Warrant Shares registered on their behalf and not
joint.
(e) The indemnity and contribution agreements contained in this
Section 12 shall remain operative and in full force and effect, regardless of
(i) any investigation made by or on behalf of any Holder or any person
controlling any Holder, the Company, its directors or officers or any
underwriter or any person controlling such underwriter, (ii) acceptance of any
Warrants or Warrant Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Holder or any person
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controlling any Holder, or to the Company, its directors or officers, or any
person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
12.
(f) In any proceeding relating to the Registration Statement,
the Current Registration Statement or any prospectus or any amendment or
supplement thereto, each party against whom contribution may be sought under
this Section 12 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process issuing from
such court may be served upon him or it by any other contributing party and
consents to the service of such process and agrees that any other contributing
party may join him or it as an additional defendant in any such proceeding in
which such other contributing party is a party.
SECTION 13. NOTICES. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed, delivered by hand or transmitted by
any standard form of telecommunication. Notices to the Warrantholders or a
holder of Warrant Stock shall be directed to Shamus Group, Inc., 33 Whitehall
Street, New York, New York 10004, Attention: Jim Sheehan, with a copy to Jeffer,
Mangels, Butler & Marmaro LLP, 2121 Avenue of the Stars, 10th Floor, Los
Angeles, California 90067, Attention: Steven J. Insel, Esq. Notices to the
Company shall be directed to the Company at 2540 Red Hill Avenue, Suite 100,
California 92705, Attention: President, with a copy to Latham & Watkins, 650
Town Center Drive, 20th Floor, Costa Mesa, California 92626, Attention: William
J. Cernius, Esq.
SECTION 14. PARTIES. This Agreement shall inure solely to the benefit
of and shall be binding upon, the Representative, the Company and the
Warrantholders and the holders of Warrant Stock and the controlling persons,
officers, directors and others referred to in Section 12 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.
SECTION 15. MERGER OR CONSOLIDATION OF THE COMPANY. The Company shall
not merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of Section 8.3 hereof are complied with.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in the Underwriting Agreement, any schedule, exhibit, certificate or
other instrument delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated by this Agreement, shall be deemed
to be representations and warranties hereunder. Notwithstanding any
investigations made by or on behalf of the parties to this Agreement, all
representations, warranties and agreements made by the parties to this Agreement
or pursuant hereto shall survive the termination of this Agreement and the
issuance, sale and delivery of the Warrant and the Warrant Stock.
SECTION 17. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to conflict of laws principles thereof.
SECTION 18. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
SECTION 19. ENTIRE AGREEMENT, AMENDMENTS. This Agreement and the
Underwriting Agreement constitute the entire agreement of the parties hereto
concerning the subject matter hereof and
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supersede all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may
not be amended, modified or altered except in a writing signed by the
Representative and the Company.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
SCOOP, INC., a Delaware corporation
By:
-----------------------------------
Mark Davidson
President
SHAMUS GROUP, INC.
By:
-----------------------------------
Name:
Title:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN
COMPLIANCE WITH SECTION 1.3 AND 11(a) OF THE REPRESENTATIVE WARRANT
AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
WARRANT CERTIFICATE NO. 1
WARRANT TO PURCHASE 130,000
SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.
PACIFIC TIME, ON _____________ ___, 2002
SCOOP, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
This certifies that, for value received, SHAMUS GROUP, INC., the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from SCOOP, INC. (the "Company"), at any time during the period
commencing at 6:30 a.m., Pacific time, on _______________, 1998
[ONE YEAR FOLLOWING EFFECTIVE DATE], and before 5:00 p.m., Pacific time,
on_________________ ___, 2002 [FIVE YEARS FOLLOWING EFFECTIVE DATE], at the
purchase price per share of Common Stock of $_______ (the "Warrant Price")
[120% OF IPO PRICE], 130,000 shares of Common Stock of the Company (the
"Warrant Stock "). The number of shares of Common Stock of the Company
purchasable upon exercise of each Warrant evidenced hereby shall be subject
to adjustment from time to time as set forth in the Representative Warrant
Agreement, dated as of ___________________, 1997, by and between the Company
and the Representative (the "Representative Warrant Agreement").
The Warrants evidenced hereby represent the right to purchase an
aggregate of up to 130,000 shares of Warrant Stock (subject to adjustment as
provided in the Representative Warrant Agreement) and are issued under and in
accordance with the Representative Warrant Agreement, and are subject to the
terms and provisions contained in the Representative Warrant Agreement, to
all of which the Warrantholder by acceptance hereof consents.
The Warrants evidenced hereby may be exercised in whole or in part
by presentation of this Warrant Certificate with the Purchase Form attached
hereto duly executed (with a signature guarantee as provided hereon) and
simultaneous payment of the Warrant Price at the principal office of the
Company. Payment of such price shall be made at the option of the
Warrantholder in any manner allowed in the Representative Warrant Agreement.
Upon any partial exercise of the Warrants evidenced hereby, there
shall be signed and issued to the Warrantholder a new Warrant Certificate in
respect of the shares of Warrant Stock as to which the Warrants evidenced
hereby shall not have been exercised. These Warrants may be exchanged at the
office of the Company by surrender of this Warrant Certificate properly
endorsed for one or more new Warrants of the same aggregate number of shares
of Warrant Stock as evidenced by the Warrant or Warrants exchanged. No
fractional securities shall be issued upon the exercise of rights to purchase
hereunder, but the Company shall pay the cash value of any fraction upon the
exercise of one or more Warrants. These Warrants are transferable at the
office of the Company in the manner and subject to the limitations set forth
in the Warrant Agreement.
<PAGE>
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a shareholder of the Company.
SCOOP, INC., a Delaware corporation
By:
----------------------------------
Mark Davidson
President
Dated: , 1997
ATTEST: [Seal]
- ---------------------------------
Dan Pelekoudas
Secretary
2
<PAGE>
SCOOP, INC.
PURCHASE FORM
SCOOP, INC. (the "Company")
2540 Red Hill Avenue, Suite 100
Santa Ana, California 92705
Attention: President
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _____ shares of common stock of the Company (the "Warrant Stock")
provided for therein, and requests that certificates for the Warrant Stock be
issued in the name of:
-----------------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
and, if said number of shares of Warrant Stock shall not be all the Warrant
Stock purchasable hereunder, that a new Warrant Certificate for the balance of
the Warrant Stock purchasable under the within Warrant Certificate be registered
in the name of the undersigned Warrantholder or his Assignee as below indicated
and delivered to the address stated below.
Dated:
Name of Warrantholder
or Assignee:
------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------
------------------------------------------------------------
Signature:
------------------------------------------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:
---------------------------------------------------------
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange of the National Association of Securities Dealers, Inc.)
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers the right to purchase _____________________shares of Warrant Stock
represented by the within Warrant Certificate unto, and requests that a
certificate for such Warrant be issued in the name of:
-----------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-----------------------------------------------------
-----------------------------------------------------
hereby irrevocably constituting and appointing _______________________________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises and, if said number of warrant Stock shall not
bear all of the Warrant Stock purchasable under the within Warrant Certificate,
that a new Warrant Certificate for the balance of the Warrant Stock purchasable
under the within Warrant Certificate be registered in the name of the
undersigned Warrantholder and delivered to such Warrantholder's address as then
set forth on the Company's books.
Dated:
--------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
Signature Guaranteed:
----------------------------------------------------------
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
WARRANTS AND SHARES MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO SUCH SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
SCOOP, INC.
(formerly Karlsson-DelRey Communications, Inc.)
WARRANT
DATED: June __, 1996
----------------
Holder:
Number of Warrants: 66,667
----------------
THIS CERTIFIES THAT Holder is the owner of the number of Warrants (the
"Warrants") set forth above of SCOOP, INC., a California corporation formerly
known as Karlsson-DelRey Communications, Inc. (hereinafter called the
"Company"). Each Warrant entitles the registered holder to purchase for $2.55
in cash one share of Common Stock of the Company ("Common Stock"). This Warrant
is issued in connection with an offering by the Company of Warrants to purchase
200,000 shares of the Company's Common Stock to an aggregate of three
consultants pursuant to the provisions of those certain Corporate Development
Agreements, of even date herewith, between the Company and each of the Holder
and such two other consultants (the "Offering").
For purposes of this Warrant, the term "Holder Affiliate" means: (i)
Holder or any entity controlled by or under common control with Holder; or (ii)
a grantor trust established by or on behalf of Holder. For purposes hereof, a
person shall be deemed to have "control" of an entity if such person is the
owner of a majority voting interest in such entity.
For purposes of this Warrant, the term "Majority of the Warrant
Shares" means the record holders of more than 50% of the Warrant Shares
originally underlying this Warrant and all other Warrants issued in connection
with the Offering (assuming the exercise in full of all such Warrants).
<PAGE>
For purposes of this Warrant, the term "Public Offering" means a
firmly underwritten offering of Common Stock by the Company that is registered
on Form S-1 or Form SB-2 under the Act.
For purposes of this Warrant, the term "Warrant Shares" means the
shares of Common Stock purchasable hereunder.
1. RIGHT TO EXERCISE WARRANTS. The rights represented by this
Warrant may be exercised at any time commencing as of the date hereof (the
"Initial Exercise Date"), and terminating at 5:00 p.m., Los Angeles time, sixty
(60) months after the Initial Exercise Date.
2. EXERCISE OF WARRANTS. Subject to Section 1 and the other
provisions of this Warrant, the rights represented by this Warrant may be
exercised by: (i) surrender of this Warrant (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 Holder at the address of Holder appearing on the books of the
Company); and (ii) payment by means of a personal check to the Company of the
exercise price for the number of shares specified in the above-mentioned
purchase form together with applicable stock transfer taxes, if any. This
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date the Warrant 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 Common Stock shall
be issuable upon such exercise shall become the holder or holders of record of
such Common Stock at that time and date. The certificates for the Common Stock
so purchased shall be delivered to Holder within a reasonable time, not
exceeding ten (10) business days, after the rights represented by this Warrant
shall have been so exercised, and shall bear a legend substantially similar to
the following restrictive legend:
"This security has not been registered under the Securities Act
of 1933, as amended, and may not be sold or offered for sale
unless registered under said Act and any applicable state's
securities laws or unless the Company has received an opinion of
counsel satisfactory to the Company that such registration is not
required."
3. ASSIGNMENT. This Warrant may be transferred, sold, assigned or
hypothecated, only pursuant to a valid and effective registration statement or
if the Company has received from counsel to the Company (or from counsel to the
Holder that is reasonably acceptable to the Company) a written opinion, in a
form reasonably acceptable to the Company, to the effect that registration of
the Warrant or the Common Stock underlying the Warrant is not necessary in
connection with such transfer, sale, assignment or hypothecation. Any such
assignment shall be effected by Holder by: (i) executing the form of assignment
at the end hereof;
<PAGE>
(ii) surrendering the Warrant for cancellation at the office or agency of the
Company referred to in Section 1 hereof, accompanied by the opinion of counsel
to the Company referred to above; and (iii) delivery to the Company of a
statement by the transferee Holder (in a form acceptable to the Company and its
counsel) that such Warrant is being acquired by such Holder for investment and
not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by Holder (including Holder) new Warrants
representing in the aggregate rights to purchase the same number of Warrant
Shares as are purchasable under the Warrant surrendered. The term "Holder"
shall be deemed to include any person to whom this Warrant is transferred in
accordance with the terms hereof.
4. REGISTRATION RIGHTS. The Holder will have the following
registration rights with respect to the Warrant Shares:
a. DEMAND REGISTRATION. At any time commencing on the day
following the day on which the Company completes an initial Public Offering in
which the Holder is not entitled to participate as a selling shareholder by the
underwriter thereof and expiring two (2) years thereafter, record holders of at
least a Majority of the Warrant Shares shall have the right (which right is in
addition to the registration rights under Section 4b. hereof), exercisable by
written notice to the Company, to have the Company prepare, file and use its
best efforts to have declared effective by the Securities and Exchange
Commission (the "Commission"), on one occasion, a registration statement and
such other documents, including a prospectus, as may be necessary in the opinion
of both counsel for the Company and counsel for such holders, if any, in order
to comply with the provisions of the Act and any applicable blue sky laws, so as
to permit the public sale by the holders of the Warrant Shares owned and held of
record by such holders at the time of exercise of such registration rights for a
period of twelve (12) consecutive months. The Company covenants and agrees to
give written notice of any registration request under this Section 4a. by any
holders of a Majority of the Warrant Shares to all other registered holders of
Warrant Shares within ten (10) days from the date of the receipt of any such
registration request.
b. PIGGY-BACK REGISTRATION. If at any time the Company
proposes to register any of its securities under the Act (other than in
connection with a merger, acquisition, exchange offer, redemption or pursuant to
Form S-8 or a successor form) it will give written notice (the "Filing Notice")
by certified mail, return receipt requested, at least twenty (20) days prior to
the filing of each such registration statement to each holder of any Warrants or
Warrant Shares of its intention to do so. Upon the written request of any
record holder of any outstanding Warrants or Warrant Shares given within ten
(10) days after receipt of the Filing Notice to include any Warrant Shares owned
by such holder in such proposed registration statement, the Company shall afford
such holder the opportunity to have such Warrant Shares registered under such
registration. The "piggy-back" registration rights described in this Section
4b. shall terminate at such time as the Warrant
<PAGE>
Shares are saleable in one or more transactions pursuant to Rule 144 of the
Securities Act. Any sales of Warrant Shares pursuant to such registration
statement shall be effected through the underwriter of such registered offering,
if any, and the holder of such Warrant Shares shall compensate the underwriter
in accordance with such underwriter's customary compensation practices.
Notwithstanding anything to the contrary contained in the
provisions of this Section 4b., the Company shall have the right at any time
after it shall have given written notice pursuant to this Section 4b.
(irrespective of whether a written request for inclusion of any such securities
shall have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the effective
date thereof.
c. LIMITATION ON REGISTRATION RIGHTS.
(1) Notwithstanding anything to the contrary contained in
this Agreement: (A) the Company shall not be obligated to effect a registration
pursuant to Section 4 of this Agreement during the period starting with the date
ninety (90) days prior to the Company's estimated date of filing of, and ending
on a date ninety (90) days following the effective date of, a registration
statement pertaining to a Public Offering, provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective and that the Company's estimate of the date of
filing such registration statement is made in good faith; and (B) if the Company
shall furnish Holder a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the Company
it would be seriously detrimental to the Company or its shareholders for a
registration statement to be filed in the near future, then the Company's
obligations to use its best efforts to file a registration statement on demand
by the Holder shall be deferred for a period not to exceed ninety (90) days;
provided, however, that the Company shall not obtain such a deferral more than
once in any twelve (12) month period.
d. INDEMNIFICATION.
(1) The Company shall indemnify and hold harmless the
Holder from and against any and all losses, claims, damages and liabilities
caused by any untrue statement of a material fact contained in any registration
statement filed by the Company under the Act by reason of this Section 4, any
post-effective amendment to such registration statement, or any prospectus
included therein, or caused by any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission based upon information furnished
or required to be furnished in writing to the Company by the Holder (or the
authorized representatives or agents of the Holder) expressly for use therein,
which indemnification shall include each person, if any, who controls the Holder
within the meaning of the
<PAGE>
Act and each officer, director, employee and agent of the Holder; provided,
however, that the indemnification in this Section 5d. with respect to any
prospectus shall not inure to the benefit of the Holder (or to the benefit of
any person controlling the Holder) on account of any such loss, claim, damage or
liability arising from the sale of Warrants or Warrant Shares by the Holder, if
a copy of a subsequent prospectus correcting the untrue statement or omission in
such earlier prospectus was provided to the Holder by the Company prior to the
subject sale and the subsequent prospectus was not delivered or sent by the
Holder to the purchaser of such securities prior to such sale; and provided
further, that the Company shall not be obligated to so indemnify the Holder or
any other person referred to above unless the Holder or other person, as the
case may be, shall at the same time indemnify the Company, its directors, each
officer signing the Registration Statement and each person, if any, who controls
the Company within the meaning of the Act, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement or any prospectus required to be
filed or furnished by reason of this Agreement or caused by any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, insofar as such losses, claims, damages
or liabilities are caused by any untrue statement or omission based upon
information furnished in writing to the Company by the Holder expressly for use
therein.
(2) If for any reason the indemnification provided for in
the preceding subparagraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.
e. EXPENSES OF REGISTRATION; PROSPECTUS DELIVERY.
(1) All expenses, filing fees and other costs incurred by
the Company in connection with any registration of securities pursuant to this
Section 4 (exclusive of underwriting discounts and selling commissions
applicable to any sale of registered securities) shall be borne by the Company.
(2) In the case of each registration effected by the
Company pursuant to this Section 4, the Company will: (i) furnish to the holders
of the Warrant Shares such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act, and such
other documents as such holders may reasonably request in order to facilitate
the disposition of the Warrant Shares owned by them, and (ii) notify each
<PAGE>
holder of Warrant Shares covered by such registration statement at any time when
a prospectus relating thereto is required to be delivered under the Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes 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 in the light of the
circumstances then existing.
f. SALES ONLY THROUGH UNDERWRITER. Notwithstanding anything to
the contrary contained in this Warrant, Holder acknowledges and agrees that,
with the exception of private sales or transfers which are not effected through
a broker-dealer, neither Holder nor any Holder Affiliate or any transferees or
assignees of Holder or any Holder Affiliate will sell, pledge, assign or
otherwise transfer or hypothecate any of the Warrant Shares through any person
or other entity other than such entity which is or shall be the Company's
underwriter in a Public Offering, in which event such underwriter is to be
compensated by the Holder, Holder Affiliate or such transferee or assignee in
accordance with the underwriter's customary compensation practices.
5. COMMON STOCK. The Company covenants and agrees that all shares
of Common Stock which may be issued upon exercise of this Warrant 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 Warrant may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock for issuance upon exercise of this
Warrant and all other Warrants.
6. NO STOCKHOLDER RIGHTS. This Warrant shall not entitle Holder to
any voting rights or other rights as a stockholder of the Company.
7. ADJUSTMENT OF RIGHTS. In the event that the outstanding shares
of Common Stock of the Company are at any time increased or decreased or changed
into or exchanged for a different number or kind of share or other security of
the Company or of another corporation through reorganization, merger,
consolidation, liquidation, recapitalization, stock split, combination of shares
or stock dividends payable with respect to such Common Stock, appropriate
adjustments in the number, kind and price of such securities then subject to
this Warrant shall be made effective as of the date of such occurrence so that
the position of Holder upon exercise will be the same as it would have been had
he owned immediately prior to the occurrence of such event the number of shares
of Common Stock subject to this Warrant. Such adjustment shall be made
successively whenever any event listed above shall occur and the Company will
notify Holder of the Warrant of each such adjustment. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this Warrant adjusted accordingly.
<PAGE>
8. NOTICES. Unless applicable law requires a different method of
giving notice, any and all notices, demands or other communications required or
desired to be given hereunder by any party shall be in writing. Assuming that
the contents of a notice meet the requirements of the specific Section of this
Warrant which mandates the giving of that notice, a notice shall be validly
given or made to another party if served either personally or if mailed, postage
prepaid, or if transmitted by telegraph, telecopy or other electronic written
transmission device or if sent by overnight courier service, and if addressed to
the applicable party as set forth below. If such notice, demand or other
communication is served personally, service shall be conclusively deemed made at
the time of such personal service. If such notice, demand or other
communication is given by mail, service shall be conclusively deemed given upon
the earlier of receipt or seventy-two (72) hours after the deposit thereof in
the United States mail, postage pre-paid. If such notice, demand or other
communication is given by overnight courier, or electronic transmission, service
shall be conclusively made at the time of confirmation of delivery. The
addresses for Holder and the Company are as follows:
If to Holder:
If to the Company: Scoop, Inc.
1041 West 18th Street
Suite 108
Costa Mesa, CA 92627
Attn: Chief Executive Officer
Any party hereto may change his or its address for the purpose of receiving
notices, demands and other communications as herein provided by a written notice
given in the aforesaid manner to the other party hereto.
9. GOVERNING LAW. This Warrant shall be governed by and construed
in accordance with the internal laws of California.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer, and to be dated as of the date set forth above.
SCOOP, INC. (formerly Karlsson-
DelRey Communications, Inc.)
By:
--------------------------------
Karl Karlsson, President and
Chief Executive Officer
ACKNOWLEDGED, AGREED TO AND ACCEPTED:
- ------------------------------
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
to exercise _________ Warrants for, and to the purchase thereunder, __________
shares of Common Stock and herewith makes payment of $__________ therefor, and
requests that the certificates for shares of Common Stock be issued in the
name(s) of, and delivered to, _______________ whose address(es) is (are)
_________________________.
Dated: ____________, ____
------------------------------
Name of Holder
------------------------------
Number and Street
------------------------------
City, State and Zip Code
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto ___________________ the right to purchase shares of Common Stock
represented by the attached Warrant in respect of _________ Warrants, and
appoints _________________________ attorney to transfer such rights on the books
of Scoop, Inc., with full power of substitution in the premises.
Dated: ____________, ____
------------------------------
Name of Holder
------------------------------
Number and Street
------------------------------
City, State and Zip Code
In the presence of:
- ------------------------------
<PAGE>
Exh. 4.6
Shamus Group, Inc.
33 Whitehall Street, 30th Floor
New York, New York 10002
Scoop, Inc.
2540 Red Hill Avenue, Suite 100
Santa Ana, California 92705
Gentlemen:
The undersigned understands and agrees as follows:
1. Scoop, Inc., a Delaware corporation (the "Company"), has filed a
registration statement on Form SB-2 (the "Registration Statement") under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission,
which Registration Statement contemplates the public offering by the Company of
1,300,000 shares (excluding 195,000 shares of Common Stock which may be sold by
the Company upon exercise of the Underwriters' over-allotment option) of Common
Stock, $0.01 par value, of the Company (the "Common Stock").
2. After consultation, the Company, the undersigned and Shamus
Group, Inc., acting as Representative (the "Representative") of the several
Underwriters (the "Underwriters") for the proposed public offering, have agreed
that any significant sales of Common Stock by the officers, directors and/or
stockholders of the Company within the twelve (12) month period after the date
of the effectiveness of the Registration Statement could have an adverse effect
on the market price for the Common Stock.
3. It is in the best interests of the Company and of all
stockholders of the Company to have a successful public offering and stable and
orderly public market thereafter.
Therefore, in order to induce the Company and the Underwriters to
proceed with the proposed public offering, the undersigned will not, directly or
indirectly, offer, offer to sell, sell, grant an option to purchase or sell,
transfer, assign, pledge, hypothecate or otherwise encumber, or enter into any
agreement to do any of the foregoing with respect to, any shares of Common Stock
or any securities convertible into or exchangeable or exercisable for Common
Stock, prior to the expiration of twelve (12) months from the date of
effectiveness of the Registration Statement, without the prior written consent
of the Representative, except for shares acquired in the public offering or in
the open market after the effective date of the Registration Statement. The
undersigned further agrees that, for a period of one year following the
effective date of the Registration Statement, the Representative shall have the
right to require that any sales of Common Stock made by the undersigned be made
through the Representative or such other broker-dealer(s) as the Representative
may allow.
Dated: , 1997
---------------------
Signature:
---------------------------------------------
Print Name:
---------------------------------------------
Additional Signature:
----------------------------------
Print Name:
--------------------------------------------
Social Security or
Taxpayer ID Number:
------------------------------------
<PAGE>
Exh 5.1
[LETTERHEAD]
______________
March 21, 1997
Scoop, Inc.
2540 Red Hill Avenue
Suite 100
Santa Ana, California 92705
Re: Registration Statement No. 333-15129
2,885,152 Shares of Common Stock, par value $.001 per share
____________________________________________________________
Ladies and Gentlemen:
In connection with the registration of (i) 1,300,000 shares of common
stock of Scoop, Inc., a Delaware corporation (the "Company"), par value $.001
per share, to be offered for sale by the Company (the "New Shares"), (ii)
1,255,152 shares of common stock of the Company, par value $.001 per share, held
by certain stockholders of the Company (the "Selling Stockholders' Shares"),
(iii) 200,000 shares of common stock of the Company, par value $.001 per share,
to be issued upon exercise of warrants held by certain consultants of the
Company (the "Consultants' Shares"), and (iv) 130,000 shares of common stock of
the Company, par value $.001 per share, to be issued upon exercise of warrants
to be granted to the Shamus Group, Inc. (the "Representative's Shares"), under
the Securities Act of 1933, as amended (the "Act"), on Form SB-2 filed with the
Securities and Exchange Commission (the "Commission") on October 30, 1996 (File
No. 333-15129) (the "Registration Statement") as amended by Amendment No. 1
filed with the Commission on February 27, 1997, and Amendment No. 2 to be filed
with the Commission prior to being declared effective under the Act, you have
requested our opinion with respect to the matters set forth below.
In our capacity as your counsel in connection with such registration,
we are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization, issuance and sale of the New
Shares, the Selling Stockholders' Shares, the Consultants' Shares, and the
Representative's Shares, including but not limited to
<PAGE>
Scoop, Inc.
March 21, 1997
Page 2
the reincorporation of the Company in Delaware, and, for the purposes of this
opinion, have assumed such proceedings will be timely completed in the manner
presently proposed. In addition, we have made such legal and factual
examinations and inquiries, including an examination of originals or copies
certified or otherwise identified to our satisfaction of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of California and the General Corporation Law
of the State of Delaware, and we express no opinion with respect to the
applicability thereto, or the effect thereon, of any other jurisdiction or as to
any matters of municipal law or the laws of any other local agencies within any
state or, in the case of Delaware, any other laws.
Subject to the foregoing, it is our opinion that: (i) the New Shares
have been duly authorized, and, upon issuance, delivery and payment therefor in
the manner contemplated by the Registration Statement, will be validly issued,
fully paid and nonassessable; (ii) the Selling Stockholders' Shares are duly
authorized, validly issued, fully paid and nonassessable; (iii) the Consultants'
Shares have been duly authorized, and, upon issuance, delivery and payment
therefor in the manner contemplated by the warrant agreements between the
Company and each of the consultants; and (iv) the Representative's Shares have
been duly authorized, and, upon issuance, delivery and payment therefor in the
manner contemplated by the warrant agreement between the Company and Shamus
Group, Inc., will be validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE>
THE 1996 STOCK INCENTIVE PLAN
OF
SCOOP, INC.
Scoop, Inc., a California corporation, has adopted The 1996 Stock
Incentive Plan of Scoop, Inc. (the "Plan"), effective April 23, 1996, for the
benefit of its eligible employees, consultants and directors. The Plan consists
of two plans, one for the benefit of key Employees (as such term is defined
below) and consultants and one for the benefit of Independent Directors (as such
term is defined below).
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, key Employees
and consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock and/or
rights which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, key Employees and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I
DEFINITIONS
1.1 GENERAL. Wherever the following terms are used in this Plan they
shall have the meanings specified below, unless the context clearly indicates
otherwise.
1.2 AWARD LIMIT. "Award Limit" shall mean 300,000 shares of Common
Stock.
1.3 BOARD. "Board" shall mean the Board of Directors of the Company.
1.4 CHANGE IN CONTROL. "Change in Control" shall mean a change in
ownership or control of the Company effected through either of the following
transactions:
(a) any person or related group of persons (other than the Company or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's shareholders which
the Board does not recommend such shareholders to accept; or
(b) there is a change in the composition of the Board over a period
of thirty-six (36) consecutive months (or less) such that a majority of the
Board members (rounded up to the nearest whole number) ceases, by reason of
one or more proxy contests for the election of Board members, to be
comprised of individuals who either (i) have been Board members
continuously since the beginning of such period or (ii) have been elected
or nominated for election as Board
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members during such period by at least a majority of the Board members
described in clause (i) who were still in office at the time such
election or nomination was approved by the Board.
1.5 CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.6 COMMITTEE. "Committee" shall mean the Compensation Committee of
the Board, or another committee of the Board, appointed as provided in
Section 9.1.
1.7 COMMON STOCK. "Common Stock" shall mean the common stock of the
Company, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any preferred stock and any warrants,
options or other rights to purchase Common Stock. Debt securities of the
Company convertible into Common Stock shall be deemed equity securities of the
Company.
1.8 COMPANY. "Company" shall mean Scoop, Inc., a California
corporation.
1.9 CORPORATE TRANSACTION. "Corporate Transaction" shall mean any of
the following shareholder-approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State in which the Company is incorporated, form a holding
company or effect a similar reorganization as to form whereupon this Plan
and all Options are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions
to clause (a), above; or
(c) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred or issued to a person or persons different from those who held
such securities immediately prior to such merger.
1.10 DEFERRED STOCK. "Deferred Stock" shall mean Common Stock awarded
under Article VII of this Plan.
1.11 DIRECTOR. "Director" shall mean a member of the Board.
1.12 DIVIDEND EQUIVALENT. "Dividend Equivalent" shall mean a right to
receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VII of this Plan.
1.13 EMPLOYEE. "Employee" shall mean any officer or other employee
(as defined in accordance with Section 3401(c) of the Code) of the Company, or
of any corporation which is a Subsidiary.
1.14 EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
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1.15 FAIR MARKET VALUE. "Fair Market Value" of a share of Common
Stock as of a given date shall be (i) the closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares were
not traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred, or (ii) if Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock on
the trading day previous to such date as reported by NASDAQ or such successor
quotation system; or (iii) if Common Stock is not publicly traded on an exchange
and not quoted on NASDAQ or a successor quotation system, the Fair Market Value
of a share of Common Stock as established by the Committee (or the Board, in the
case of Options granted to Independent Directors) acting in good faith and in
accordance with 10 California Code of Regulations ("CCR") 260.140.50.
1.16 GRANTEE. "Grantee" shall mean an Employee or consultant granted
a Performance Award, Dividend Equivalent, Stock Payment or Stock Appreciation
Right, or an award of Deferred Stock, under this Plan.
1.17 INCENTIVE STOCK OPTION. "Incentive Stock Option" shall mean an
option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Committee.
1.18 INDEPENDENT DIRECTOR. "Independent Director" shall mean a member
of the Board who is not an Employee of the Company.
1.19 NON-QUALIFIED STOCK OPTION. "Non-Qualified Stock Option" shall
mean an Option which is not designated as an Incentive Stock Option by the
Committee.
1.20 OPTION. "Option" shall mean a stock option granted under Article
III of this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
PROVIDED, HOWEVER, that Options granted to Independent Directors and consultants
shall be Non-Qualified Stock Options.
1.21 OPTIONEE. "Optionee" shall mean an Employee, consultant or
Independent Director granted an Option under this Plan.
1.22 PERFORMANCE AWARD. "Performance Award" shall mean a cash bonus,
stock bonus or other performance or incentive award that is paid in cash, Common
Stock or a combination of both, awarded under Article VII of this Plan.
1.23 PLAN. "Plan" shall mean The 1996 Stock Incentive Plan of Scoop,
Inc.
1.24 QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
1.25 RESTRICTED STOCK. "Restricted Stock" shall mean Common Stock
awarded under Article VI of this Plan.
1.26 RESTRICTED SHAREHOLDER. "Restricted Shareholder" shall mean an
Employee or consultant granted an award of Restricted Stock under Article VI of
this Plan.
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1.27 RULE 16(b)-3. "Rule 16(b)-3" shall mean that certain Rule 16(b)-
3 under the Exchange Act, as such Rule may be amended from time to time.
1.28 STOCK APPRECIATION RIGHT. "Stock Appreciation Right" shall mean
a stock appreciation right granted under Article VIII of this Plan.
1.29 STOCK PAYMENT. "Stock Payment" shall mean (i) a payment in the
form of shares of Common Stock, or (ii) an option or other right to purchase
shares of Common Stock, as part of a deferred compensation arrangement, made in
lieu of all or any portion of the compensation, including without limitation,
salary, bonuses and commissions, that would otherwise become payable to a key
Employee or consultant in cash, awarded under Article VII of this Plan.
1.30 SUBSIDIARY. "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
1.31 TERMINATION OF CONSULTANCY. "Termination of Consultancy"
shall mean the time when the engagement of an Optionee, Grantee or Restricted
Shareholder as a consultant to the Company or a Subsidiary is terminated for
any reason, with or without cause, including, but not by way of limitation,
by resignation, discharge, death or retirement; but excluding terminations
where there is a simultaneous commencement of employment with the Company or
any Subsidiary. The Committee, in its absolute discretion, shall determine
the effect of all matters and questions relating to Termination of
Consultancy, including, but not by way of limitation, the question of whether
a Termination of Consultancy resulted from a discharge for good cause, and
all questions of whether particular leaves of absence constitute Terminations
of Consultancy. Notwithstanding any other provision of this Plan, the Company
or any Subsidiary has an absolute and unrestricted right to terminate a
consultant's service at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.
1.32 TERMINATION OF DIRECTORSHIP. "Termination of Directorship" shall
mean the time when an Optionee who is an Independent Director ceases to be a
Director for any reason, including, but not by way of limitation, a termination
by resignation, failure to be elected, death or retirement. The Board, in its
sole and absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Directorship with respect to Independent
Directors.
1.33 TERMINATION OF EMPLOYMENT. "Termination of Employment" shall
mean the time when the employee-employer relationship between an Optionee,
Grantee or Restricted Shareholder and the Company or any Subsidiary is
terminated for any reason, with or without cause, including, but not by way of
limitation, a termination by resignation, discharge, death, disability or
retirement; but excluding (i) terminations where there is a simultaneous
reemployment or continuing employment of an Optionee, Grantee or Restricted
Shareholder by the Company or any Subsidiary, (ii) at the discretion of the
Committee, terminations which result in a temporary severance of the employee-
employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company or a Subsidiary with the former employee.
The Committee, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the question of whether a Termination of Employment
resulted from a discharge for good cause, and all questions of whether
particular leaves of absence constitute Terminations of Employment; PROVIDED,
HOWEVER, that, with respect to Incentive Stock Options, a leave of absence,
change in status from an employee to an
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independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status 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. Notwithstanding any
other provision of this Plan, the Company or any Subsidiary has an absolute
and unrestricted right to terminate an Employee's employment at any time for
any reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 SHARES SUBJECT TO PLAN.
(a) The shares of stock subject to Options, awards of Restricted
Stock, Performance Awards, Dividend Equivalents, awards of Deferred Stock, Stock
Payments or Stock Appreciation Rights shall be Common Stock. The aggregate
number of such shares which may be issued upon exercise of such options or
rights or upon any such awards under the Plan shall not exceed One Million Five
Hundred Thousand (1,500,000); provided, however, that at no time shall the total
number of shares of Common Stock issuable upon exercise of all outstanding
Options, rights or awards under the Plan and the total number of shares of
Common stock called for under any other stock bonus or similar plan of the
Company exceed 30% of the then outstanding shares of Common Stock (as calculated
in accordance with the conditions and exclusions of 10 CCR 260.140.45) unless a
higher percentage is approved by at least two-thirds of the outstanding shares
of Common Stock entitled to vote. The shares of Common Stock issuable upon
exercise of such options or rights or upon any such awards may be either
previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Options or
Stock Appreciation Rights granted under the Plan to any individual in any
calendar year shall not exceed the Award Limit. To the extent required by
Section 162(m) of the Code, shares subject to Options which are canceled
continue to be counted against the Award Limit and if, after grant of an Option,
the price of shares subject to such Option is reduced, the transaction is
treated as a cancellation of the Option and a grant of a new Option and both the
Option deemed to be canceled and the Option deemed to be granted are counted
against the Award Limit. Furthermore, to the extent required by Section 162(m)
of the Code, if, after grant of a Stock Appreciation Right, the base amount on
which stock appreciation is calculated is reduced to reflect a reduction in the
Fair Market Value of the Company's Common Stock, the transaction is treated as a
cancellation of the Stock Appreciation Right and a grant of a new Stock
Appreciation Right and both the Stock Appreciation Right deemed to be canceled
and the Stock Appreciation Right deemed to be granted are counted against the
Award Limit.
2.2 ADD-BACK OF OPTIONS AND OTHER RIGHTS. If any Option, or other
right to acquire shares of Common Stock under any other award under this Plan,
expires or is canceled without having been fully exercised, or is exercised in
whole or in part for cash as permitted by this Plan, the number of shares
subject to such Option or other right but as to which such Option or other right
was not exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Options or other awards which are
adjusted pursuant to Section 10.3 and become exercisable with respect to shares
of stock of another corporation shall be considered cancelled and may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Shares of Common Stock which are delivered by the Optionee or Grantee or
withheld by the Company upon the exercise of any Option or other award
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under this Plan, in payment of the exercise price thereof, may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. If any share of Restricted Stock is forfeited by the Grantee or
repurchased by the Company pursuant to Section 6.6 hereof, such share may
again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares
of Common Stock may again be optioned, granted or awarded if such action
would cause an Incentive Stock Option to fail to qualify as an incentive
stock option under Section 422 of the Code.
ARTICLE III
GRANTING OF OPTIONS
3.1 ELIGIBILITY. Any Employee or consultant selected by the
Committee pursuant to Section 3.4(a)(i) shall be eligible to be granted an
Option. Each Independent Director of the Company shall be eligible to be
granted Options at the times and in the manner set forth in Section 3.4(d).
3.2 DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted
an Incentive Stock Option under this Plan if such person, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any then existing Subsidiary or parent corporation (within the meaning of
Section 422 of the Code) unless such Incentive Stock Option conforms to the
applicable provisions of Section 422 of the Code.
3.3 QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock
Option shall be granted to any person who is not an Employee.
3.4 GRANTING OF OPTIONS
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and select from
among the key Employees or consultants (including Employees or consultants
who have previously received Options or other awards under this Plan) such
of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares
to be subject to such Options granted to the selected key Employees or
consultants;
(iii) Subject to Section 3.3, determine whether such Options are
to be Incentive Stock Options or Non-Qualified Stock Options and whether
such Options are to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with this Plan; PROVIDED, HOWEVER, that the terms and conditions
of Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall include, but not be
limited to, such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
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(b) Upon the selection of a key Employee or consultant to be granted
an Option, the Committee shall instruct the Secretary of the Company to issue
the Option and may impose such conditions on the grant of the Option as it deems
appropriate. Without limiting the generality of the preceding sentence, the
Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition on the grant of an Option to an Employee or consultant
that the Employee or consultant surrender for cancellation some or all of the
unexercised Options, awards of Restricted Stock or Deferred Stock, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments or
other rights which have been previously granted to him under this Plan or
otherwise. An Option, the grant of which is conditioned upon such surrender,
may have an option price lower (or higher) than the exercise price of such
surrendered Option or other award, may cover the same (or a lesser or greater)
number of shares as such surrendered Option or other award, may contain such
other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee to disqualify such option from treatment as an
"incentive stock option" under Section 422 of the Code.
(d) During the term of the Plan, each person who is an Independent
Director shall be granted (i) on the date he or she becomes an Independent
Director, an Option to purchase 15,000 shares of Common Stock (subject to
adjustment as provided in Section 10.3) and (ii) during the fourth year from the
prior grant on the date of the annual meeting of Shareholders so long as the
Independent Director is reelected to the Board, an Option to purchase 15,000
shares of Common Stock (subject to adjustment as provided in Section 10.3).
Members of the Board who are employees of the Company who subsequently retire
from the Company and remain on the Board will not receive an initial Option
grant pursuant to clause (i) of the preceding sentence, but to the extent that
they are otherwise eligible, will receive, after retirement from employment with
the Company, Options as described in clause (ii) of the preceding sentence. All
the foregoing Option grants authorized by this Section 3.4(d) are subject to
shareholder approval of the Plan.
ARTICLE IV
TERMS OF OPTIONS
4.1 OPTION AGREEMENT. Each Option shall be evidenced by a written
Stock Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such terms and
conditions as the Committee (or the Board, in the case of Options granted to
Independent Directors) shall determine, consistent with this Plan. Stock Option
Agreements evidencing Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
4.2 OPTION PRICE. The price per share of the shares subject to each
Option shall be set by the Committee; PROVIDED, HOWEVER, that such price shall
be no less than 85% of the Fair Market Value of a share of Common Stock, unless
otherwise permitted by applicable state law, and (i) in the case of Incentive
Stock Options and Options intended to qualify as performance-based compensation
as described in Section 162(m)(4)(C) of the Code, such price shall not be less
than 100% of the Fair Market
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Value of a share of Common Stock on the date the Option is granted; (ii) in
the case of Incentive Stock Options granted to an individual then owning
(within the meaning of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422
of the Code) such price shall not be less than 110% of the Fair Market Value
of a share of Common Stock on the date the Option is granted; and (iii) in
the case of Options granted to Independent Directors, such price shall equal
100% of the Fair Market Value of a share of Common Stock on the date the
Option is granted; PROVIDED, HOWEVER, that the price of each share subject to
each Option granted to Independent Directors on the date of the initial
public offering of Common Stock shall equal the initial public offering price
(net of underwriting discounts and commissions) per share of Common Stock.
4.3 OPTION TERM. The term of an Option shall be set by the Committee
in its discretion; PROVIDED, HOWEVER, that, (i) in the case of Incentive Stock
Options, the term shall not be more than five (5) years from the date the
Incentive Stock Option is granted if the Incentive Stock Option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code); and (ii) no Option shall have a term more than ten
(10) years from the date of grant. Except as limited by requirements of Section
422 of the Code and regulations and rulings thereunder applicable to Incentive
Stock Options, the Committee may extend the term of any outstanding Option in
connection with any Termination of Employment or Termination of Consultancy of
the Optionee, or amend any other term or condition of such Option relating to
such a termination.
4.4 OPTION VESTING
(a) The period during which the right to exercise an Option in whole
or in part vests in the Optionee shall be set by the Committee and the Committee
may determine that an Option may not be exercised in whole or in part for a
specified period after it is granted; PROVIDED, HOWEVER, that, unless the
Committee otherwise provides in the terms of the Option or otherwise, no Option
shall be exercisable by any Optionee who is then subject to Section 16 of the
Exchange Act within the period ending six months and one day after the date the
Option is granted; and provided, further, that Options granted to Independent
Directors shall become exercisable in cumulative annual installments of 25% on
each of the first, second, third and fourth anniversaries of the date of Option
grant, without variation or acceleration hereunder except as provided in Section
10.3(b); and PROVIDED, FURTHER, that each Option granted to an Employee who is
not an Officer or Director shall become exercisable no later than five years
after such Option is granted, and at least 20% of each such Option shall become
exercisable on each anniversary of the date such Option is granted. At any time
after grant of an Option, the Committee may, in its sole and absolute discretion
and subject to whatever terms and conditions it selects, accelerate the period
during which an Option (except an Option granted to an Independent Director)
vests.
(b) No portion of an Option which is unexercisable at Termination of
Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee in the case of Options granted to Employees or
consultants either in the Stock Option Agreement or by action of the Committee
following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any Subsidiary) exceeds
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$100,000, such Options shall be treated as Non-Qualified Options 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. For purposes of this Section 4.4(c), the Fair Market Value
of stock shall be determined as of the time the Option with respect to such
stock is granted.
(d) Unless Termination of Employment is for good cause, the right of
an Employee to exercise his or her Options in the event of Termination of
Employment, to the extent that the Employee is entitled to exercise his or her
Options on the date of termination, shall be as follows:
(i) At least 6 months from the date of termination if
termination was caused by death or disability.
(ii) At least 30 days from the date of termination if termination
was caused by other than death or disability.
4.5 CONSIDERATION. In consideration of the granting of an Option,
the Optionee shall agree, in the written Stock Option Agreement, to remain in
the employ of (or to consult for or to serve as an Independent Director of, as
applicable) the Company or any Subsidiary for a period of at least one year (or
such shorter period as may be fixed in the Stock Option Agreement or by action
of the Committee following grant of the Option) after the Option is granted (or,
in the case of an Independent Director, until the next annual meeting of
shareholders of the Company). Nothing in this Plan or in any Stock Option
Agreement hereunder shall confer upon any Optionee any right to continue in the
employ of, or as a consultant for, the Company or any Subsidiary, or as a
director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Optionee at any time for any reason whatsoever, with or without
good cause.
ARTICLE V
EXERCISE OF OPTIONS
5.1 PARTIAL EXERCISE. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee (or the Board, in the case of Options
granted to Independent Directors) may require that, by the terms of the Option,
a partial exercise be with respect to a minimum number of shares.
5.2 MANNER OF EXERCISE. All or a portion of an exercisable Option
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his office:
(a) A written notice complying with the applicable rules established
by the Committee (or the Board, in the case of Options granted to Independent
Directors) stating that the Option, or a portion thereof, is exercised. The
notice shall be signed by the Optionee or other person then entitled to exercise
the Option or such portion;
(b) Such representations and documents as the Committee (or the
Board, in the case of Options granted to Independent Directors), in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee or Board may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop-transfer notices to agents and
registrars;
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(c) In the event that the Option shall be exercised pursuant to
Section 10.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised. However,
the Committee (or the Board, in the case of Options granted to Independent
Directors), may in its discretion (i) allow a delay in payment up to thirty (30)
days from the date the Option, or portion thereof, is exercised; (ii) allow
payment, in whole or in part, through the delivery of shares of Common Stock
owned by the Optionee, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise price of
the Option or exercised portion thereof; (iii) allow payment, in whole or in
part, through the surrender of shares of Common Stock then issuable upon
exercise of the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iv) allow payment, in whole or in part, through the delivery of
property of any kind which constitutes good and valuable consideration;
(v) allow payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Committee or the Board; (vi) allow payment, in whole
or in part, through the delivery of a notice that the Optionee has placed a
market sell order with a broker with respect to shares of Common Stock then
issuable upon exercise of the Option, and that the broker has been directed to
pay a sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price; or (vii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs (ii),
(iii), (iv), (v) and (vi). In the case of a promissory note, the Committee (or
the Board, in the case of Options granted to Independent Directors) may also
prescribe the form of such note and the security to be given for such note. The
Option may not be exercised, however, by delivery of a promissory note or by a
loan from the Company when or where such loan or other extension of credit is
prohibited by law.
5.3 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall
not be required to issue or deliver any certificate or certificates for shares
of 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 rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory body
which the Committee or Board 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 Committee (or Board, in the case of
Options granted to Independent Directors) 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 Committee (or Board, in the case of Options
granted to Independent Directors) may establish from time to time 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.
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5.4 RIGHTS AS SHAREHOLDERS. The holders of Options shall not be, nor
have any of the rights or privileges of, shareholders of the Company in respect
of any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders; PROVIDED, HOWEVER, that the Company shall provide to Optionees, on
an annual basis, such financial and other information as it provides to its
Shareholders.
5.5 OWNERSHIP AND TRANSFER RESTRICTIONS. The Committee (or Board, in
the case of Options granted to Independent Directors), in its absolute
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Stock Option Agreement
and may be referred to on the certificates evidencing such shares. The
Committee may require the Employee to give the Company prompt notice of any
disposition of shares of Common Stock acquired by exercise of an Incentive Stock
Option within (i) two years from the date of granting such Option to such
Employee or (ii) one year after the transfer of such shares to such Employee.
The Committee may direct that the certificates evidencing shares acquired by
exercise of an Option refer to such requirement to give prompt notice of
disposition.
5.6 LIMITATIONS ON EXERCISE OF OPTIONS GRANTED TO INDEPENDENT
DIRECTORS. No Option granted to an Independent Director may be exercised to any
extent by anyone after the first to occur of the following events:
(a) The expiration of twelve (12) months from the date of the
Optionee's death;
(b) the expiration of twelve (12) months from the date of the
Optionee's Termination of Directorship by reason of his permanent and total
disability (within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three (3) months from the date of the
Optionee's Termination of Directorship for any reason other than such Optionee's
death or his permanent and total disability, unless the Optionee dies within
said three-month period; or
(d) The expiration of ten years from the date the Option was granted.
ARTICLE VI
AWARD OF RESTRICTED STOCK
6.1 AWARD OF RESTRICTED STOCK
(a) The Committee may from time to time, in its absolute discretion:
(i) Select from among the key Employees or consultants
(including Employees or consultants who have previously received other
awards under this Plan) such of them as in its opinion should be awarded
Restricted Stock; and
(ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with this Plan.
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(b) The Committee shall establish the purchase price, if any, and
form of payment for Restricted Stock; PROVIDED, HOWEVER, that such purchase
price shall be no less than the par value of the Common Stock to be purchased,
unless otherwise permitted by applicable state law. In all cases, legal
consideration shall be required for each issuance of Restricted Stock.
(c) Upon the selection of a key Employee or consultant to be awarded
Restricted Stock, the Committee shall instruct the Secretary of the Company to
issue such Restricted Stock and may impose such conditions on the issuance of
such Restricted Stock as it deems appropriate.
6.2 RESTRICTED STOCK AGREEMENT. Restricted Stock shall be issued
only pursuant to a written Restricted Stock Agreement, which shall be executed
by the selected key Employee or consultant and an authorized officer of the
Company and which shall contain such terms and conditions as the Committee shall
determine, consistent with this Plan.
6.3 CONSIDERATION. As consideration for the issuance of Restricted
Stock, in addition to payment of any purchase price, the Restricted Shareholder
shall agree, in the written Restricted Stock Agreement, to remain in the employ
of, or to consult for, the Company or any Subsidiary for a period of at least
one year after the Restricted Stock is issued (or such shorter period as may be
fixed in the Restricted Stock Agreement or by action of the Committee following
grant of the Restricted Stock). Nothing in this Plan or in any Restricted Stock
Agreement hereunder shall confer on any Restricted Shareholder any right to
continue in the employ of, or as a consultant for, the Company or any Subsidiary
or shall interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Restricted
Shareholder at any time for any reason whatsoever, with or without good cause.
6.4 RIGHTS AS SHAREHOLDERS. Upon delivery of the shares of
Restricted Stock to the escrow holder pursuant to Section 6.7, the Restricted
Shareholder shall have, unless otherwise provided by the Committee, all the
rights of a shareholder with respect to said shares, subject to the restrictions
in his Restricted Stock Agreement, including the right to receive all dividends
and other distributions paid or made with respect to the shares; PROVIDED,
HOWEVER, that in the discretion of the Committee, any extraordinary
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 6.5.
6.5 RESTRICTION. All shares of Restricted Stock issued under this
Plan (including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Restricted Stock
Agreement, be subject to such restrictions as the Committee shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; PROVIDED, HOWEVER,
that, unless the Committee otherwise provides in the terms of the Restricted
Stock Agreement or otherwise, no share of Restricted Stock granted to a person
subject to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and PROVIDED, FURTHER, that by action
taken after the Restricted Stock is issued, the Committee may, on such terms and
conditions as it may determine to be appropriate, remove any or all of the
restrictions imposed by the terms of the Restricted Stock Agreement. Restricted
Stock may not be sold or encumbered until all restrictions are terminated or
expire. Unless provided otherwise by the Committee, if no consideration was
paid by the Restricted Shareholder upon issuance, a Restricted Shareholder's
rights in unvested Restricted Stock shall lapse upon Termination of Employment
or, if applicable, upon Termination of Consultancy with the Company.
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6.6 REPURCHASE OF RESTRICTED STOCK. The Committee shall provide in
the terms of each individual Restricted Stock Agreement that the Company shall
have the right to repurchase from the Restricted Shareholder the Restricted
Stock then subject to restrictions under the Restricted Stock Agreement
immediately upon a Termination of Employment or, if applicable, upon a
Termination of Consultancy between the Restricted Shareholder and the Company,
at a cash price per share equal to the price paid by the Restricted Shareholder
for such Restricted Stock; PROVIDED, HOWEVER, that provision may be made that no
such right of repurchase shall exist in the event of a Termination of Employment
or Termination of Consultancy without cause, or following a change in control of
the Company or because of the Restricted Shareholder's retirement, death or
disability, or otherwise.
6.7 ESCROW. The Secretary of the Company or such other escrow holder
as the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Restricted Stock Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
6.8 LEGEND. In order to enforce the restrictions imposed upon shares
of Restricted Stock hereunder, the Committee shall cause a legend or legends to
be placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Restricted Stock Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
ARTICLE VII
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
7.1 PERFORMANCE AWARDS. Any key Employee or consultant selected by
the Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to the market value, book value, net profits or
other measure of the value of Common Stock or other specific performance
criteria determined appropriate by the Committee, in each case on a specified
date or dates or over any period or periods determined by the Committee, or may
be based upon the appreciation in the market value, book value, net profits or
other measure of the value of a specified number of shares of Common Stock over
a fixed period or periods determined by the Committee. In making such
determinations, the Committee shall consider (among such other factors as it
deems relevant in light of the specific type of award) the contributions,
responsibilities and other compensation of the particular key Employee or
consultant.
7.2 DIVIDEND EQUIVALENTS. Any key Employee or consultant selected by
the Committee may be granted Dividend Equivalents based on the dividends
declared on Common Stock, to be credited as of dividend payment dates, during
the period between the date an Option, Stock Appreciation Right, Deferred Stock
or Performance Award is granted, and the date such Option, Stock Appreciation
Right, Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Committee. Such Dividend Equivalents shall be converted to
cash or additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee. With respect
to Dividend Equivalents granted with respect to Options intended to be qualified
performance-based compensation for purposes of Section 162(m) of the Code, such
Dividend Equivalents shall be payable regardless of whether such Option is
exercised.
7.3 STOCK PAYMENTS. Any key Employee or consultant selected by the
Committee may receive Stock Payments in the manner determined from time to time
by the Committee. The number of shares shall be determined by the Committee and
may be based upon the Fair Market Value, book
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value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined appropriate by the Committee,
determined on the date such Stock Payment is made or on any date thereafter.
7.4 DEFERRED STOCK. Any key Employee or consultant selected by the
Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee. The number of shares of Deferred Stock
shall be determined by the Committee and may be linked to the market value, book
value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined to be appropriate by the Committee, in
each case on a specified date or dates or over any period or periods determined
by the Committee. Common Stock underlying a Deferred Stock award will not be
issued until the Deferred Stock award has vested, pursuant to a vesting schedule
or performance criteria set by the Committee. Unless otherwise provided by the
Committee, a Grantee of Deferred Stock shall have no rights as a Company
shareholder with respect to such Deferred Stock until such time as the award has
vested and the Common Stock underlying the award has been issued.
7.5 PERFORMANCE AWARD AGREEMENT, DIVIDEND EQUIVALENT AGREEMENT,
DEFERRED STOCK AGREEMENT, STOCK PAYMENT AGREEMENT. Each Performance Award,
Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be
evidenced by a written agreement, which shall be executed by the Grantee and an
authorized Officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.
7.6 TERM. The term of a Performance Award, Dividend Equivalent,
award of Deferred Stock and/or Stock Payment shall be set by the Committee in
its discretion.
7.7 EXERCISE UPON TERMINATION OF EMPLOYMENT. A Performance Award,
Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable
or payable only while the Grantee is an Employee or consultant; provided that
the Committee may determine that the Performance Award, Dividend Equivalent,
award of Deferred Stock and/or Stock Payment may be exercised or paid subsequent
to Termination of Employment or Termination of Consultancy without cause, or
following a change in control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.
7.8 PAYMENT ON EXERCISE. Payment of the amount determined under
Section 7.1 or 7.2 above shall be in cash, in Common Stock or a combination of
both, as determined by the Committee. To the extent any payment under this
Article VII is effected in Common Stock, it shall be made subject to
satisfaction of all provisions of Section 5.3.
7.9 CONSIDERATION. In consideration of the granting of a Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment, the
Grantee shall agree, in a written agreement, to remain in the employ of, or to
consult for, the Company or any Subsidiary for a period of at least one year
after such Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment is granted (or such shorter period as may be fixed in such
agreement or by action of the Committee following such grant). Nothing in this
Plan or in any agreement hereunder shall confer on any Grantee any right to
continue in the employ of, or as a consultant for, the Company or any Subsidiary
or shall interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.
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ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 GRANT OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right
may be granted to any key Employee or consultant selected by the Committee. A
Stock Appreciation Right may be granted (i) in connection and simultaneously
with the grant of an Option, (ii) with respect to a previously granted Option,
or (iii) independent of an Option. A Stock Appreciation Right shall be subject
to such terms and conditions not inconsistent with this Plan as the Committee
shall impose and shall be evidenced by a written Stock Appreciation Right
Agreement, which shall be executed by the Grantee and an authorized officer of
the Company. The Committee, in its discretion, may determine whether a Stock
Appreciation Right is to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code and Stock Appreciation Right Agreements
evidencing Stock Appreciation Rights intended to so qualify shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Without limiting the generality of the foregoing,
the Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition of the grant of a Stock Appreciation Right to an Employee
or consultant that the Employee or consultant surrender for cancellation some or
all of the unexercised Options, awards of Restricted Stock or Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, or other rights which have been previously granted to him under this
Plan or otherwise. A Stock Appreciation Right, the grant of which is
conditioned upon such surrender, may have an exercise price lower (or higher)
than the exercise price of the surrendered Option or other award, may cover the
same (or a lesser or greater) number of shares as such surrendered Option or
other award, may contain such other terms as the Committee deems appropriate,
and shall be exercisable in accordance with its terms, without regard to the
number of shares, price, exercise period or any other term or condition of such
surrendered Option or other award.
8.2 COUPLED STOCK APPRECIATION RIGHTS
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than the number
of shares subject to the simultaneously or previously granted Option to which it
is coupled.
(c) A CSAR shall entitle the Grantee (or other person entitled to
exercise the Option pursuant to this Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the extent
then exercisable pursuant to its terms) and to receive from the Company in
exchange therefor an amount determined by multiplying the difference obtained by
subtracting the Option exercise price from the Fair Market Value of a share of
Common Stock on the date of exercise of the CSAR by the number of shares of
Common Stock with respect to which the CSAR shall have been exercised, subject
to any limitations the Committee may impose.
8.3 INDEPENDENT STOCK APPRECIATION RIGHTS
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An ISAR
shall be exercisable in such installments as the Committee may determine. An
ISAR shall cover such number of shares of Common Stock as the Committee may
determine; provided, however, that unless the Committee otherwise provides in
the terms of the ISAR or otherwise, no ISAR granted to a person subject to
Section 16 of the Exchange Act shall
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be exercisable until at least six months have elapsed from (but excluding)
the date on which the Option was granted. The exercise price per share of
Common Stock subject to each ISAR shall be set by the Committee. An ISAR is
exercisable only while the Grantee is an Employee or consultant; provided
that the Committee may determine that the ISAR may be exercised subsequent to
Termination of Employment or Termination of Consultancy without cause, or
following a change in control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Grantee (or other person entitled to
exercise the ISAR pursuant to this Plan) to exercise all or a specified portion
of the ISAR (to the extent then exercisable pursuant to its terms) and to
receive from the Company an amount determined by multiplying the difference
obtained by subtracting the exercise price per share of the ISAR from the Fair
Market Value of a share of Common Stock on the date of exercise of the ISAR by
the number of shares of Common Stock with respect to which the ISAR shall have
been exercised, subject to any limitations the Committee may impose.
8.4 PAYMENT AND LIMITATIONS ON EXERCISE
(a) Payment of the amount determined under Section 8.2(c) and 8.3(b)
above shall be in cash, in Common Stock (based on its Fair Market Value as of
the date the Stock Appreciation Right is exercised) or a combination of both, as
determined by the Committee. To the extent such payment is effected in Common
Stock it shall be made subject to satisfaction of all provisions of Section 5.3
above pertaining to Options.
(b) Grantees of Stock Appreciation Rights may be required to comply
with any timing or other restrictions with respect to the settlement or exercise
of a Stock Appreciation Right, including a window-period limitation, as may be
imposed in the discretion of the Board or Committee.
8.5 CONSIDERATION. In consideration of the granting of a Stock
Appreciation Right, the Grantee shall agree, in the written Stock Appreciation
Right Agreement, to remain in the employ of, or to consult for, the Company or
any Subsidiary for a period of at least one year after the Stock Appreciation
Right is granted (or such shorter period as may be fixed in the Stock
Appreciation Right Agreement or by action of the Committee following grant of
the Restricted Stock). Nothing in this Plan or in any Stock Appreciation Right
Agreement hereunder shall confer on any Grantee any right to continue in the
employ of, or as a consultant for, the Company or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.
ARTICLE IX
ADMINISTRATION
9.1 COMPENSATION COMMITTEE. Prior to the Company's initial
registration of Common Stock under Section 12 of the Exchange Act, the
Compensation Committee shall consist of the entire Board. Following such
registration, the Compensation Committee (or another committee or a subcommittee
of the Board assuming the functions of the Committee under this Plan) shall
consist solely of two or more Independent Directors appointed by and holding
office at the pleasure of the Board, each of whom is both a "non-employee
director" as defined by Rule 16(b)-3 and an "outside director" for purposes of
Section 162(m) of the Code. Appointment of Committee members shall be effective
upon acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be
filled by the Board.
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9.2 DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options, awards of Restricted Stock or Deferred
Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments are granted or awarded, and to adopt such rules for the
administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Notwithstanding the
foregoing, the full Board, acting by a majority of its members in office, shall
conduct the general administration of the Plan with respect to Options granted
to Independent Directors. Any such grant or award under this Plan need not be
the same with respect to each Optionee, Grantee or Restricted Shareholder. Any
such interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16(b)-3 or Section 162(m) of the Code, or any
regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee.
9.3 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee shall
act by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
9.4 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS.
Members of the Committee shall receive such compensation for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, Grantees, Restricted Shareholders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan, Options, awards of Restricted Stock or Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, and all members of the Committee and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 NOT TRANSFERABLE. Options, Restricted Stock awards, Deferred
Stock awards, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of descent
and distribution or, to the extent permitted by state law, pursuant to a QDRO,
unless and until such rights or awards have been exercised, or the shares
underlying such rights or awards have been issued, and all restrictions
applicable to such shares have lapsed. No Option, Restricted Stock award,
Deferred Stock award, Performance Award, Stock Appreciation Right, Dividend
Equivalent or Stock Payment or interest or right therein shall be liable for the
debts, contracts or engagements of the Optionee, Grantee or Restricted
Shareholder or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment,
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garnishment or any other legal or equitable proceedings (including
bankruptcy), and any attempted disposition thereof shall be null and void and
of no effect, except to the extent that such disposition is permitted by the
preceding sentence or unless approved in writing by the Committee after
consultation with counsel regarding accounting, tax law and securities law
consequences.
During the lifetime of the Optionee or Grantee, only he may exercise
an Option or other right or award (or any portion thereof) granted to him under
the Plan, unless it has been disposed of pursuant to a QDRO. After the death of
the Optionee or Grantee, any exercisable portion of an Option or other right or
award may, prior to the time when such portion becomes unexercisable under the
Plan or the applicable Stock Option Agreement or other agreement, be exercised
by his personal representative or by any person empowered to do so under the
deceased Optionee's or Grantee's will or under the then applicable laws of
descent and distribution.
10.2 AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN. Except as
otherwise provided in this Section 10.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's shareholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 10.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan or modify the Award
Limit, and no action of the Committee may be taken that would otherwise require
shareholder approval as a matter of applicable law, regulation or rule. No
amendment, suspension or termination of this Plan shall, without the consent of
the holder of Options, Restricted Stock awards, Deferred Stock awards,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, alter or impair any rights or obligations under any Options,
Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments theretofore granted
or awarded, unless the award itself otherwise expressly so provides. No
Options, Restricted Stock, Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be granted or
awarded during any period of suspension or after termination of this Plan, and
in no event may any Option be granted under this Plan after the first to occur
of the following events:
(a) The expiration of ten years from the date the Plan is adopted by
the Board; or
(b) The expiration of ten years from the date the Plan is approved by
the Company's shareholders under Section 10.4.
10.3 CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR
LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS.
(a) Subject to Section 10.3(d), in the event that the Committee (or
the Board, in the case of Options granted to Independent Directors) determines
that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization, reclassification,
stock split, reverse stock split, reorganization, merger, consolidation, split-
up, spin-off, combination, repurchase, liquidation, dissolution, or sale,
transfer, exchange or other disposition of all or substantially all of the
assets of the Company (including, but not limited to, a Corporate Transaction),
or exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of the
Company, or other similar corporate transaction or event, in the Committee's
sole discretion (or in the case of Options granted to Independent Directors, the
Board's sole discretion), affects the Common Stock such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential
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benefits intended to be made available under the Plan or with respect to an
Option, Restricted Stock award, Performance Award, Stock Appreciation Right,
Dividend Equivalent, Deferred Stock award or Stock Payment, then the
Committee (or the Board, in the case of Options granted to Independent
Directors) shall, in such manner as it may deem equitable, adjust any or all
of
(i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which Options, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be
granted under the Plan, or which may be granted as Restricted Stock or
Deferred Stock (including, but not limited to, adjustments of the
limitations in Section 2.1 on the maximum number and kind of shares which
may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Options, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents, or Stock Payments, and in
the number and kind of shares of outstanding Restricted Stock or Deferred
Stock, and
(iii) the grant or exercise price with respect to any
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment.
(b) Subject to Sections 10.3(b)(vii) and 10.3(d), in the event of any
Corporate Transaction or other transaction or event described in Section 10.3(a)
or any unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Committee (or the Board, in the case of Options granted to
Independent Directors) in its discretion is hereby authorized to take any one or
more of the following actions whenever the Committee (or the Board, in the case
of Options granted to Independent Directors) determines that such action is
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to any option, right or other award under this Plan, to facilitate such
transactions or events or to give effect to such changes in laws, regulations or
principles:
(i) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the
case of Options granted to Independent Directors) may provide, either by
the terms of the agreement or by action taken prior to the occurrence of
such transaction or event and either automatically or upon the optionee's
request, for either the purchase of any such Option, Performance Award,
Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or any
Restricted Stock or Deferred Stock for an amount of cash equal to the
amount that could have been attained upon the exercise of such option,
right or award or realization of the optionee's rights had such option,
right or award been currently exercisable or payable or fully vested or the
replacement of such option, right or award with other rights or property
selected by the Committee (or the Board, in the case of Options granted to
Independent Directors) in its sole discretion;
(ii) In its sole and absolute discretion, the Committee (or the
Board, in the case of Options granted to Independent Directors) may
provide, either by the terms of such Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock or by action taken prior to the occurrence of such
transaction or event that it cannot be exercised after such event;
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(iii) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee (or the Board, in the
case of Options granted to Independent Directors) may provide, either by
the terms of such Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred
Stock or by action taken prior to the occurrence of such transaction or
event, that for a specified period of time prior to such transaction or
event, such option, right or award shall be exercisable as to all shares
covered thereby, notwithstanding anything to the contrary in (i) Section
4.4 or (ii) the provisions of such Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock;
(iv) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the
case of Options granted to Independent Directors) may provide, either by
the terms of such Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred
Stock or by action taken prior to the occurrence of such transaction or
event, that upon such event, such option, right or award be assumed by the
successor or survivor corporation, or a parent or subsidiary thereof, or
shall be substituted for by similar options, rights or awards covering the
stock of the successor or survivor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares
and prices; and
(v) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the
case of Options granted to Independent Directors) may make adjustments in
the number and type of shares of Common Stock (or other securities or
property) subject to outstanding Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the
number and kind of outstanding Restricted Stock or Deferred Stock and/or in
the terms and conditions of (including the grant or exercise price), and
the criteria included in, outstanding options, rights and awards and
options, rights and awards which may be granted in the future.
(vi) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee may provide either by the
terms of a Restricted Stock award or Deferred Stock award or by action
taken prior to the occurrence of such event that, for a specified period of
time prior to such event, the restrictions imposed under a Restricted Stock
Agreement or a Deferred Stock Agreement upon some or all shares of
Restricted Stock or Deferred Stock may be terminated, and, in the case of
Restricted Stock, some or all shares of such Restricted Stock may cease to
be subject to repurchase under Section 6.6 or forfeiture under Section 6.5
after such event.
(vii) None of the foregoing discretionary actions taken under of
this Section 10.3(b) shall be permitted with respect to Options granted
under Section 3.4(d) to Independent Directors to the extent that such
discretion would be inconsistent with the applicable exemptive conditions
of Rule 16(b)-3. In the event of a Change in Control or a Corporate
Transaction, to the extent that the Board does not have the ability under
Rule 16(b)-3 to take or to refrain from taking the discretionary actions
set forth in Section 10.3(b)(iii) above, each Option granted to an
Independent Director shall be exercisable as to all shares covered thereby
upon such Change in Control or during the five days immediately preceding
the consummation of such Corporate Transaction and subject to such
consummation, notwithstanding anything to the contrary in Section 4.4 or
the vesting schedule of such Options. In the event of a Corporate
Transaction, to the extent that the Board does not have the ability under
Rule 16(b)-3 to take or to refrain from taking the discretionary actions
set forth in Section 10.3(b)(ii) above, no Option granted to an
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<PAGE>
Independent Director may be exercised following such Corporate Transaction
unless such Option is, in connection with such Corporate Transaction,
either assumed by the successor or survivor corporation (or parent or
subsidiary thereof) or replaced with a comparable right with respect to
shares of the capital stock of the successor or survivor corporation (or
parent or subsidiary thereof).
(viii) In the event of any Corporate Transaction, each
outstanding Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent, Stock Payment, Restricted Stock, or Deferred Stock award shall,
immediately prior to the effective date of the Corporate Transaction,
automatically become fully exercisable for all of the shares of Common
Stock at the time subject to such rights or fully vested, as applicable,
and may be exercised for any or all of those shares as fully-vested shares
of Common Stock. However, an outstanding right shall not so accelerate if
and to the extent: (i) such right is, in connection with the Corporate
Transaction, either to be assumed by the successor or survivor corporation
(or parent thereof) or to be replaced with a comparable right with respect
to shares of the capital stock of the successor or survivor corporation (or
parent thereof) or (ii) the acceleration of exercisability of such right is
subject to other limitations imposed by the Plan Administrator at the time
of grant. The determination of comparability of rights under clause (i)
above shall be made by the Plan Administrator, and its determination shall
be final, binding and conclusive. When the Committee considers adjustment
issues in connection with corporate transactions which the Company would
like to account for under the "pooling" method, the Committee shall consult
with the Company's accountants to make certain that any contemplated
adjustments do not interfere with the desired accounting treatment.
(c) Subject to Section 10.3(d) and 10.8, the Committee (or the Board,
in the case of Options granted to Independent Directors) may, in its discretion,
include such further provisions and limitations in any Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or
Restricted Stock or Deferred Stock agreement or certificate, as it may deem
equitable and in the best interests of the Company.
(d) With respect to Incentive Stock Options and Options and Stock
Appreciation Rights intended to qualify as performance-based compensation under
Section 162(m), no adjustment or action described in this Section 10.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of the
Code or would cause such option or stock appreciation right to fail to so
qualify under Section 162(m), as the case may be, or any successor provisions
thereto. Furthermore, no such adjustment or action shall be authorized to the
extent such adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16(b)-3 unless the
Committee (or the Board, in the case of Options granted to Independent
Directors) determines that the option or other award is not to comply with such
exemptive conditions. The number of shares of Common Stock subject to any
option, right or award shall always be rounded to the next whole number.
10.4 APPROVAL OF PLAN BY SHAREHOLDERS. This Plan will be submitted
for the approval of the Company's shareholders within twelve months after the
date of the Board's initial adoption of this Plan. Options, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be granted
and Restricted Stock or Deferred Stock may be awarded prior to such shareholder
approval, provided that such Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments shall not be exercisable and such
Restricted Stock or Deferred Stock shall not vest prior to the time when this
Plan is approved by the shareholders, and provided further that if such approval
has not been obtained at the end of said twelve-month period, all Options,
21
<PAGE>
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments previously granted and all Restricted Stock or Deferred Stock
previously awarded under this Plan shall thereupon be canceled and become null
and void. The Company shall take such actions as may be necessary to satisfy
the requirements of Rule 16(b)-3 under the Exchange Act, or any other comparable
rule adopted thereunder then in effect.
10.5 TAX WITHHOLDING. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee,
Grantee or Restricted Shareholder of any sums required by federal, state or
local tax law to be withheld with respect to the issuance, vesting or exercise
of any Option, Restricted Stock, Deferred Stock, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment. The Committee (or the
Board, in the case of Options granted to Independent Directors) may in its
discretion and in satisfaction of the foregoing requirement allow such Optionee,
Grantee or Restricted Shareholder to elect to have the Company withhold shares
of Common Stock otherwise issuable under such Option or other award (or allow
the return of shares of Common Stock) having a Fair Market Value equal to the
sums required to be withheld.
10.6 LOANS. The Committee may, in its discretion, extend one or more
loans to key Employees in connection with the exercise or receipt of an Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment granted under this Plan, or the issuance of Restricted Stock or Deferred
Stock awarded under this Plan. The terms and conditions of any such loan shall
be set by the Committee.
10.7 FORFEITURE PROVISIONS. Pursuant to its general authority to
determine the terms and conditions applicable to awards under the Plan, the
Committee (or the Board, in the case of Options granted to Independent
Directors) shall have the right (to the extent consistent with the applicable
exemptive conditions of Rule 16(b)-3) to provide, in the terms of Options or
other awards made under the Plan, or to require the recipient to agree by
separate written instrument, that (i) any proceeds, gains or other economic
benefit actually or constructively received by the recipient upon any receipt or
exercise of the award, or upon the receipt or resale of any Common Stock
underlying such award, must be paid to the Company, and (ii) the award shall
terminate and any unexercised portion of such award (whether or not vested)
shall be forfeited, if (a) a Termination of Employment, Termination of
Consultancy or Termination of Directorship occurs prior to a specified date, or
within a specified time period following receipt or exercise of the award, or
(b) the recipient at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee (or
the Board, as applicable).
10.8 LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND PERFORMANCE-
BASED COMPENSATION. Notwithstanding any other provision of this Plan, this
Plan, and any Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent or Stock Payment granted, or Restricted Stock or Deferred Stock
awarded, to any individual who is then subject to Section 16 of the Exchange
Act, shall be subject to any additional limitations set forth in any applicable
exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule 16(b)-3 of the Exchange Act) that are requirements for the application of
such exemptive rule. To the extent permitted by applicable law, the Plan,
Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents,
Stock Payments, Restricted Stock and Deferred Stock granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule. Furthermore, notwithstanding any other provision of this
22
<PAGE>
Plan, any Option or Stock Appreciation Right intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code shall be subject to any additional limitations set forth in Section
162(m) of the Code (including any amendment to Section 162(m) of the Code) or
any regulations or rulings issued thereunder that are requirements for
qualification as performance-based compensation as described in Section
162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the extent
necessary to conform to such requirements.
10.9 EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The adoption
of this Plan shall not affect any other compensation or incentive plans in
effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company (i) to establish any other forms of
incentives or compensation for Employees, Directors or Consultants of the
Company or any Subsidiary or (ii) to grant or assume options or other rights
otherwise than under this 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,
limited liability company firm or association.
10.10 COMPLIANCE WITH LAWS. This Plan, the granting and vesting
of Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments under this
Plan and the issuance and delivery of shares of Common Stock and the payment of
money under this Plan or under Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments granted or Restricted Stock or
Deferred Stock awarded hereunder are 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 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 this 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. To the extent permitted by applicable law, the Plan,
Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
10.11 TITLES. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Plan.
10.12 GOVERNING LAW. This Plan and any agreements hereunder shall
be administered, interpreted and enforced under the internal laws of the State
of California without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of Scoop, Inc. on October 1, 1996.
/S/ DANIEL L. PELEKOUDAS
---------------------------
Daniel L. Pelekoudas
Secretary
23
<PAGE>
$150,000.00
SCOOP, INC.
PROMISSORY NOTE DUE APRIL 30, 1997
("Note")
SCOOP, INC., a California corporation (the "Company"), for value received,
promises to pay, subject to the terms and conditions set forth herein and in
that certain Subscription Agreement (the "Agreement") dated February 18,
1997, to City National Bank C/F Gabriel Kaplan, Trustee, Rotunda Productions,
Inc. MPPP ("Payee") or its registered assigns, the principal sum of One
Hundred Fifty Thousand Dollars ($150,000.00) on April 30, 1997 and to pay
interest thereon in the amount described below. Unless otherwise designated
by the Company, this Note will be payable both as to principal and interest
by Company check mailed to the holder of record at the address provided to
the Company for such purpose.
1. INTEREST. This Note accrues simple interest from the date of issuance
at the rate of 9.75% per annum payable together with the entire outstanding
principal amount on April 30, 1997. Interest will be computed on the basis
of a 365-day year and the actual number of days elapsed from the date this
Note is issued to the date of payment.
2. ADDITIONAL PRINCIPAL BY ENDORSEMENT. The parties hereto acknowledge
that the Company has a continuing need for capital. Payee and the Company
may increase the principal amount of this Note to up to $350,000 and extend
the time for repayment of this Note by completing and executing the
endorsement at the bottom of this Note.
3. PREPAYMENT. The Company shall have the right to prepay the principal
amount outstanding in whole or in part without penalty. Any partial
prepayment shall be applied against the principal amount outstanding and
shall not postpone the due date.
4. EVENT OF DEFAULT. An "Event of Default" is: a default for 10 days in
payment of interest or principal on the Note or certain Events of Bankruptcy
or Insolvency (as defined below) with respect to the Company. If any Event
of Default occurs and is continuing, the holder of this Note may declare the
Note to be due and payable immediately; except that in the case of an Event
of Default arising from certain Events of Bankruptcy or Insolvency this Note
shall become due and payable without further action or notice. An "Event of
Bankruptcy or Insolvency" occurs when, pursuant to or within the meaning of
Title 11, U.S. Code or any similar federal or state law for the relief of
debtors, a court of competent jurisdiction enters a judgment, order or decree
for relief against the Company in an involuntary case, appoints a custodian
of the Company or for all or substantially all of its property, or orders the
liquidation of the Company, and the order or decree remains unstayed and in
effect for 60 days; or the Company is generally unable to pay its debts as
they come due or takes one of the following actions:
a. commences a voluntary case;
b. consents to the entry of an order for relief against it in an
involuntary case;
c. consents to the appointment of a custodian of it or for all or
substantially all of its property;
d. makes a general assignment for the benefit of its creditors.
1
<PAGE>
5. WAIVERS AND AMENDMENTS. The Company hereby waives presentment,
demand, protest and notice of presentment, notice of protest and notice of
dishonor of this debt and any other notice respecting this Note. No
director, officer, employee or shareholder of the Company, as such, will have
any liability for any obligations of the Company under this Note. By
accepting this Note, Payee waives and releases all such liability. These
waivers and releases are part of the consideration for the Note. Any
amendment or modification to this Note must be in a writing executed by the
Company and Payee.
6. SEPARABILITY. In case any provision in this Note shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
7. CALIFORNIA LAW; JURISDICTION AND ATTORNEYS FEES. This Note is made in
the State of California and the provisions hereof shall be construed in
accordance with the laws of the State of California, except to the extent
preempted by federal law; and such parties further agree that in the event of
a default or other dispute arising hereunder, this Note shall be enforceable
in any court of competent jurisdiction in the County of Orange, State of
California, and the parties do hereby submit to the jurisdiction of such
court regardless of their residence or where this Note or any endorsement
hereof may have been executed. The prevailing party in any such dispute
shall be entitled to its reasonable attorneys fees and costs.
8. ENTIRE AGREEMENT. This Note and the Agreement, together with its
exhibits, constitute the entire agreement between the parties hereto and the
final, complete and exclusive expression of the terms and conditions thereof.
All prior agreements, representations and understandings of the parties or
their agents, oral or written, express or implied, are hereby superseded and
merged herein.
IN WITNESS WHEREOF, SCOOP, INC. has caused this Note to be signed in its name
by its President and to be attested by its Secretary by his signature.
Dated: February 19, 1997
SCOOP, INC.
/s/KARL-MAGNUS S. KARLSSON
--------------------------
By: Karl-Magnus S. Karlsson
President and Chief Executive Officer
Attest:
/s/ DANIEL L. PELEKOUDAS
- ------------------------
Daniel L. Pelekoudas,
Secretary
2
<PAGE>
ENDORSEMENT
Payee and the Company hereby mutually agree that the principal amount of
this Note shall be increased to ___________________ Dollars ($___________.00)
and the date for payment of all principal and interest thereon shall be
___________________ ____, 199___. Except as modified by this endorsement,
all other terms of the Note shall remain the same. This endorsement is not
valid unless signed by both parties indicated below.
Dated: ____________ ___, 1997
SCOOP, INC.
-----------------------------------------
By: Karl-Magnus S. Karlsson
President and Chief Executive Officer
Attest:
- ---------------------------------
Daniel L. Pelekoudas,
Secretary
----------------------------------------
PAYEE
Dated: ____________ ___, 1997
3
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND NEITHER THIS WARRANT NOR THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE TRANSFERRED, SOLD,
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE
TRANSFEROR DELIVERS TO THE COMPANY AN OPINION OF COUNSEL OR OTHER EVIDENCE
REASONABLY SATISFACTORY TO THE COMPANY, IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER
DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
SCOOP, INC.
COMMON STOCK PURCHASE WARRANT
DATED: FEBRUARY 19, 1997
THIS WARRANT is issued in connection with that certain Promissory Note
(the "Note") of even date herewith in the original principal amount of
$150,000 made by Scoop, Inc., a California corporation (the "Company"), in
favor of City National Bank C/F Gabriel Kaplan, Trustee, Rotunda Productions,
Inc. MPPP ("Holder").
This certifies that Holder or its registered assigns is the holder of
this Warrant to purchase, subject to adjustment, 15,000 shares of Common
Stock of the Company, at a per share exercise price, subject to adjustment,
equal to $4.50 (the "Exercise Price"), subject to the terms and conditions
set forth herein. In the event the principal amount of the Note is
increased, the number of Warrant Shares purchasable hereunder (at the
Exercise Price) shall be increased at the rate of 1 additional Warrant Share
for each $5.00 increase in the principal amount of the Note. By way of
example, if the principal amount of the Note is increased $200,000 to a total
of $350,000, then Holder would be entitled to purchase an additional 40,000
Warrant Shares under this Warrant at an Exercise Price of $4.50 per share.
1. DEFINITIONS. As used herein the following terms, unless the
context otherwise requires, shall have for all purposes hereof the following
respective meanings:
(a) "Fair Market Value" of a share of Common Stock as of a
given date shall be: (i) the closing price of a share of the Company's Common
Stock on the principal exchange on which shares of the Company's Common Stock
are then trading, if any, on the trading day previous to such date, or, if
shares were not traded on the trading day previous to such date, then on the
next preceding trading day during which a sale occurred; or (ii) if such
Common Stock is not traded on an exchange but is quoted on Nasdaq or a
successor quotation system, (1) the last sales price of the Company's Common
Stock on the last trading day previous to such date that shares of the Common
<PAGE>
Stock were traded (if the Company's Common Stock is then listed as a National
Market Issue under the Nasdaq National Market System) or (2) the mean between
the closing representative bid and ask prices (in all other cases) for the
Company's Common Stock on the last trading day previous to such date that
shares of the Common Stock were traded as reported by Nasdaq or such
successor quotation system; or (iii) if such Common Stock is not publicly
traded, the fair market value established by the Company's Board of Directors
or a designated committee thereof acting in good faith.
(b) "Holder," when used with respect to this Warrant or the
Warrant Shares, shall mean the person registered on the books and records of
the Company as being the holder of record of this Warrant or the Warrant
Shares, as the case may be.
(c) "Other Securities" shall mean any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holders of this Warrant at any time shall
be entitled to receive, or shall have received, upon the exercise of this
Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement
of Common Stock or Other Securities pursuant to Section 3 below or otherwise.
(d) "Warrant Shares" shall mean the shares of Common Stock
(or Other Securities) issued or issuable pursuant to the exercise, in whole
or in part, of this Warrant.
2. EXERCISE OF WARRANT.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in full or
in part by the Holder by surrender of this Warrant, with the form of Election
to Purchase attached hereto (the "Election to Purchase") duly executed by the
Holder, to the Company at its offices at 2540 Red Hill Avenue, Suite 100,
Santa Ana, California 92705 or at such other office or agency as the Company
may designate in writing to the Holder, accompanied by payment (i) in cash or
by certified or bank cashier's check payable to the order of the Company in
the amount obtained by multiplying the number of Warrant Shares designated by
the Holder in the Election to Purchase by the Exercise Price per share or
(ii) by tendering shares of Common Stock of the Company pursuant to Section
2(b); PROVIDED, HOWEVER, that the Company shall issue Warrant Shares to a
Holder upon exercise of any Warrant only if such issuance is in compliance
with Section 4 hereof. Upon any partial exercise of this Warrant, the Company
at its expense will forthwith issue and deliver to the Holder a new Warrant
of like tenor, in the name of the Holder on the face of this Warrant for the
number of Warrant Shares equal to the number of such shares called for on the
face of the surrendered Warrant (after giving effect to any adjustment
therein as provided in Section 3 below) minus the number of such Warrant
Shares (after giving effect to such adjustment) designated by the Holder in
the aforementioned Election to Purchase.
(b) CASHLESS EXERCISE. In lieu of paying the Exercise Price
for any Warrant Shares by cash or certified check, the Holder may submit (i)
shares of the Company's Common Stock owned by the Holder duly endorsed for
transfer to the Company or (ii) shares of the Company's Common Stock issuable
to the Holder upon exercise of this Warrant, with a Fair Market Value on
2
<PAGE>
the date of exercise equal to the aggregate Exercise Price of the Warrant
Shares with respect to which this Warrant or portion thereof is exercised.
(c) EXERCISE PERIOD. This Warrant may be exercised by the
Holder as to all or any lesser number of Warrant Shares at any time and from
time to time during the period (the "Exercise Period") from and after 6:30
a.m. Pacific Standard time on February 19, 1998 and until 5:00 p.m. Pacific
Standard time on February 18, 2002 (the "Expiration Date"); provided,
however, that this Warrant shall be exercisable in multiples of 5,000 Warrant
Shares unless all of the Warrant Shares covered by the Warrant are being
exercised.
(d) DELIVERY OF STOCK CERTIFICATES ON EXERCISE. Subject to
Section 4 hereof, as soon as practicable after the exercise of this Warrant in
full or in part, and in any event within ten (10) business days thereafter, the
Company will issue in the name of and deliver to the Holder hereof a certificate
or certificates for the number of fully paid and nonassessable Warrant Shares to
which such Holder shall be entitled upon such exercise, plus cash, in lieu of
any fractional share to which such Holder would otherwise be entitled, as
provided in subsection (e) below, together with any Other Securities and
property (including cash, where applicable) to which such Holder is entitled
upon such exercise pursuant to Section 3 below or otherwise. Certificates
representing the Warrant Shares shall be subject to a stop transfer order and
shall bear the following legend if the Company is advised by counsel that such
legend is necessary at the time of such exercise:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY, IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED
SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE
SECURITIES OR "BLUE SKY" LAWS.
(e) FRACTIONAL SHARES. The Company will not issue a
fractional share of Common Stock upon exercise of this Warrant. Instead, the
Company will deliver an amount, in cash, equal to the product of (x) the Fair
Market Value of a full share of the Common Stock as of the last trading day
prior to the exercise date times (y) the fractional amount, and rounded to the
nearest whole cent.
3. ADJUSTMENTS. This Warrant is subject to the following terms and
conditions during the term thereof:
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If, after the
date of issuance of this Warrant, the Company: (i) pays a dividend or makes a
distribution on its Common Stock in shares of its capital stock (including
Common Stock), (ii) subdivides its outstanding shares of Common
3
<PAGE>
Stock into a greater number of shares, (iii) combines its outstanding shares
of Common Stock into a smaller number of shares, or issues by
reclassification of its Common Stock any shares of its capital stock or Other
Securities (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then in each such case, an appropriate and proportionate adjustment shall be
made in the number of Warrant Shares or Other Securities covered by this
Warrant so that the upon exercising this Warrant immediately after such
action, the Holder would be entitled to receive the number of Warrant Shares
or Other Securities that such Holder would have owned immediately following
such action if such Holder had exercised this Warrant immediately prior to
such action. The adjustment shall become effective immediately after (x) the
distribution date in the case of a dividend or distribution and (y) the
effective date in the case of a subdivision, combination or reclassification.
Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted as provided in this Section 3, the per
share Exercise Price shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, the numerator of which
shall be the number of Warrant Shares purchasable upon the exercise of this
Warrant immediately prior to such adjustment, and the denominator of which
shall be the number of Warrant Shares so purchasable immediately thereafter.
(b) OTHER SECURITIES. If at any time, as a result of an
adjustment made pursuant to this Section 3, the Holder becomes entitled to
purchase Other Securities of the Company or the stock or Other Securities of any
other person, corporate or otherwise, thereafter the number of such Other
Securities so purchasable upon exercise of this Warrant and the Exercise Price
of such securities 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 Warrant Shares contained in this Section 3, and the provisions of this
Warrant with respect to the Warrant Shares, shall apply on like terms to any
such other shares, capital stock or Other Securities.
(c) CONSOLIDATIONS, MERGERS AND OTHER TRANSACTIONS. In case
of any consolidation of the Company with or merger of the Company into
another corporation or other entity, or in case of any sale or conveyance to
another corporation or other entity of the property of the Company as an
entirety or substantially as an entirety, proper provision shall be made so
that the Holder shall have the right thereafter upon payment of the Exercise
Price in effect immediately prior to such action to purchase upon exercise of
this Warrant the kind and amount of Other Securities and property which the
Holder would have owned or have been entitled to receive after the happening
of such consolidation, merger, sale or conveyance had this Warrant been
exercised immediately prior to such action. The Company shall give notice to
each Holder of such provision. Such provision shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 3.
(d) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or the
kind or amount of securities purchasable upon the exercise of this Warrant shall
be adjusted pursuant to any of the provisions of this Warrant, the Company shall
thereafter cause to be sent to the Holder a certificate setting forth the
adjustments in the Exercise Price and/or in said number of shares, and also
setting forth in detail the facts requiring such adjustments.
4
<PAGE>
(e) NOTICE OF CERTAIN EVENTS. In the event of (i) any taking
by the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than any regular quarterly dividend paid by the Company) or
other distribution, or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any Other Securities or property, or to
receive any other right, or (ii) any capital reorganization of the Company, or
any reclassification or recapitalization of the capital stock of the Company, or
any transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other person, or (iii)
any voluntary or involuntary dissolution or liquidation of the Company, then and
in each such event the Company will mail or cause to be mailed to the Holder a
notice specifying: (a) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, or (b) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any, as of which the holders of record of Common Stock (or
Other Securities) shall be entitled to exchange their shares of Common Stock (or
Other Securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be mailed at
least ten (10) days prior to the proposed record date or the proposed closing
date, as applicable, therein specified.
4. TRANSFERABILITY. The Holder acknowledges that this Warrant is
being acquired in a transaction not involving any public offering within the
meaning of the Act and that neither the Warrants or the Warrant Shares issuable
upon exercise of the Warrants have been registered under the Act. The Holder
shall not offer, sell, transfer or otherwise dispose of the Warrants or any
Warrant Shares in the absence of registration under the Act unless the Holder
delivers to the Company an opinion of counsel reasonably satisfactory to the
Company, in form and substance satisfactory to the Company, to the effect that
the proposed sale, transfer or other disposition may be effected without
registration under the Act and under applicable state securities or blue sky
laws.
5. REGISTRATION RIGHTS.
(a) DEMAND RIGHTS. Commencing one (1) year following the
closing of the initial public offering of the Company's Common Stock pursuant
to an effective registration statement under the Act, Holder shall have the
right, exercisable by written notice to the Company, to have the Company
prepare, file and use its best efforts to have declared effective by the
Securities and Exchange Commission, a registration statement covering Warrant
Shares owned and held of record by Holder at the time of exercise of such
registration rights. Notwithstanding the foregoing, the Company shall not be
obligated to effect a registration pursuant to this Section 5(a): (i) after
the Company has effected one (1) registration pursuant to this Section 5(a);
(ii) during the period starting with the date sixty (60) days prior to the
Company's good faith estimate of the date of filing of, and ending on a date
one hundred eighty (180) days following the effective date of, a registration
statement pertianing to a firmly underwritten offering of securities by the
Company, provided that the Company is actively employing in good faith all
reasonable efforts to cause such registragion to become
5
<PAGE>
effective; (iii) if the Company shall furnish Holder a certificate signed by
the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company it would be seriously detrimental to the
Company or its stockholders for a registration statement to be filed at that
time, in which case the Company's obligations to use its best efforts to file
a registration statement shall be deferred for a period not to exceed ninety
(90) days; provided, however, that the Company shall not obtain such a
deferral more than once in any twelve (12) month period; or (iv) with respect
to any Warrant Shares which may be sold or transferred by Holder pursuant to
Rule 144 of the Act (or any successor rule thereto) either without volume
limitations or in compliance with any applicable volume limitations.
(b) PIGGYBACK RIGHTS. Commencing on February 19, 1998 and
for a period of two (2) years thereafter, each time the Company proposes to
file a registration statement under the Act (other than a registration
statement relating to the issuance of securities of the Company pursuant to
employee benefit plans or the distribution of securities of the Company in
connection with a merger, acquisition or exchange offer) covering the
proposed sale for cash of shares of its Common Stock on a form that would
also permit the registration of Warrant Shares, the Company shall give
written notice thereof to Holder. Upon the written request of Holder given
within twenty (20) days after such written notice from the Company, the
Company shall use its best efforts to cause the number of Warrant Shares
requested by the Holder to be included in the registration statement. If the
managing underwriter or underwriters of such public offering determine, in
their sole discretion, that marketing factors require a limitation of the
number of shares to be underwritten or that the inclusion of any or all of
the Warrant Shares in the registration could jeopardize the success of the
offering by the Company, the Warrant Shares requested by the Holder to be
registered shall be reduced or excluded from the offering as deteremined by
the underwriters, in their sole discretion; provided that if any other
holders of Common Stock of the Company with registration rights have also
requested registration, the number of Warrant Shares and all such other stock
shall be reduced proportionately based upon the number of shares of
registrable stock then held by each of the holders of such registration
rights, respectively. The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 5(b) prior to
the effectiveness of such registration whether or not Holder has elected to
include Warrant Shares in such registration. Any sales of Warrant Shares
pursuant to a registration pursuant to this Section 5(b) shall be effected
through the underwriter of such registered offering. The registration rights
described in this Section 5(b) shall terminate prior to the two-year period
described above in this Section 5(b) if, and as of such time, all of the
Warrant Shares may be sold or transferred by Holder in one or more
transactions pursuant to Rule 144 under the Act (or any success or rule
thereto) either without volume limitations or in compliance with any
applicable volume limitations.
(c) FURTHER ACTIONS. In connection with any registration of
Warrant Shares pursuant to this Section 5, the Company agrees to take all
reasonable action necessary to facilitate the sale of the registered Warrant
Shares, including furnishing to Holder such number of prospectuses reasonably
required by Holder to dispose of the Warrant Shares, using its best efforts
to register or qualify the Warrant Shares under the Act and applicable blue
sky laws (such action being herein called a "Filing" or the "Filing") and
delivering underwriting
6
<PAGE>
agreements and other documents customarily delivered by issuers in connection
with public offerings. The Company shall not be required to ensure the
availablity of a prospectus meeting the requirements of the Act in
connection with any Filings made pursuant to this Section 5 for a period
greater than is required to complete the marketing arrangements with respect
to the securities in such Filings, and in no event for a period greater than
90 days (or such greater period as may be required by law for the delivery of
such a prospectus).
(d) EXPENSES. All expenses, filing fees and other costs
incurred by the Company in connection with any registration of Warrant Shares
pursuant to this Section 5 shall be borne by the Company; provided, however,
that Holder shall pay the underwriting discounts and commissions applicable
to the sale of Warrant Shares in accordance with the underwriter's customary
compensation practices, and shall pay any fees and disbursements of counsel
regained by Holder (other than counsel also retained by the Company).
6. REPRESENTATIONS OF HOLDER. Holder, by accepting this Warrant
(i) represents that the Warrant is acquired for Holder's own account, for
investment purposes only, and that Holder has no present intention of
distributing, selling or otherwise disposing of the Warrant or any Warrant
Shares in violation of applicable securities laws and (ii) acknowledges that
as a condition to the exercise of this Warrant the Company may require the
Holder to make such investment representations with respect to the Warrant
Shares issuable upon such exercise as the Company deems advisable for
purposes of complying with applicable securities laws.
7. COVENANTS OF THE COMPANY.
(a) RESERVATION OF STOCK. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, all Warrant Shares from time to time issuable upon
the exercise of this Warrant.
(b) TITLE TO STOCK. All of the Warrant Shares delivered upon
the exercise of this Warrant shall be validly issued, fully paid and
nonassessable.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement by the Holder reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, upon surrender by the Holder and cancellation of this Warrant, the
company at the expense of the Holder will execute and deliver, in lieu thereof,
a new Warrant of like tenor.
8. NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the
Holder to any voting rights or other rights as a stockholder of the Company
unless and except to the extent that Warrant Shares are purchased by the
Holder hereunder.
9. MISCELLANEOUS. All notices, certificates and other
communications from or at the request of the Company to the Holder of this
Warrant shall be mailed by first class, registered or certified mail, postage
prepaid, to such Holder at the address for such Holder as it appears in the
7
<PAGE>
Company's records, or such other address as such Holder may have furnished to
the Company in writing. This Warrant and any of the terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. The headings in this Warrant are for
purposes of reference only and shall not limit or otherwise affect any of the
terms hereof.
10. GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of California applicable
to agreements entered into and to be performed entirely within California.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed effective as of the date first set forth above.
SCOOP, INC.
By:/s/ MARK A. DAVIDSON
--------------------
Mark A. Davidson
Chief Financial Officer
Acknowledged, accepted and
agreed to by Holder:
- ---------------------------------------
City National Bank C/F Gabriel Kaplan,
Trustee, Rotunda Productions, Inc. MPPP
8
<PAGE>
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant to
purchase ______ shares of Common Stock of Scoop, Inc. at the Exercise Price,
and requests that Certificates for such shares be issued and delivered as
follows:
ISSUE TO:
--------------------------------
(Name)
--------------------------------
(Address, including Zip Code)
--------------------------------
Social Security or Tax
Identification Number)
DELIVER TO:
--------------------------------
(Name)
--------------------------------
(Address, including Zip Code)
In full payment of the aggregate purchase price with respect to the
number of shares being purchased upon exercise of this Warrant, the
undersigned hereby tenders payment of $_______________ by certified or bank
cashier's check payable to the order of Scoop, Inc. (the "Company") or by
delivery of ___________ shares of Common Stock of the Company pursuant to
Section 2(b) of the Warrant. If the Warrant is exercised hereby so as to
purchase fewer than all the shares of Common Stock that may be purchased
pursuant to the Warrant, then a new Warrant representing the number of full
shares for which the Warrant has not been exercised should be issued and
delivered as set forth below.
Name of Warrantholder or Assignee:
-------------------------------------------
(Please Print)
Address
----------------------------------------------------------------------
- -----------------------------------------------------------------------------
Signature Dated:
-------------------------------------- --------------------
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant)
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
the Assignee named below all of the undersigned's right, title and interest in
and to the within Warrant, with respect to the number of shares of Common Stock
of Scoop, Inc. set forth below:
<TABLE>
<CAPTION>
Name of Assignee Address Number of Social Security
- -------------------------------- -------------------- Shares of or Taxpayer
Common Stock Identification Number
----------------- ----------------------
<S> <C> <C> <C>
</TABLE>
and does hereby irrevocably authorize the Company to make such transfer on
the Warrant Register maintained at the principal office of the Company.
Dated: ,
------------------------------------------
Signature
(Signature must conform in all respect to
name of holder as specified on the face of
the Warrant).
<PAGE>
[LETTERHEAD]
August 10, 1995
Mr. Scott O'Neill
Publisher
Investor's Business Daily
12655 Beatrice Street
Los Angeles, CA 90066
Dear Mr. O'Neill:
The following provides you with the agreement concerning the ground rules for
our cooperation as it pertains to the derivative media products merchandising
program that is commencing with you AUGUST 11, 1995 issues.
NewsMakers is granted exclusive rights by INVESTOR'S BUSINESS DAILY to create,
promote, and distribute the official INVESTOR'S BUSINESS DAILY promotional wall
displays, reprints, and other editorial re-use merchandising. NewsMakers' will
market the aforementioned derivative media products through telephone, fax and
mailing efforts. Customer advertising and sales support materials will be used
in our efforts to promote INVESTOR'S BUSINESS DAILY wall displays, Lucite boxes,
and reprints. All such promotional efforts and materials production undertaken
by NewsMakers will be paid by NewsMakers.
In order to maximize the effectiveness of the solicitation process, INVESTOR'S
BUSINESS DAILY will use reasonable efforts to provide NewsMakers with access to
list subjects' company name, address, phone number and ranking statistics prior
to general release of the special issue. When possible, upon printing of the
issue, NewsMakers will be provided with a supply of early release INVESTOR'S
BUSINESS DAILY publications which will be adequate for inclusion with the
mailings directed at the story subjects and "list makers" featured in the issue.
During the term of this agreement INVESTOR'S BUSINESS DAILY will use its best
efforts to ensure that each issue of INVESTOR'S BUSINESS DAILY publications
includes contact information for NewsMakers. When possible, on a space available
basis and at no expense to NewsMakers, INVESTOR'S BUSINESS DAILY will run
display advertising promoting the use of editorial reprints, Lucite boxes, and
wall displays. Story subjects who still inquire directly to INVESTOR'S BUSINESS
DAILY regarding displays, boxes or reprints will be referred by INVESTOR'S
BUSINESS DAILY to NewsMakers.
<PAGE>
INVESTOR'S BUSINESS DAILY grants editorial reprint usage rights and re-user
rights of photos and graphics owned by INVESTOR'S BUSINESS DAILY to NewsMakers
and will, at no charge to NewsMakers, provide expeditious access to all photos,
graphics or color separations required by NewsMakers in the production of
reprints, Lucite boxes, or wall displays. In an effort to facilitate smooth
access to photos and graphics, INVESTOR'S BUSINESS DAILY will, when possible,
structure free lance photo and graphics contracts to included magazine reprint
usage rights. INVESTOR'S BUSINESS DAILY will indemnify NewsMakers and hold
NewsMakers harmless from any liability arising from actions brought by any
photographer or artists against NewsMakers for the use of such materials.
The sale of all reprints, Lucite boxes, and wall displays featuring INVESTOR'S
BUSINESS DAILY will result in royalties being paid by NewsMakers to INVESTOR'S
BUSINESS DAILY. Royalties will be forwarded by the 15th of the month following
the month in which payments are collected. Royalties are calculated as thirty-
five percent of the sales price for reprints, and twenty-five percent of the
sales price for wall displays and Lucite boxes. NewsMakers will provide
INVESTOR'S BUSINESS DAILY with a monthly activity status report, as well as
samples of all INVESTOR'S BUSINESS DAILY reprints produced by NewsMakers.
INVESTOR'S BUSINESS DAILY will, upon request, be granted audit rights of gross
receipts to ensure accurate royalty payments. Such audits must be arranged with
at least fifteen days prior notice and must not unreasonably interfere with
NewsMakers' daily conduct of business.
All promotional materials making any reference to or representation on behalf of
INVESTOR'S BUSINESS DAILY will be submitted to INVESTOR'S BUSINESS DAILY for
review prior to use. NewsMakers also agrees to notify INVESTOR'S BUSINESS DAILY
of any price adjustments deemed necessary by NewsMakers in order to optimize
profits, prior to implementation.
The initial term of this agreement shall be one year and shall be automatically
extended for additional one year periods unless either party gives notice of
termination to the other party not less than ninety days prior to the expiration
of the one year term. Any amendment, modification or revocation of this
agreement of any of its provisions will only be enforceable if made in writing
and such writing has been signed by both parties. In the event any term set
forth herein is determined by a court of competent jurisdiction to be null, void
or unenforceable, the remaining terms shall remain in full force and effect.
This agreement is to be construed in accordance with the laws of the state of
California. Any action to enforce or interpret this agreement will be brought in
Orange County, California.
<PAGE>
In the event that these terms are consistent with your recollection of our
previous discussions and represent a fair "game plan" for our cooperation,
please sign the acknowledgment below and return one of the executed originals to
us at your earliest convenience.
Sincerely yours,
/s/ Teresa Barnwell
Teresa Barnwell
Vice President/Publisher Services
I have read the foregoing letter and agree that it accurately sets forth the
terms of the agreement between INVESTOR'S BUSINESS DAILY and NewsMakers
concerning the merchandising of the derivative media products. I also represent
that I am authorized to execute this agreement on behalf of INVESTOR'S BUSINESS
DAILY.
/s/ Scott O'Neill 8/9/95
------------------------- ----------------
Mr. Scott O'Neill Date
Publisher
Investor's Business Daily
cc: Karl Karlsson
<PAGE>
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into as of __________________________, 1997
between Scoop, Inc., a California corporation, (the "Corporation"), and
_____________________________________________ ("Indemnitee").
RECITALS
A. The Corporation believes that it is essential to its best interests to
attract and retain highly capable persons to serve as directors, officers, and
agents.
B. Indemnitee is or has been selected to be a director, officer, or agent
of the Corporation.
C. The Corporation and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors, officers, and
other agents of the Corporation.
D. The Corporation and Indemnitee recognize the increasing difficulty in
obtaining adequate directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance.
E. In recognition of Indemnitee's need for substantial protection against
personal liability in order to enhance Indemnitee's service to the Corporation,
and in order to induce Indemnitee to provide or continue to provide services to
the Corporation as a director, officer, or agent, the Corporation wishes to
provide in this Agreement for the indemnification and the advancing of expenses
to Indemnitee to the fullest extent permitted by law and as set forth in this
Agreement and, to the extent applicable, insurance is maintained for the
coverage of Indemnitee under the Corporation's policies of directors' and
officers' liability insurance.
IN CONSIDERATION of the foregoing and of Indemnitee's providing services to
the Corporation directly or, at its request, with another enterprise, the
parties agree as follows:
1. DEFINITIONS.
(a) Board: The board of directors of the Corporation.
(b) Change in Control: A state of affairs that shall be deemed to have
occurred if, after the date of this Agreement,
(i) Any person becomes the "beneficial owner" (as that term is defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), directly or indirectly, of securities representing twenty
percent (20%) or more of the total voting power of the Corporation's
then-outstanding Voting Securities;
(ii) During any period of two consecutive years, individuals who, at
the beginning of such period constitute the board, together with any new
director whose election by the board or nomination for election by the
Corporation's shareholders was approved by a vote of at least two-thirds (2/3)
of the directors then in office either who were directors at the
1
<PAGE>
beginning of the two-year period, or whose election or nomination was previously
so approved, cease for any reason to constitute a majority of the board;
(iii) The shareholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than a merger
or consolidation that would result in the Voting Securities of the Corporation
outstanding immediately before such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least eighty percent (80%) of the total
voting power represented by the Voting Securities of the Corporation or such
surviving entity outstanding immediately after such merger or consolidation; or
(iv) The shareholders of the Corporation approve a plan of complete
liquidation of the Corporation, or an agreement for the sale or disposition by
the Corporation (whether in one transaction or a series of transactions) of all
or substantially all of the Corporation's assets.
(c) Expenses:
(i) Any expense, liability, or loss, including attorneys' fees,
judgments, fines, ERISA excise taxes and penalties, or amounts paid or to be
paid in settlement;
(ii) Any interest, assessments, or other charges imposed on any of the
items in subparagraph (i) above; and
(iii) Any federal, state, local, or foreign taxes imposed as a result
of the actual or deemed receipt of any payments under this Agreement paid or
incurred in connection with investigating, defending, being a witness in,
participating in (including on appeal), or preparing for any of the foregoing
in, any proceeding relating to any indemnifiable event.
(d) Indemnifiable Event: Any event or occurrence that takes place either
before or after the execution of this Agreement, related to the fact that
Indemnitee is or was a director or an officer of the Corporation, or while a
director or officer is or was serving at the request of the Corporation as a
director, officer, employee, trustee, agent, or fiduciary of another foreign or
domestic corporation, partnership, joint venture, employee benefit plan, trust,
or other enterprise, or was a director, officer, employee, or agent of a foreign
or domestic corporation that was a predecessor corporation of the Corporation or
another enterprise at the request of such predecessor corporation, or related to
anything done or not done by Indemnitee in any such capacity, whether the basis
of the proceeding is an alleged action in an official capacity as a director,
officer, employee, or agent, or in any other capacity while serving as a
director, officer, employee, or agent of the Corporation, as described in this
paragraph.
(e) Independent Counsel: The person or body appointed in connection with
item 3.
(f) Person: "Person" (as that term is used in Sections 13(d) and 14(d) of
the Exchange Act, other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation acting in such capacity or a
corporation owned, directly or indirectly, by the shareholders of the
Corporation in substantially the same proportions as their ownership of shares
of the Corporation at the date of this Agreement.
(g) Participant: A Person who is a party to, or witness or participant
(including on appeal) in, a proceeding.
2
<PAGE>
(h) Potential Change in Control: A state of affairs that shall be deemed
to exist if:
(i) The Corporation enters into an agreement or arrangement, the
consummation of which would result in the occurrence of a Change in Control;
(ii) Any Person (including the Corporation) announces publicly an
intention to take or to consider taking actions that, if consummated, would
constitute a Change in Control;
(iii) Any Person who, after the date of this Agreement, becomes the
beneficial owner, directly or indirectly, of securities of the Corporation
representing 10 percent or more of the combined voting power of the
Corporation's then-outstanding Voting Securities, increases his or her
beneficial ownership of such securities by five percent (5%) or more over the
percentage owned by such Person on the date of this Agreement; or
(iv) The board adopts a resolution to the effect that, for purposes of
this Agreement, a potential Change in Control has occurred.
(i) Proceeding: Any threatened, pending, or completed action, suit, or
proceeding, or any inquiry, hearing or investigation, whether conducted by the
Corporation or any other party, that Indemnitee in good faith believes might
lead to the institution of any such action, suit, or proceeding, whether civil,
criminal, administrative, investigative, or other.
(j) Reviewing Party: The person or body appointed in accordance with
paragraph 3.
(k) Voting Securities: Any securities of the Corporation that have the
right to vote generally in the election of directors.
2. AGREEMENT TO INDEMNIFY.
(a) General Agreement. In the event Indemnitee was, is, or becomes a
Participant in, or is threatened to be made a Participant in, a Proceeding by
reason of (or arising in part out of) an Indemnifiable Event, the Corporation
shall indemnify the Indemnitee from and against any and all Expenses to the
fullest extent permitted by law, as the same exists or may hereafter be amended
or interpreted (but in the case of any such amendment or interpretation, only to
the extent that such amendment or interpretation permits the Corporation to
provide broader indemnification rights than were permitted before this
Agreement). The parties to this Agreement intend indemnification in excess of
that expressly permitted by statute, including, without limitation, any
indemnification provided by the Corporation's articles of incorporation, its
bylaws, a vote of its shareholders or disinterested directors, or applicable
law.
(b) Initiation of Proceeding. Notwithstanding anything in this Agreement
to the contrary, Indemnitee shall not be entitled to indemnification under this
Agreement in connection with any Proceeding initiated by Indemnitee against the
Corporation or any director or officer of the Corporation unless (i) the
Corporation has joined in or the Board has consented to the initiation of such
Proceeding; (ii) the Proceeding is one to enforce indemnification rights under
paragraph 5; or (iii) the Proceeding is instituted after a Change in Control and
Independent Counsel has approved its initiation.
(c) Expense Advances. If so requested by Indemnitee, the Corporation
shall within ten business days of such request, advance all Expenses to
Indemnitee (an "Expense advance").
3
<PAGE>
Notwithstanding the foregoing, to the extent that the Reviewing Party determines
that Indemnitee would not be permitted to be so indemnified under applicable
law, the Corporation shall be entitled to be reimbursed by Indemnitee for all
such amounts, and Indemnitee hereby agrees to reimburse the Corporation promptly
for the same. If Indemnitee has commenced legal Proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law as provided in paragraph 4, any determination
made by the Reviewing Party that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding, and Indemnitee shall not
be required to reimburse the Corporation for any Expense advance until a final
judicial determination is made (as to which all rights of appeal have been
exhausted or have lapsed). Indemnitee's obligation to reimburse the Corporation
for Expense advances shall be unsecured and no interest shall be charged
thereon.
(d) Mandatory Indemnification. Notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the merits
in defense of any Proceeding relating in whole or in part to an Indemnifiable
Event or in defense of any issue or matter in such Proceeding, Indemnitee shall
be indemnified against all Expenses incurred in connection with such issue,
matter, or event.
(e) Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for a portion
of Expenses, but not for the total amount of Expenses, the Corporation shall
indemnify the Indemnitee for the portion to which Indemnitee is entitled.
(f) Prohibited Indemnification. No indemnification under this Agreement
shall be paid by the Corporation on account of any Proceeding in which judgment
is rendered against Indemnitee for an accounting of profits made from the
purchase or sale by Indemnitee of securities of the Corporation under the
provisions of Section 16(b) of the Exchange Act or similar provisions of any
federal, state, or local laws.
3. Reviewing Party. Before any Change in Control, the Reviewing Party
shall be any appropriate Person or body consisting of a member or members of the
board or any other Person or body appointed by the board who is not a party to
the Proceeding with respect to which Indemnitee is seeking indemnification;
after a Change in Control, the Reviewing Party shall be the Independent Counsel.
With respect to all matters arising after a Change in Control (other than a
Change in Control approved by a majority of the directors of the board who were
directors immediately before the Change in Control) concerning the rights of
Indemnitee to indemnity payments and Expense advances under this Agreement or
any other agreement or under applicable law or the Corporation's articles of
incorporation or bylaws now or hereafter in effect relating to indemnification
for Indemnifiable Events, the Corporation shall seek legal advice only from
Independent Counsel selected by Indemnitee and approved by the Corporation, the
approval of whom shall not be unreasonably withheld, and who has not otherwise
performed services for the Corporation or Indemnitee (other than in connection
with indemnification matters) within the last five years. The Independent
Counsel shall not include any Person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Corporation or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The counsel, among other things,
shall render a written opinion to the Corporation and Indemnitee as to whether
and to what extent Indemnitee should be permitted to be indemnified under
applicable law. The Corporation agrees to pay the reasonable fees of the
Independent Counsel and to indemnify fully such
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counsel against any and all Expenses, including attorneys' fees, claims,
liabilities, loss, and damages arising out of or relating to this Agreement or
the engagement of Independent Counsel under this Agreement.
4. INDEMNIFICATION PROCESS AND APPEAL.
(a) Indemnification Payment. Indemnitee shall receive indemnification of
Expenses from the Corporation in accordance with this Agreement as soon as
practicable after Indemnitee has made written demand on the Corporation for
indemnification, unless the Reviewing Party has given a written opinion to the
Corporation that Indemnitee is not entitled to indemnification under this
Agreement or applicable law.
(b) Suit To Enforce Rights. Regardless of any action by the Reviewing
Party, if Indemnitee has not received full indemnification within 30 days after
making a demand in accordance with subparagraph (a) above, Indemnitee shall have
the right to enforce its indemnification rights under this Agreement by
commencing litigation in any court in the State of California seeking an initial
determination by the court or challenging any determination by the Reviewing
Party or any aspect of the Agreement. The Corporation hereby consents to
service of process and to appear in any such Proceeding. Any determination by
the Reviewing Party not challenged by Indemnitee shall be binding on the
Corporation and Indemnitee. The remedy provided in this paragraph shall be in
addition to any other remedies available to Indemnitee in law or equity.
(c) Defense to Indemnification, Burden of Proof, and Presumptions. It
shall be a defense to any action brought by Indemnitee against the Corporation
to enforce this Agreement (other than an action brought to enforce a claim for
Expenses incurred in defending a Proceeding in advance of its final disposition
when the required undertaking has been tendered to the Corporation) that it is
not permissible under this Agreement or applicable law for the Corporation to
indemnify the Indemnitee for the amount claimed. In connection with any such
action or any determination by the Reviewing Party or otherwise as to whether
Indemnitee is entitled to be indemnified under this Agreement, the burden of
proving such a defense or determination shall be on the Corporation. Neither
the failure of the Reviewing Party or the Corporation (including its board,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action by Indemnitee that indemnification is
proper under the circumstances because Indemnitee has met the standard of
conduct set forth in applicable law, nor an actual determination by the
Reviewing Party or Corporation (including its board, independent legal counsel,
or its shareholders) that Indemnitee had not met such applicable standard of
conduct shall be a defense to the action or create a presumption that Indemnitee
has not met the applicable standard of conduct. For purposes of this Agreement,
the termination of any claim, action, suit, or Proceeding, by judgment, order,
settlement (whether with or without court approval), conviction, or on a plea of
nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief, or that a court has determined that indemnification is not
permitted by applicable law.
(d) Selection of Counsel. In the event the Corporation shall be obligated
under this Agreement to pay the Expenses of any Proceeding against Indemnitee,
the Corporation, if appropriate, shall be entitled to assume the defense of any
such Proceeding, with counsel approved by Indemnitee, which approval shall not
be unreasonably withheld, upon the delivery to Indemnitee of written notice of
its election to do so. After delivery of such notice, approval
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of such counsel by Indemnitee and the retention of such counsel by the
Corporation, the Corporation will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Proceeding, provided that (i) Indemnitee shall have the
right to employ his or her own counsel in any such Proceeding at Indemnitee's
expense, and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Corporation, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Corporation and
Indemnitee in the conduct of any such defense or (C) the Corporation shall not,
in fact, have employed counsel to assume the defense of such Proceeding, then
the Expenses of Indemnitee's counsel shall be paid by the Corporation.
5. INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING RIGHTS. The
Corporation shall indemnify the Indemnitee against any and all Expenses. If
requested by Indemnitee, the Corporation shall, within ten business days of such
request, advance to Indemnitee such Expenses as are incurred by Indemnitee in
connection with any claim asserted against or action brought by Indemnitee for:
(a) Indemnification of Expenses or advances of Expenses by the Corporation
under this Agreement or any other agreement or under applicable law or the
Corporation's articles of incorporation or bylaws now or hereafter in effect
relating to indemnification for Indemnifiable Events, or
(b) Recovery under directors' and officers' liability insurance policies
maintained by the Corporation for amounts paid in settlement if the Independent
Counsel has approved the settlement.
The Corporation shall not settle any Proceeding in any manner that would impose
any penalty or limitation on Indemnitee without Indemnitee's written consent.
Neither the Corporation nor Indemnitee will unreasonably withhold its consent to
any proposed settlement. The Corporation shall not be liable to indemnify the
Indemnitee under this Agreement with regard to any judicial award if the
Corporation was not given a reasonable and timely opportunity, at its Expense,
to participate in the defense of such action; however, the Corporation's
liability under this Agreement shall not be excused if its participation in the
Proceeding was barred by this Agreement.
6. ESTABLISHMENT OF TRUST. In the event of a Change in Control or a
Potential Change in Control, the Corporation shall, upon written request by
Indemnitee, create a trust for the benefit of the Indemnitee ("the Trust") and
from time to time, upon written request of Indemnitee, shall fund the Trust in
an amount sufficient to satisfy any and all Expenses reasonably anticipated at
the time of each such request to be incurred in connection with investigating,
preparing for, participating in, and/or defending any Proceeding relating to an
Indemnifiable Event. The amount or amounts to be deposited in the Trust under
the foregoing funding obligation shall be determined by the Reviewing Party.
The terms of the Trust shall provide that on a Change in Control, (i) the Trust
shall not be revoked or the principal invaded without the written consent of the
Indemnitee, (ii) the Trustee shall advance, within ten business days of a
request by the Indemnitee, all Expenses to the Indemnitee (provided that the
Indemnitee hereby agrees to reimburse the Trust under the same circumstances for
which the Indemnitee would be required to reimburse the Corporation under
subparagraph 2(c) above), (iii) the Trust shall continue to be funded by the
Corporation in accordance with the funding obligation set forth in this
paragraph, (iv) the Trustee shall promptly pay to the Indemnitee all
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amounts for which the Indemnitee shall be entitled to indemnification under this
Agreement or otherwise, and (v) all unexpended funds in the Trust shall revert
to the Corporation on a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that the Indemnitee has been fully
indemnified under the terms of this Agreement. The Trustee shall be chosen by
the Indemnitee. Nothing in this paragraph shall relieve the Corporation of any
of its obligations under this Agreement. All income earned on the assets held
in the Trust shall be reported as income by the Corporation for federal, state,
local, and foreign tax purposes. The Corporation shall pay all costs of
establishing and maintaining the Trust, and shall indemnify the Trustee against
any and all Expenses (including attorneys' fees), claims, liabilities, loss, and
damages arising out of or relating to this Agreement or the establishment and
maintenance of the Trust.
7. NONEXCLUSIVITY. The rights of Indemnitee under this Agreement shall be
in addition to any other rights Indemnitee may have under the Corporation's
articles of incorporation, bylaws, applicable law, or otherwise. To the extent
that a change in applicable law (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Corporation's articles of incorporation, bylaws, applicable law, or
this Agreement, it is the intent of the parties that Indemnitee enjoy by this
Agreement the greater benefits afforded by such change.
8. LIABILITY INSURANCE. To the extent the Corporation maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Corporation director or officer.
9. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Corporation or any affiliate
of the Corporation against Indemnitee, Indemnitee's spouse, heirs, executors, or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, or such longer period as may be
required by state law under the circumstances. Any claim or cause of action of
the Corporation or its affiliate shall be extinguished and deemed released
unless asserted by the timely filing of a legal action within such period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, the shorter period shall govern.
10. AMENDMENT OF THIS AGREEMENT. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties to this Agreement. No waiver of any of the provisions of this
Agreement shall operate as a waiver of any other provisions (whether or not
similar), nor shall such waiver constitute a continuing waiver. Except as
specifically provided in this Agreement, no failure to exercise or any delay in
exercising any right or remedy shall constitute a waiver.
11. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of 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 Corporation effectively to
bring suit to enforce such rights.
12. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to
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the extent Indemnitee has otherwise received payment (under any insurance
policy, bylaw, or otherwise) of the amounts otherwise indemnifiable under this
Agreement.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Corporation), assigns, spouses, heirs, and personal and legal
representatives. The Corporation shall require and cause any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all,
substantially all, or a substantial part, of the business or assets of the
Corporation or both, by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
if no such succession had taken place. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity pertaining to an Indemnifiable Event
even though Indemnitee may have ceased to serve in such capacity at the time of
any Proceeding.
14. SEVERABILITY. If any portion of this Agreement shall be held by a
court of competent jurisdiction to be invalid, void, or otherwise unenforceable,
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions
of this Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void, or otherwise unenforceable,
that is not itself invalid, void, or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, void, or
unenforceable.
15. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
contracts made and to be performed in this state without giving effect to the
principles of conflicts of laws.
16. NOTICES. All notices, demands, and other communications required or
permitted under this Agreement shall be made in writing and shall be deemed to
have been duly given if delivered by hand, against receipt, or mailed, postage
prepaid, certified or registered mail, return receipt requested, and addressed
to the Corporation at:
Scoop, Inc.
2540 Red Hill Ave., Suite 100
Santa Ana, California 92705
Attn: General Counsel
and to Indemnitee at:
__________________________________
__________________________________
__________________________________
Attn:_____________________________
Notice of change of address shall be effective only when given in accordance
with this agreement. All notices complying with this paragraph shall be deemed
to have been received on the date of delivery or on the third business day after
mailing.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day specified above.
SCOOP, INC.
By:
------------------------------------
INDEMNITEE
-------------------------------------
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July 24, 1996
Michael Baum
280, Inc.
1550 Bryant, Third Floor
San Francisco, CA 94103
Dear Michael :
Per our conversation on Friday, I have spoken with Karl and received
clarification on the discussions between the two of you. We will agree to a
finalized agreement that is structured in the following manner.
VICE CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF TECHNICAL ADVISOR
Fulfillment of responsibilities including product and technical strategy,
assistance in strategic partner relationship development and participation in
Board of Directors meetings.
Most of your performance of these duties can be performed remotely from San
Francisco. It is our expectation that performance of these duties will also
include your physical presence at Scoop's facilities and meetings with partners.
Compensation:
- - $5,000 per month cash consulting fee initiating August 1996.
- - 60,000 share stock option grant with a $2.50 strike price.
The options will be subject to all the terms and conditions of the Scoop option
plan and will vest over a three and one-half year period (with 25% vesting in
January of 1997 and quarterly thereafter).
INCREASED PRODUCT DEVELOPMENT LEADERSHIP 1996
As we discussed, Scoop requires a deeper personal involvement during the
remainder of 1996 as we prepare to complete the version 1.0 release, launch the
Scoop service and until we recruit a head of engineering.
The specific needs for your involvement will evolve as we proceed but is
expected to include participation in engineering reviews twice a month, twice a
week CKS status calls and involvement in the engineering recruiting process.
In light of this substantial involvement, we have agreed to an incremental
increase in the compensation package as described below.
<PAGE>
Compensation:
- - $5,000 per month cash consulting fee for June and July 1996.
- - 15,000 share stock option grant with a $2.50 strike price.
The options will be subject to all the terms and conditions of the Scoop option
plan and will vest over a three and one-half year period (with 25% vesting in
January of 1997 and quarterly thereafter).
COMPENSATION FOR PAST SERVICES
In recognition of past service contributions made while we were redefining the
business plan and developing a product and technical strategy, we have agreed to
the following compensation:
- - 10,000 share grant previously awarded.
- - 40,000 share stock option grant with a $2.50 strike price immediately
vested.
- - A cash bonus totaling $20,000 will be paid in 1997; timing subject to Board
approval.
Such options are also subject to all of the terms and conditions of the Scoop
stock option plan.
Upon your receipt of your signed agreement, we will initiate the issuance of
cash payments currently due.
Please know that we appreciate your involvement and we are aware of the
importance of your experience and extraordinary efforts during this phase of
Scoop.
Regards,
/s/ MARK A. DAVIDSON
Mark Davidson
Chief Operating and Financial Officer
Accepted and Agreed
as of July 24, 1996
/s/ MICHAEL BAUM
- ----------------
Michael Baum
<PAGE>
SETTLEMENT AGREEMENT AND GENERAL RELEASE
This Settlement Agreement and General Release (hereinafter
"Settlement Agreement") is made and entered into as of February 24, 1997 (the
"Effective Date") by and between (a) Stanley I. Berk ("Berk"), Stephen P.
Grayson, individually and on behalf of the Stephen P. Grayson Profit Sharing
Plan (collectively, "Grayson") and Stanley Berk & Associates, a partnership
of which Berk and Grayson are the general partners, (Berk, Grayson and
Stanley Berk & Associates are hereinafter collectively referred to as the
"Berk Parties") and (b) Karl-Magnus S. Karlsson ("Karlsson") and Scoop, Inc.,
a California corporation formerly known as Karlsson-DelRey Communications, Inc.
("Scoop") (Karlsson and Scoop are hereinafter collectively referred to
as the "Scoop Parties").
RECITALS
A. On or about October 24, 1995, Stanley Berk & Associates and
Karlsson entered into a Stock Purchase and Option Agreement, a true and
correct copy of which is attached hereto as Exhibit "A."
B. On or about October 24, 1995, Scoop and Stanley Berk &
Associates entered into a Line of Credit Agreement, a true and correct copy
of which is attached hereto as Exhibit "B."
C. By letter agreement dated July 25, 1996, Scoop and Berk
memorialized the resolution of various issues relating to Berk's prior and
future relationship with Scoop. A true and correct copy of this July 25,
1996 letter agreement is attached hereto as Exhibit "C."
D. On July 26, 1996, Berk executed a General Release discharging
Scoop and its officers, directors, employees, agents and representatives
(both individually and in their capacities as such) from all demands and
claims which he ever had, then had, or in the future may have against Scoop
or its officers, directors, employees, agents and representatives for any
cause, and expressly waiving his rights under California Civil Code
Section 1542. A true and correct copy of Berk's General Release dated
July 26, 1996 is attached hereto as Exhibit "D."
E. On July 26, 1996, Stanley Berk & Associates executed a General
Release discharging Scoop and its officers, directors, employees, agents and
representatives (both individually and in their capacities as such) from all
demands and claims which Stanley Berk & Associates ever had, then had or in
the future may have against Scoop or its officers, directors, employees,
agents and representatives for any cause, including without limitation any
claims arising under or related to the Stock Purchase and Option Agreement,
attached hereto as Exhibit "A," and the Line of Credit Agreement, attached
hereto as Exhibit "B," and expressly waiving its rights under California
Civil Code Section 1542. A true and correct copy of Stanley Berk &
Associates' General Release dated July 26, 1996 is attached hereto as
Exhibit "E."
<PAGE>
F. By letter agreement dated July 30, 1996 (the "Grayson Letter
Agreement"), Karlsson granted Grayson an option to purchase shares of Common
Stock of Scoop owned by Karlsson under the terms and conditions provided
therein. The option granted pursuant to the Grayson Letter Agreement expired
on January 5,1997 and is no longer exercisable. A true and correct copy of
the Grayson Letter Agreement is attached hereto as Exhibit "F."
G. Stanley Berk & Associates is the record owner of an aggregate
of 386,339 shares of Scoop Common Stock (the "SB&A Shares"), representing all
of the shares acquired by Stanley Berk & Associates pursuant to the Stock
Purchase and Option Agreement attached hereto as Exhibit "A" and in
connection with the conversion and cancellation of Scoop indebtedness under
the Line of Credit Agreement attached hereto as Exhibit "B." Through their
respective interests in Stanley Berk & Associates, Berk is the beneficial
owner of 219,827 of the SB&A Shares and Grayson is the beneficial owner of
166,512 of the SB&A Shares. Grayson is the record and beneficial owner of an
aggregate of 28,302 shares of Scoop Common Stock (the "Grayson Shares") which
shares were acquired by Grayson in August 1996. The Berk Parties have
requested and Scoop has agreed to reissue the SB&A Shares to Berk and Grayson
in accordance with the beneficial ownership described above and to deliver
the stock certificates representing the SB&A Shares and the Grayson Shares to
Berk and Grayson concurrently with the delivery of stock certificates to all
of Scoop's shareholders prior to Scoop's initial public offering.
H. Various disputes have arisen between the parties hereto during
the course of their business relationship as a result of and/or which are
related to the agreements attached hereto as Exhibits "A" through "F," as
reflected most recently in a draft complaint captioned "Stanley I. Berk,
individually & dba Stanley Berk & Associates v. Karl-Magnus S. Karlsson."
The draft complaint alleges claims for specific performance, breach of
written agreement, breach of oral agreement, fraud - promise with no
intention of performing, declaratory relief and breach of the covenant of
good faith and fair dealing. A true and correct copy of this draft complaint
is attached hereto as Exhibit "G."
I. The parties hereto, without admitting any liability or
wrongdoing with respect to the documents attached hereto as Exhibits "A"
through "G" or with respect to any other matter, have agreed to settle all
matters between them as set forth in this Settlement Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants, agreements and releases set forth below, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
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1. SETTLEMENT TERMS. In addition to the releases set forth
herein, the parties hereto have agreed to the settlement terms set forth
below. In connection therewith, the Berk Parties acknowledge and agree that
the consideration given to Berk and Grayson pursuant to Sections 1.1, 1.2,
1.3 and all other provisions of this Settlement Agreement are provided to
them individually and in their capacities as the sole general partners of
Stanley Berk & Associates and, accordingly, constitute good and valuable
consideration for all of the Berk Parties' releases and covenants herein.
1.1 Concurrent with the execution of this Settlement
Agreement, (i) Scoop shall issue to Grayson a warrant exercisable into 11,250
shares of Scoop Common Stock in the form attached hereto as Exhibit "H"; and
(ii) Karlsson shall grant to Berk an option to purchase 11,250 shares of
Scoop Common Stock now owned by Karlsson in the form attached hereto as
Exhibit "I." Berk and Grayson shall have registration rights with respect to
the 22,500 shares of Scoop Common Stock (collectively, the "Warrant Shares")
subject to the warrant and the option described in clause (i) and (ii) above
as set forth in Section 5 below.
1.2 Scoop shall pay Berk $30,000 and shall pay Grayson
$30,000, with payments to each made in twelve consecutive monthly
installments of $2,500 each beginning the earlier of: (i) the first month
following the closing of an underwritten initial public offering of Scoop's
Common Stock or (ii) July 1997. The monthly payments shall be due on or
before the tenth day of each applicable month.
1.3 Scoop represents and warrants that neither Karlsson,
AMKEK ( a Karlsson family partnership) or Karlsson's spouse or children will
have the right to have any of their respective shares of Scoop Common Stock
(collectively, the "Karlsson Shares") registered with Scoop's initial public
offering. Scoop shall include the Grayson Shares in the shares being
registered for the account of security holders in Scoop's registration
statement for the initial public offering; provided that Grayson agrees to
enter into a lock-up agreement in the form required by Scoop's underwriters
prohibiting the sale, transfer or other disposition of the Grayson Shares for
ninety (90) days immediately following Scoop's initial public offering; and
provided further that following such ninety (90) day period, in the event
Grayson desires to sell any of the Grayson Shares prior to the expiration of
the lock-up agreement covering the SB&A Shares, Grayson agrees to effect such
sales through Scoop's lead underwriter so long as the commissions charged
Grayson in connection with such sales do not exceed the commissions
customarily charged for comparable sales by nationally recognized discount
brokerage firms such as Charles Schwab & Co. In connection with Scoop's
initial public offering, Karlsson, on the one hand, and Stanley Berk &
Associates, Berk and Grayson, on the other hand, each agrees to enter into a
lock-up agreement covering the Karlsson Shares and the SB&A Shares
(regardless of whether the SB&A Shares are held of record by Stanley Berk &
Associates or by Berk and Grayson, individually), respectively. Such lock-up
agreements shall be in the form and for the period required by Scoop's
underwriters, provided that: the lock-up agreements covering the SB&A Shares
and the Karlsson Shares, respectively, (i) shall require the same lock-up
period (not to exceed one year) and (ii) shall permit Berk to sell an
aggregate
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of 21,700 of the SB&A Shares and shall permit Karlsson to sell 50,000 of the
Karlsson Shares without the lead underwriter's prior consent, subject in each
case to applicable holding periods under Rule 144. The lock-up agreement
covering the Karlsson Shares shall also acknowledge that an aggregate of
69,394 of the Karlsson Shares (the "Option Shares") are subject to options
granted to various third parties (including the 11,250 Warrant Shares subject
to Berk's option described in Section 1.1 above), and shall permit the sale
of such Option Shares in the event any such third parties exercise their
respective options. Karlsson, Stanley Berk & Associates, Berk and Grayson
shall deliver copies of their respective lock-up agreements to the other
parties within ten (10) days following the closing of Scoop's initial public
offering. Karlsson agrees not to sell any Karlsson Shares other than the
50,000 shares referred to in clause (ii) above and any Option Shares
transferable upon the exercise of the third party options referred to above
prior to the time the 21,700 SB&A Shares referred to in clause (ii) above are
eligible for sale under Rule 144. Karlsson represents to the Berk Parties
that he neither has any beneficial interest in any shares of Scoop Common
Stock owned by his mother, nor will receive any proceeds from any sales of
such shares prior to the expiration of the lock-up agreements covering the
SB&A Shares and the Karlsson Shares.
1.4 Berk represents and warrants that all voting proxies held
by Berk with respect to shares of Scoop Common Stock expired or were revoked
on or before January 31, 1997. Berk acknowledges and agrees that such
expirations and/or revocations effected a termination of Berk's right to vote
all shares of Scoop Common Stock other than the SB&A Shares.
1.5 Berk and Grayson each acknowledges and agrees that,
following the Effective Date, he will neither render or purport to render any
services for or on behalf of Scoop nor be entitled to any compensation for
any such services unless Scoop, following the Effective Date, has entered
into a written agreement with him providing for such services and
compensation, if any. Berk and Grayson each further acknowledges and agrees
that without the prior written authorization of Scoop, he will not
affirmatively represent himself as, or otherwise affirmatively cause any
third party to believe he is, a consultant, agent or representative of Scoop
or affiliated in any way with Scoop or the Scoop Parties, except for any
affiliation as a stockholder of Scoop.
1.6 CONFIDENTIALITY.
(a) Except as may be required by law or permitted by
subparagraph (b) of this paragraph 1.6, following the Effective Date, no
party nor any attorney or agent of any party, shall disclose to anyone,
without the prior written consent of all other parties, any information
concerning the disputes relating to the documents attached hereto as
Exhibits "A" through "I" or the terms of this Settlement Agreement and General
Release except in accordance with the following terms:
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(i) Any party may disclose to its accountants,
attorneys and immediate family, to Scoop representatives and to public
agencies the terms of this Settlement Agreement and information concerning
the documents attached hereto as Exhibits "A" through "I": provided however,
that any disclosures to such accountants, attorneys and public agencies may
be made only to the extent necessary to permit such accountants, attorneys
and public agencies to perform necessary or required tax, accounting,
financial, legal or administrative tasks and services.
(ii) Before disclosing information pursuant to
subparagraph 1.6(a)(i) to an accountant or attorney, a party must instruct
the person(s) who will receive the information to maintain the information in
confidence.
(b) Without obtaining the prior written consent of the
Berk Parties, the Scoop Parties shall be entitled to make any disclosures
concerning the documents and information referred to in subparagraph (a) of
this paragraph 1.6 which the Scoop Parties determine, in their sole
discretion, are necessary or appropriate in connection with any public or
private offering of Scoop securities or pursuant to any disclosure or
reporting obligations to which the Scoop Parties may be subject, including
but not limited to, any such disclosures to the Securities and Exchange
Commission, state securities agencies, underwriters, prospective investors,
accountants and attorneys.
2. RELEASE BY THE BERK PARTIES.
2.1 The Berk Parties, on behalf of themselves and each of
them, and their past and present agents, employees, partners, principals,
representatives, attorneys, insurers, reinsurers, estates, executors,
administrators, heirs, successors and assigns, if any, do hereby fully,
finally and forever settle, release and discharge the Scoop Parties and each
of them, and each of their past, present and future parents and subsidiaries,
affiliates, agents, employees, officers, directors, partners, principals,
members, shareholders, representatives, attorneys, insurers, reinsurers, and
all persons acting by, through, under or in concert with the Scoop Parties,
and each of their respective successors and assigns (collectively, the "Scoop
Released Parties") of and from any and all claims, action or actions,
omissions, cause or causes of action, including but not limited to any and
all claims for relief at law or in equity, suits, disputes, debts, contracts,
agreements, promises, liability, demands, damages, loss, attorneys' fees,
cost or expense, of any nature whatsoever, known or unknown, suspected or
unsuspected, fixed or contingent (collectively, hereinafter "Claims"), which
any of the Berk Parties or their agents, employees, partners, principals,
representatives, attorneys, insurers, reinsurers, estates, heirs, executors,
administrators, successors and/or assigns may have had, now have or
hereinafter may have in the future by reason of any matter, cause, or thing
whatsoever or any action or omission of any of the Scoop Released Parties
from the beginning of time to the Effective Date, except for any Claims
arising out of or related to any breach of this Settlement Agreement by any
of the Scoop Parties. Notwithstanding the foregoing, the release set forth
in this paragraph 2.1 shall not affect Stanley Berk & Associates, Berk or
5
<PAGE>
Grayson's rights to and ownership of the SB&A Shares or Grayson's rights to
and ownership of the Grayson Shares.
2.2 Without in any way limiting the generality of the
foregoing, and subject to the last sentence of Section 2.1 above, it is
expressly understood and agreed that the Berk Parties' Claims released
pursuant to paragraph 2.1 above, specifically include any and all Claims
arising out of or related to (a) the October 24, 1995 Stock Purchase and
Option Agreement attached hereto as Exhibit "A"; (b) the October 24, 1995
Line of Credit Agreement attached hereto as Exhibit "B"; (c) the July 25,
1996 letter agreement attached hereto as Exhibit "C"; (d) the July 26, 1996
General Releases entered into by Berk and Stanley Berk & Associates attached
hereto as Exhibits "D" and "E," respectively; (e) the Grayson Letter
Agreement attached hereto as Exhibit "F"; (f) all purported oral agreements,
representations, omissions and conduct alleged in the draft complaint
attached hereto as Exhibit "G"; and (g) any alleged rights in oral or written
agreements to which any of the Berk Parties is not a named party (i.e.,
alleged third party beneficiary rights), whether such Claims, oral
agreements, and/or third party beneficiary rights are known or unknown to any
of the Berk Parties, or unsuspected by any of the Berk Parties, as of the
Effective Date of this Settlement Agreement.
2.3 No Claims by any of the Berk Parties shall survive the
release set forth in paragraph 2.1 above, except as provided in paragraph 2.1
above with respect to the SB&A Shares, the Grayson Shares and Claims arising
out of or relating to any breach of this Settlement Agreement.
2.4 The Berk Parties and the Scoop Parties agree that the
Scoop Parties' purportedly known or suspected acts, omissions,
representations or failures to disclose, whether willful, negligent or
otherwise, which pre-date the Effective Date are not actionable in any manner
or in any type of proceeding, legal, equitable or otherwise. The parties
further agree that evidence of such purported acts, omissions,
representations or failures to disclose, whether known or unknown, is not
admissible in any proceeding to show course of conduct, intent, bad faith or
the like.
2.5 The Berk Parties represent and warrant that they have not
assigned or otherwise transferred and, as of the Effective Date, they shall
not have assigned or otherwise transferred, any interest in any Claims which
are the subject matter of this Settlement Agreement. The Berk Parties agree,
jointly and severally, to indemnify and hold the Scoop Released Parties
harmless from any claims asserted against any of the Scoop Released Parties
as a result of any person asserting any such assignment or transfer. It is
the intention of the parties that this indemnity does not require payment as
a condition precedent to recovery by the Scoop Released Parties against the
Berk Parties under this indemnity.
6
<PAGE>
2.6 The Berk Parties agree that if any of the Berk Parties
hereafter commence or join in any proceeding against, or in any manner directly
assert against or seek relief from, any of the Scoop Released Parties arising
out of, based upon or relating to any of the Claims released by the Berk Parties
hereunder, then such action shall constitute a breach of this Settlement
Agreement by the Berk Parties and the Berk Parties, jointly and severally, shall
pay to the Scoop Released Parties, in addition to any other damages caused to
the Scoop Released Parties thereby, all expenses and fees (including those of
attorneys, experts and other professionals) incurred by the Scoop Released
Parties in defending or otherwise responding to said suit or claims and
Liquidated Damages as provided in paragraph 3 below.
2.7 The Berk Parties agree, represent and warrant that, with
respect to the subject matter of the foregoing paragraphs, the Berk Parties have
been advised by their legal counsel and are familiar with the provisions, rights
and benefits of Section 1542 of the California Civil Code, which statute
provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR
and any and all provisions, rights and benefits of any similar statute or common
law principles of California or of any other jurisdiction. The Berk Parties do
hereby expressly waive and relinquish, to the fullest extent permitted by law,
the provisions of said Code Section and any similar provisions of law. The Berk
Parties further acknowledge that they are aware that they may hereafter discover
facts in addition to or different from those which they now know or believe to
be true with respect to the subject matter of this Settlement Agreement, but
that they intend to, and do hereby, fully, finally and forever settle, release
and discharge, all Claims released pursuant to paragraph 2.1 above, without
regard to the subsequent discovery or existence of different or additional
facts.
3. LIQUIDATED DAMAGES. The Berk Parties and the Scoop Parties agree
that, in the event any of the Berk Parties commences or joins in any proceeding
against, or in any manner directly asserts against or seeks relief from, any
Scoop Released Parties arising out of, based upon or relating to any of the
Claims released hereunder, the actual damages which would result therefrom,
including but not limited to (i) hampering or preventing Scoop from completing
its impending initial public offering or other future financing transactions,
(ii) damaging the reputation of the Scoop Parties and (iii) diverting the
attention of the officers of Scoop from their management responsibilities, are
uncertain and extremely difficult or impracticable to ascertain. Therefore, in
the event of such a breach of this Settlement Agreement by any of the Berk
Parties, the Scoop Parties shall be entitled to receive from the Berk Parties as
Liquidated Damages, in addition to any other damages, expenses and fees which
the Berk Parties have agreed to pay to the Scoop Released Parties pursuant to
this
7
<PAGE>
Settlement Agreement, $200,000 cash as of the date any of the Berk Parties
commences or joins in any proceeding against, or in any manner directly asserts
against or seeks relief from any Scoop Released Parties arising out of, based
upon or relating to any of the Claims released hereunder. The Berk Parties and
the Scoop Parties agree that the aforesaid sum is a reasonable amount for
Liquidated Damages for such a default under the circumstances existing at the
time this Settlement Agreement is entered into.
4. RELEASE BY THE SCOOP PARTIES.
4.1 Subject to paragraph 4.3 below, the Scoop Parties, on behalf
of themselves and each of them, and their past and present agents, employees,
partners, principals, representatives, attorneys, insurers, reinsurers, estates,
executors, administrators, heirs, successors and assigns, if any, do hereby
fully, finally and forever settle, release and discharge the Berk Parties and
each of them, and each of their past, present and future parents and
subsidiaries, affiliates, agents, employees, officers, directors, partners,
principals, members, shareholders, representatives, attorneys, insurers,
reinsurers, and all persons acting by, through, under or in concert with the
Berk Parties, and each of their respective successors and assigns (collectively,
the "Berk Released Parties") of and from any and all Claims which any of the
Scoop Parties or their agents, employees, partners, principals, representatives,
attorneys, insurers, reinsurers, estates, heirs, executors, administrators,
successors and/or assigns may have had, now have or hereinafter may have in the
future by reason of any matter, cause, or thing whatsoever or any action or
omission of any of the Berk Released Parties from the beginning of time to the
Effective Date, except for any Claims arising out of or related to any breach of
this Settlement Agreement by any of the Berk Parties.
4.2 Without in any way limiting the generality of the foregoing,
it is expressly understood and agreed that the Scoop Parties' Claims released
pursuant to paragraph 4.1 above, specifically include any and all Claims arising
out of or related to (a) the October 24, 1995 Stock Purchase and Option
Agreement attached hereto as Exhibit "A"; (b) the October 24, 1995 Line of
Credit Agreement attached hereto as Exhibit "B"; (c) the July 25, 1996 letter
agreement attached hereto as Exhibit "C"; (d) the July 26, 1996 General Releases
entered into by Berk and Stanley Berk & Associates attached hereto as Exhibits
"D" and "E," respectively; (e) the Grayson Letter Agreement attached hereto as
Exhibit "F"; (f) all purported oral agreements, representations, omissions and
conduct alleged in the draft complaint attached hereto as Exhibit "G"; and (g)
any alleged rights in oral or written agreements to which any of the Scoop
Parties is not a named party (i.e., alleged third party beneficiary rights),
whether such Claims, oral agreements, and/or third party beneficiary rights are
known or unknown to any of the Scoop Parties, or unsuspected by any of the Scoop
Parties, as of the Effective Date of this Settlement Agreement.
4.3 No Claims by any of the Scoop Parties shall survive the
release set forth in paragraph 4.1 above, except as provided in paragraph 4.1
above with respect to Claims arising out of or relating to any breach of this
Settlement Agreement and as provided in
8
<PAGE>
the following sentence of this paragraph 4.3. It is expressly understood and
agreed that in the event any of the Berk Parties, commits the breach
described in paragraph 2.6 above or materially breaches paragraph 1.5,
paragraph 1.6 or any other term, provision or covenant contained in this
Settlement Agreement, then without affecting the continued validity or
enforceability of any other provision of this Settlement Agreement: (a) the
release by the Scoop Parties provided in paragraph 4.1 (including, without
limitation, the release of all Claims referred to in paragraph 4.2) and the
provisions of paragraphs 4.4, 4.6 and 4.7 hereof shall immediately terminate
and be of no further force or effect, and (b) the applicable limitations
period for claims arising from or related to the conduct and documents
discussed in paragraphs 4.1, 4.2, 4.4, 4.6 and 4.7 hereof shall be tolled as
of the Effective Date of this Settlement Agreement.
4.4 Subject to paragraph 4.3 above, the Berk Parties and the
Scoop Parties agree that (a) the Berk Parties' purportedly known or suspected
acts, omissions, representations or failures to disclose, whether willful,
negligent or otherwise, which pre-date the Effective Date are not actionable in
any manner or in any type of proceeding, legal, equitable or otherwise, and (b)
evidence of such purported acts, omissions, representations or failures to
disclose, whether known or unknown, is not admissible in any proceeding to show
course of conduct, intent, bad faith or the like.
4.5 The Scoop Parties represent and warrant that they have not
assigned or otherwise transferred and, as of the Effective Date, they shall not
have assigned or otherwise transferred, any interest in any Claims which are the
subject matter of this Settlement Agreement. The Scoop Parties agree, jointly
and severally, to indemnify and hold the Berk Released Parties harmless from any
claims asserted against any of the Berk Released Parties as a result of any
person asserting any such assignment or transfer. It is the intention of the
parties that this indemnity does not require payment as a condition precedent to
recovery by the Berk Released Parties against the Scoop Parties under this
indemnity.
4.6 Subject to paragraph 4.3 above, the Scoop Parties agree that
if they hereafter commence or join in any proceeding against, or in any manner
directly assert against or seek relief from, any of the Berk Released Parties
arising out of, based upon or relating to any of the Claims released by the
Scoop Parties hereunder, then the Scoop Parties, jointly and severally, shall
pay to the Berk Released Parties, in addition to any other damages caused to the
Berk Released Parties thereby, all expenses and fees (including those of
attorneys, experts and other professionals) incurred by the Berk Released
Parties in defending or otherwise responding to said suit or claims.
4.7 The Scoop Parties agree, represent and warrant that, with
respect to the subject matter of the foregoing paragraphs, the Scoop Parties
have been advised by their legal counsel and are familiar with the provisions,
rights and benefits of Section 1542 of the California Civil Code, which statute
provides:
9
<PAGE>
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR
and any and all provisions, rights and benefits of any similar statute or common
law principles of California or of any other jurisdiction. The Scoop Parties do
hereby expressly waive and relinquish, to the fullest extent permitted by law,
the provisions of said Code Section and any similar provisions of law. The
Scoop Parties further acknowledge that they are aware that they may hereafter
discover facts in addition to or different from those which they now know or
believe to be true with respect to the subject matter of this Settlement
Agreement, but that they intend to and, subject to paragraph 4.3 above, do
hereby, fully, finally and forever settle, release and discharge, all Claims
released pursuant to paragraph 4.1 above without regard to the subsequent
discovery or existence of different or additional facts.
5. REGISTRATION RIGHTS.
(a) DEMAND RIGHTS. Commencing one year following the closing of
Scoop's initial public offering of Common Stock, and provided that Scoop is
eligible to register Warrant Shares on Form S-3 under the Act, or any successor
form thereto, Berk and Grayson (each a "Holder" for purposes of this Section 5)
shall have the right, exercisable by written notice to Scoop, to have Scoop
prepare, file and use its best efforts to have declared effective by the
Securities and Exchange Commission, a registration statement covering Warrant
Shares owned and held of record by Holder at the time of exercise of such
registration rights. Notwithstanding the foregoing, Scoop shall not be obligated
to effect a registration pursuant to this Section 5(a): (i) after Scoop has
effected one (1) registration of Warrant Shares for Holder pursuant to this
Section 5(a); (ii) during the period starting with the date sixty (60) days
prior to Scoop's good faith estimate of the date of filing of, and ending on a
date one hundred eighty (180) days following the effective date of, a
registration statement pertaining to a firmly underwritten offering of
securities by Scoop, provided that Scoop is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(iii) if Scoop shall furnish Holder a certificate signed by the President of
Scoop stating that in the good faith judgment of the Board of Directors of Scoop
it would be seriously detrimental to Scoop or its stockholders for a
registration statement to be filed at that time, in which case Scoop's
obligations to use its best efforts to file a registration statement shall be
deferred for a period not to exceed ninety (90) days; provided, however, that
Scoop shall not obtain such a deferral more than once in any twelve (12) month
period; or (iv) with respect to any Warrant Shares which may be sold or
transferred by Holder pursuant to Rule 144 of the Act (or any successor rule
thereto) either without volume limitations or in compliance with any applicable
volume limitations.
10
<PAGE>
(b) PIGGYBACK RIGHTS. Commencing one year following the date of
Scoop's initial public offering of Common Stock, and for the duration of the
exercise periods of the warrant and option referred to in Section 1.1 above,
each time Scoop proposes to file a registration statement under the Act (other
than a registration statement relating to the issuance of securities of Scoop
pursuant to employee benefit plans or the distribution of securities of Scoop in
connection with a merger, acquisition or exchange offer) covering the proposed
sale for cash of shares of its Common Stock on a form that would also permit the
registration of Warrant Shares, Scoop shall give written notice thereof to
Holder. Upon the written request of Holder given within twenty (20) days after
such written notice from Scoop, Scoop shall use its best efforts to cause the
number of Warrant Shares requested by the Holder to be included in the
registration statement. If the managing underwriter or underwriters of such
public offering determine, in their sole discretion, that marketing factors
require a limitation of the number of shares to be underwritten or that the
inclusion of any or all of the Warrant Shares in the registration could
jeopardize the success of the offering by Scoop, the Warrant Shares requested by
the Holder to be registered shall be reduced or excluded from the offering as
determined by the underwriters, in their sole discretion; provided that if any
other holders of Common Stock of Scoop with registration rights have also
requested registration, the number of Warrant Shares and all such other stock
shall be reduced proportionately based upon the number of shares of registrable
stock then held by each of the holders of such registration rights,
respectively. Scoop shall have the right to terminate or withdraw any
registration initiated by it under this Section 5(b) prior to the effectiveness
of such registration whether or not Holder has elected to include Warrant Shares
in such registration. Any sales of Warrant Shares pursuant to a registration
pursuant to this Section 5(b) shall be effected through the underwriter of such
registered offering. The registration rights described in this Section 5(b)
shall terminate prior to the period described above in this Section 5(b) if, and
as of such time, all of the Warrant Shares may be sold or transferred by Holder
in one or more transactions pursuant to Rule 144 under the Act (or any success
or rule thereto) either without volume limitations or in compliance with any
applicable volume limitations.
(c) FURTHER ACTIONS. In connection with any registration of Warrant
Shares pursuant to this Section 5, Scoop agrees to take all reasonable action
necessary to facilitate the sale of the registered Warrant Shares, including
furnishing to Holder such number of prospectuses reasonably required by Holder
to dispose of the Warrant Shares, using its best efforts to register or qualify
the Warrant Shares under the Act and applicable blue sky laws (such action being
herein called a "Filing" or the "Filing") and delivering underwriting agreements
and other documents customarily delivered by issuers in connection with public
offerings. Scoop shall not be required to ensure the availability of a
prospectus meeting the requirements of the Act in connection with any Filings
made pursuant to this Section 5 for a period greater than is required to
complete the marketing arrangements with respect to the securities in such
Filings, and in no event for a period greater than 90 days (or such greater
period as may be required by law for the delivery of such a prospectus).
11
<PAGE>
(d) EXPENSES. All expenses, filing fees and other costs incurred by
Scoop in connection with any registration of Warrant Shares pursuant to this
Section 5 shall be borne by Scoop; provided, however, that Holder shall pay the
underwriting discounts and commissions applicable to the sale of Warrant Shares
in accordance with the underwriter's customary compensation practices, and shall
pay any fees and disbursements of counsel retained by Holder (other than counsel
also retained by Scoop).
6. MISCELLANEOUS PROVISIONS.
6.1 ENTIRE AGREEMENT. This Settlement Agreement constitutes an
integrated contract expressing the entire agreement of the parties relative to
the subject matter discussed herein. No covenants, agreements or
representations of any kind have been made by any party to any other party,
except as specifically set forth herein. All prior discussions, negotiations
and agreements are superseded by the Settlement Agreement. The Settlement
Agreement shall not be modified, amended or supplemented, and no provision of
the Settlement Agreement shall be waived, except by an agreement in writing
signed by a duly authorized representative of each party.
6.2 ASSISTANCE OF COUNSEL. In executing the Settlement
Agreement, the parties acknowledge that they have consulted with, and have been
advised by, counsel with regard to the provisions of the Settlement Agreement,
have discussed with their counsel the meaning and effect of the Settlement
Agreement and have read and understand the scope and effect of each provision of
the Settlement Agreement.
6.3 NO PARTY DEEMED DRAFTER. The parties acknowledge that the
terms of the Settlement Agreement are contractual and are the result of
negotiations between the parties and their counsel. Each party and their
counsel cooperated in the drafting and preparation of the Settlement Agreement.
In any construction to be made of the Settlement Agreement, the same shall not
be construed against any party and the canon of contract interpretation set
forth in California Civil Code Section 1654 shall not be applied.
6.4 SEVERABILITY. If any provision of the Settlement Agreement
is declared by any court to be illegal or invalid, the validity of the remaining
portions shall not be affected thereby, and the illegal or invalid portions
shall be deemed not a part of the Settlement Agreement.
6.5 AUTHORITY TO EXECUTE. Each party represents and warrants to
the other party that the signatories to the Settlement Agreement have been duly
authorized to execute the Settlement Agreement on behalf of the entities or
individuals identified below or elsewhere in the Settlement Agreement.
12
<PAGE>
6.6 COUNTERPARTS; FAX SIGNATURES. The Settlement Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original and all of which, taken together, shall constitute one and the same
instrument. Any counterpart signed by a party and delivered to the other
parties by facsimile shall be deemed an original counterpart and duly delivered.
6.7 FURTHER ACTIONS. The parties hereto shall, without further
consideration, execute and deliver such other documents and take such other
action as may be necessary to consummate effectively the subject matter of the
Settlement Agreement.
6.8 CHOICE OF LAW. The Settlement Agreement shall be construed
in accordance with, and all disputes arising thereunder shall be governed by,
the internal laws of the State of California.
6.9 NO THIRD PARTY BENEFICIARIES. No third party beneficiaries,
other than the Scoop Released Parties and the Berk Released Parties, are created
or intended to be created by the provisions of this Settlement Agreement, and
any such intention is expressly disclaimed by the parties.
6.10 JOINT AND SEVERAL LIABILITY. The liabilities and
obligations of the Berk Parties set forth herein shall be joint and several
liabilities and obligations.
6.11 ATTORNEYS' FEES. If any action or proceeding is brought by
any party or parties against any other party or parties pertaining to or arising
out of this Settlement Agreement, the prevailing party or parties shall be
entitled to recover all costs and expenses, including reasonable attorneys'
fees, incurred in connection with such action or proceeding.
7. NOTICES.
7.1 GENERAL. All notices, requests, demands and other
communications which may be given under or concerning this Settlement
Agreement shall be in writing and shall be deemed to have been given as of
the day they are received either by messenger, delivery service, facsimile or
other means, or three business days after the same is sent via United States
of America mails, postage prepaid, certified or registered, return receipt
requested, and addressed as set forth below:
If to the Berk Parties, addressed to:
Mr. Stephen P. Grayson
10850 Wilshire Boulevard, Suite 400
Los Angeles, CA 90024
13
<PAGE>
If to the Scoop Parties, addressed to:
Scoop, Inc.
2540 Red Hill Avenue, Suite 100
Santa Ana, CA 92705
Attn: Daniel L. Pelekoudas, General Counsel
or to such other place as the parties may designate as to themselves by written
notice to the others.
7.2 NOTICE OF BREACHES. In the event any of the Berk Parties,
on the one hand, or any of the Scoop Parties, on the other hand, become aware
that a breach of this Settlement Agreement has been committed by any of the
other parties, then the parties with such knowledge shall give notice of such
breach or alleged breach to the other parties within thirty (30) days of
obtaining knowledge of such breach or alleged breach.
[SIGNATURE PAGES FOLLOW]
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Settlement
Agreement effective as of the first date written above.
STANLEY I. BERK
/s/ STANLEY I. BERK
------------------------------
STEPHEN P. GRAYSON,
individually and on behalf of
the Stephen P. Grayson Profit
Sharing Plan
/s/ STEPHEN P. GRAYSON
------------------------------
STANLEY BERK & ASSOCIATES
By: /s/ STANLEY I. BERK
---------------------------
Stanley I. Berk
General Partner
By: /s/ STEPHEN P. GRAYSON
---------------------------
Stephen P. Grayson
General Partner
Approved as to content and form:
/s/ STEPHEN P. GRAYSON
- -------------------------------------------
15
<PAGE>
KARL-MAGNUS S. KARLSSON
/s/ KARL-MAGNUS S. KARLSSON
---------------------------
SCOOP, INC.
By: /s/ MARK A. DAVIDSON
----------------------------
Mark A. Davidson
President and CFO
Approved as to content and form:
/s/ DANIEL L. PELEKOUDAS
- -------------------------------------------
16
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE TRANSFERRED, SOLD, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS
TO THE COMPANY AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY
TO THE COMPANY, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE SKY"
LAWS.
SCOOP, INC.
COMMON STOCK PURCHASE WARRANT
DATED: FEBRUARY 24, 1997
THIS WARRANT is issued pursuant to that certain Settlement Agreement and
General Release (the "Settlement Agreement") of even date herewith by and
between Stanley Berk, Stephen P. Grayson, individually and on behalf of the
Stephen P. Grayson Profit Sharing Plan (collectively, Grayson"), and Stanley
Berk & Associates (collectively, the "Berk Parties"), on the one hand, and Karl-
Magnus S. Karlsson and Scoop, Inc., a California corporation (the "Company"), on
the other hand.
This certifies that Stephen P. Grayson is the holder (the "Holder") of
this Warrant to purchase, subject to adjustment, 11,250 shares of Common Stock
of the Company, at a per share exercise price, subject to adjustment, equal to
120% of the initial public offering price of the Company's Common Stock (the
"Exercise Price"), subject to the terms and conditions set forth herein. In the
event the Company does not complete an initial public offering of its Common
Stock ("IPO") by June 30, 1997, the Exercise Price shall be $7.20 per share.
1. DEFINITIONS. As used herein the following terms, unless the
context otherwise requires, shall have for all purposes hereof the following
respective meanings:
(a) "Fair Market Value" of a share of Common Stock as of a
given date shall be: (i) the closing price of a share of the Company's Common
Stock on the principal exchange on which shares of the Company's Common Stock
are then trading, if any, on the trading day previous to such date, or, if
shares were not traded on the trading day previous to such date, then on the
next preceding trading day during which a sale occurred; or (ii) if such Common
Stock is not traded on an exchange but is quoted on Nasdaq or a successor
quotation system, (1) the last sales price of the Company's Common Stock on the
last trading day previous to such date that shares of the Common Stock were
traded (if the Company's Common Stock is then listed as a National Market Issue
under the Nasdaq National Market System) or (2) the mean between the closing
representative bid and ask prices (in all other cases) for the Company's Common
Stock on the last trading day previous to
<PAGE>
such date that shares of the Common Stock were traded as reported by Nasdaq
or such successor quotation system; or (iii) if such Common Stock is not
publicly traded, the fair market value established by the Company's Board of
Directors or a designated committee thereof acting in good faith.
(b) "Holder," when used with respect to this Warrant or the
Warrant Shares, shall mean the person registered on the books and records of the
Company as being the holder of record of this Warrant or the Warrant Shares, as
the case may be.
(c) "Other Securities" shall mean any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holders of this Warrant at any time shall be entitled to
receive, or shall have received, upon the exercise of this Warrant, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3 below or otherwise.
(d) "Warrant Shares" shall mean the shares of Common Stock (or
Other Securities) issued or issuable pursuant to the exercise, in whole or in
part, of this Warrant.
2. EXERCISE OF WARRANT.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in
full or in part by the Holder by surrender of this Warrant, with the form of
Election to Purchase attached hereto (the "Election to Purchase") duly executed
by the Holder, to the Company at its offices at 2540 Red Hill Avenue, Suite 100,
Santa Ana, California 92705 or at such other office or agency as the Company may
designate in writing to the Holder, accompanied by payment in cash or by
certified or bank cashier's check payable to the order of the Company in the
amount obtained by multiplying the number of Warrant Shares designated by the
Holder in the Election to Purchase by the Exercise Price per share; PROVIDED,
HOWEVER, that the Company shall issue Warrant Shares to a Holder upon exercise
of any Warrant only if such issuance is in compliance with Section 4 hereof.
Upon any partial exercise of this Warrant, the Company at its expense will
forthwith issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder on the face of this Warrant for the number of Warrant Shares
equal to the number of such shares called for on the face of the surrendered
Warrant (after giving effect to any adjustment therein as provided in Section 3
below) minus the number of such Warrant Shares (after giving effect to such
adjustment) designated by the Holder in the aforementioned Election to Purchase.
(b) EXERCISE PERIOD. This Warrant may be exercised by the
Holder as to all or any lesser number of Warrant Shares at any time and from
time to time during the period (the "Exercise Period") from and after 6:30 a.m.
Pacific Standard time on the earlier of the date the IPO is consummated or July
1, 1997, and until 5:00 p.m. Pacific Standard time on February 23, 2000 (the
"Expiration Date"); provided, however, that the Exercise Period shall expire and
this Warrant shall terminate immediately in the event any of the Berk Parties
commits the breach described in paragraph 2.6 of the Settlement Agreement or
materially breaches paragraph 1.5, paragraph 1.6 or any other term, provision or
covenant of the Settlement Agreement; and provided further, that this
2
<PAGE>
Warrant shall be exercisable in multiples of 2,500 Warrant Shares unless all
of the Warrant Shares covered by the Warrant are being exercised.
(c) DELIVERY OF STOCK CERTIFICATES ON EXERCISE. Subject to
Section 4 hereof, as soon as practicable after the exercise of this Warrant in
full or in part, and in any event within ten (10) business days thereafter, the
Company will issue in the name of and deliver to the Holder hereof a certificate
or certificates for the number of fully paid and nonassessable Warrant Shares to
which such Holder shall be entitled upon such exercise, plus cash, in lieu of
any fractional share to which such Holder would otherwise be entitled, as
provided in subsection (d) below, together with any Other Securities and
property (including cash, where applicable) to which such Holder is entitled
upon such exercise pursuant to Section 3 below or otherwise. Certificates
representing the Warrant Shares shall be subject to a stop transfer order and
shall bear the following legend if the Company is advised by counsel that such
legend is necessary at the time of such exercise:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY, IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED
SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE
SECURITIES OR "BLUE SKY" LAWS.
(d) FRACTIONAL SHARES. The Company will not issue a
fractional share of Common Stock upon exercise of this Warrant. Instead, the
Company will deliver an amount, in cash, equal to the product of (x) the Fair
Market Value of a full share of the Common Stock as of the last trading day
prior to the exercise date times (y) the fractional amount, and rounded to the
nearest whole cent.
3. ADJUSTMENTS. This Warrant is subject to the following terms and
conditions during the term thereof:
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If, after the
date of issuance, the Company: (i) pays a dividend or makes a distribution on
its Common Stock in shares of its capital stock (including Common Stock), (ii)
subdivides its outstanding shares of Common Stock into a greater number of
shares, (iii) combines its outstanding shares of Common Stock into a smaller
number of shares, or issues by reclassification of its Common Stock any shares
of its capital stock or Other Securities (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
corporation), then in each such case, an appropriate and proportionate
adjustment shall be made in the number of Warrant Shares or Other Securities
covered by this Warrant so that the upon exercising this Warrant immediately
after such action, the Holder would be entitled to receive the number of Warrant
Shares or Other Securities that such
3
<PAGE>
Holder would have owned immediately following such action if such Holder had
exercised this Warrant immediately prior to such action. The adjustment
shall become effective immediately after (x) the distribution date in the
case of a dividend or distribution and (y) the effective date in the case of
a subdivision, combination or reclassification.
Whenever the number of Warrant Shares purchasable upon the exercise of
this Warrant is adjusted, as herein provided, the per share Exercise Price shall
be adjusted by multiplying such Exercise Price immediately prior to such
adjustment by a fraction, the numerator of which shall be the number of Warrant
Shares purchasable upon the exercise of this Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
so purchasable immediately thereafter.
(b) OTHER SECURITIES. If at any time, as a result of an
adjustment made pursuant to this Section 3, the Holder becomes entitled to
purchase Other Securities of the Company or the stock or Other Securities of any
other person, corporate or otherwise, thereafter the number of such Other
Securities so purchasable upon exercise of this Warrant and the Exercise Price
of such securities 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 Warrant Shares contained in this Section 3, and the provisions of this
Warrant with respect to the Warrant Shares, shall apply on like terms to any
such other shares, capital stock or Other Securities.
(c) CONSOLIDATIONS, MERGERS AND OTHER TRANSACTIONS. In case
of any consolidation of the Company with or merger of the Company into another
corporation or other entity, or in case of any sale or conveyance to another
corporation or other entity of the property of the Company as an entirety or
substantially as an entirety, proper provision shall be made so that the Holder
shall have the right thereafter upon payment of the Exercise Price in effect
immediately prior to such action to purchase upon exercise of this Warrant the
kind and amount of Other Securities and property which the Holder would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had this Warrant been exercised
immediately prior to such action. The Company shall give notice to each Holder
of such provision. Such provision shall provide for adjustments, which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 3.
(d) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or the
kind or amount of securities purchasable upon the exercise of this Warrant shall
be adjusted pursuant to any of the provisions of this Warrant, the Company shall
thereafter cause to be sent to the Holder a certificate setting forth the
adjustments in the Exercise Price and/or in said number of shares, and also
setting forth in detail the facts requiring such adjustments.
(e) NOTICE OF CERTAIN EVENTS. In the event of (i) any taking
by the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than any regular quarterly dividend paid by the Company) or
other distribution, or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any Other Securities or property, or to
receive any other right, or (ii) any capital reorganization of the Company, or
any reclassification or recapitalization of the capital
4
<PAGE>
stock of the Company, or any transfer of all or substantially all of the
assets of the Company to, or consolidation or merger of the Company with or
into, any other person, or (iii) any voluntary or involuntary dissolution or
liquidation of the Company, then and in each such event the Company will mail
or cause to be mailed to the Holder a notice specifying: (a) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and stating the amount and character of such dividend,
distribution or right, or (b) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if
any, as of which the holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be mailed
at least ten (10) days prior to the proposed record date or the proposed
closing date, as applicable, therein specified.
4. TRANSFERABILITY. The Holder acknowledges that this Warrant is
being acquired in a transaction not involving any public offering within the
meaning of the Act and that neither the Warrants or the Warrant Shares issuable
upon exercise of the Warrants have been registered under the Act. The Holder
shall not offer, sell, transfer or otherwise dispose of the Warrants or any
Warrant Shares in the absence of registration under the Act unless the Holder
delivers to the Company an opinion of counsel reasonably satisfactory to the
Company, in form and substance satisfactory to the Company, to the effect that
the proposed sale, transfer or other disposition may be effected without
registration under the Act and under applicable state securities or blue sky
laws.
5. FURTHER COVENANTS OF THE COMPANY.
(a) RESERVATION OF STOCK. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon the exercise
of this Warrant, all Warrant Shares from time to time issuable upon the exercise
of this Warrant.
(b) TITLE TO STOCK. All of the Warrant Shares delivered upon
the exercise of this Warrant shall be validly issued, fully paid and
nonassessable.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement by the Holder reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, upon surrender by the Holder and cancellation of this Warrant, the
company at the expense of the Holder will execute and deliver, in lieu thereof,
a new Warrant of like tenor.
6. REPRESENTATIONS OF HOLDER. Holder, by accepting this Warrant (i)
represents that the Warrant is acquired for Holder's own account, for investment
purposes only, and that Holder has no present intention of distributing, selling
or otherwise disposing of the Warrant or any Warrant Shares in violation of
applicable securities laws and (ii) acknowledges that as a condition to the
exercise of this Warrant the Company may require the Holder to make such
investment
5
<PAGE>
representations with respect to the Warrant Shares issuable upon such
exercise as the Company deems advisable for purposes of complying with
applicable securities laws.
7. NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the
Holder to any voting rights or other rights as a stockholder of the Company
unless and except to the extent that Warrant Shares are purchased by the Holder
hereunder.
MISCELLANEOUS. All notices, certificates and other communications
from or at the request of the Company to the Holder of this Warrant shall be
mailed by first class, registered or certified mail, postage prepaid, to such
Holder at the address for such Holder as it appears in the Company's records, or
such other address as such Holder may have furnished to the Company in writing.
This Warrant and any of the terms hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. The
headings in this Warrant are for purposes of reference only and shall not limit
or otherwise affect any of the terms hereof.
9. GOVERNING LAW. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of California applicable to agreements
entered into and to be performed entirely within California.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed effective as of the date first set forth above.
SCOOP, INC.
By:/s/ MARK A. DAVIDSON
-------------------------
Mark A. Davidson
Chief Financial Officer
Acknowledged, accepted and
agreed to:
/s/ STEPHEN P. GRAYSON
- ------------------------
STEPHEN P. GRAYSON
6
<PAGE>
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant to
purchase ______ shares of Common Stock of Scoop, Inc. at the Exercise Price, and
requests that Certificates for such shares be issued and delivered as follows:
ISSUE TO:
---------------------------------------------
(Name)
---------------------------------------------
(Address, including Zip Code)
---------------------------------------------
Social Security or Tax Identification Number)
DELIVER TO:
---------------------------------------------
(Name)
---------------------------------------------
(Address, Including Zip Code)
In full payment of the aggregate purchase price with respect to the
number of shares being purchased upon exercise of this Warrant, the undersigned
hereby tenders payment of $_______________ by certified or bank cashier's check
payable to the order of Scoop, Inc. (the "Company"). If the Warrant is
exercised hereby so as to purchase fewer than all the shares of Common Stock
that may be purchased pursuant to the Warrant, then a new Warrant representing
the number of full shares for which the Warrant has not been exercised should be
issued and delivered as set forth below.
Name of Warrantholder or Assignee:
----------------------------------------------
(Please Print)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature Dated:
----------------------------------------- ---------------------
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant)
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
the Assignee named below all of the undersigned's right, title and interest in
and to the within Warrant, with respect to the number of shares of Common Stock
of Scoop, Inc. set forth below:
Name of Assignee Address Number of Social Security
- -------------------- ----------------- Shares of or Taxpayer
Common Stock Identification Number
------------ ---------------------
and does hereby irrevocably authorize the Company to make such transfer on
the Warrant Register maintained at the principal office of the Company.
Dated:
----------------, ------ ---------------------------------------
Signature
(Signature must conform in all respect to
name of holder as specified on the face of
the Warrant).
<PAGE>
February 24, 1997
Stanley Berk
3615 Malibu Country Drive
Malibu, CA 90265
Dear Stan:
This letter is delivered pursuant to that certain Settlement Agreement and
General Release (the "Settlement Agreement") of even date herewith by and
between you, Stephen P. Grayson, individually and on behalf of the Stephen P.
Grayson Profit Sharing Plan (collectively,"Grayson") and Stanley Berk &
Associates, a partnership of which you and Grayson are the general partners
("SB&A"), (collectively, you, Grayson and SB&A are referred to herein as the
"Berk Parties"), on the one hand, and Karl-Magnus S. Karlsson and Scoop, Inc., a
California corporation (the "Company"), on the other hand. This letter sets
forth the terms and conditions upon which I grant to you, Stanley Berk, an
option (the "Option") to purchase shares of Common Stock of the Company
currently owned by me.
1. OPTION SHARES AND EXERCISE PRICE. I hereby grant to you the right to
purchase 11,250 shares of the Company's Common Stock (the "Shares"), at a per
share exercise price equal to 120% of the initial public offering price of the
Company's Common Stock (the "Exercise Price"), subject to the terms and
conditions set forth herein. In the event the Company does not complete an
initial public offering of its Common Stock ("IPO") by June 30, 1997, the
Exercise Price shall be $7.20 per share.
2. EXERCISE PERIOD. The Option may be exercised by you as to all or,
subject to the proviso below, any lesser number of Shares at any time and from
time to time during the period (the "Exercise Period") from and after 6:30 a.m.
Pacific Standard time on the earlier of the date the IPO is consummated or July
1, 1997, and until 5:00 p.m. Pacific Standard time on February 23, 2000 (the
"Expiration Date"); provided, however, that the Exercise Period shall expire and
the Option shall terminate immediately in the event any of the Berk Parties
commits the breach described in paragraph 2.6 of the Settlement Agreement or
materially breaches paragraph 1.5, paragraph 1.6 or any other term, provision or
covenant of the Settlement Agreement; and provided further, that the Option
shall be exercisable in multiples of 2,500 Shares unless all of the Shares
covered by the Option are being exercised.
<PAGE>
Stanley Berk
Page 2
3. EXERCISE OF OPTION. You may exercise the Option as to all or any
permitted multiple of the Shares from time to time during the Exercise Period by
delivering to me at the principal executive office of the Company at 2540 Red
Hill Avenue, Suite 100, Santa Ana, California 92705 or at such other address as
I may designate in writing to you: (i) written notice of such exercise and (ii)
payment in cash or by certified or bank cashier's check of the aggregate
Exercise Price for the Shares being purchased pursuant to such exercise.
4. ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If during the Exercise
Period the outstanding shares of Common Stock of the Company are increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation through
reorganization, merger, recapitalization, stock split, combination of shares or
stock dividends payable with respect to such Common Stock, appropriate
adjustments in the number of Shares (or other securities) then subject to the
Option and the Exercise Price will be made effective as of the date of such
occurrence so that upon exercising the Option immediately after such event, you
would be entitled to receive the number of Shares or other securities that you
would have owned immediately following such event if you had exercised the
Option immediately prior to such event. Whenever the number of Shares
purchasable upon the exercise of the Option is adjusted, as herein provided, the
per share Exercise Price shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of Shares purchasable upon the exercise of the Option immediately
prior to such adjustment, and the denominator of which shall be the number of
Shares so purchasable immediately thereafter.
5. REPRESENTATIONS AND WARRANTIES. You represent and warrant to me as
follows, and agree that any exercise of the Option will constitute your
acknowledgment that such representations and warranties are true and correct as
if made effective as of the date of such exercise:
(i) You are acquiring the Option and, upon exercise of the Option will be
acquiring any Shares covered thereby, for your own account
as principal, not as a nominee or agent, for investment purposes
only and not with a view to resell or otherwise distribute or
transfer the Option or any such Shares and no other individual
and entity (collectively, "Person") has a direct or indirect
beneficial interest in the Option or in any of the Shares. Further,
you do not have any contract, undertaking, agreement or arrangement
with any Person to sell, transfer or grant participations with
respect to the Option or any Shares to such Person or to any third
Person.
<PAGE>
Stanley Berk
Page 3
(ii) You have such knowledge and experience in financial matters as to be
capable of evaluating the merits and risks of an investment in the
Shares. You understand that the Shares are a speculative investment
which involve a high degree of risk of loss of the entire investment.
Any exercise of the Option will constitute your representation and
warranty that you (a) have obtained such information concerning the
Company as you have deemed necessary to evaluate the merits and risks
of an investment in the Shares, (b) have determined, based solely upon
your own evaluation of such information, that the Shares are a
suitable investment for it and (c) have not relied on any oral or
written representations or warranties made by me, the Company or any
officer, employee or agent of either in connection with making an
investment in the Shares.
(iii) You understand that any investment in the Shares is an illiquid
investment. In particular, you recognize that (a) you must bear the
economic risk of any investment in the Shares for an indefinite period
of time since neither the Option or the Shares have been registered
under the Securities Act of 1933, as amended (the "Securities Act"),
and therefore neither the Option or the Shares can be assigned, sold,
transferred or otherwise disposed of unless either they are
subsequently registered under the Securities Act or an exemption from
such registration is available and a favorable opinion of counsel
acceptable to the Company to that effect is obtained (if requested by
the Company), and (b) no established market for the Company's Common
Stock currently exists and it is possible that no public market for
the Company's Common Stock will develop in the future. You also
understand that the certificates representing any Shares acquired by
you upon exercise of the Option will bear restrictive legends
identifying such Shares as "restricted securities," as such term is
defined under Rule 144 promulgated under the Securities Act, as well
as any other legends which may be required under applicable federal or
state securities laws.
(iv) You are an "accredited investor" as defined in Rule 501 of Regulation
D promulgated under the Securities Act.
The foregoing representations and warranties in this paragraph 5 shall survive
any exercise(s) of the Option.
6. DISPUTE RESOLUTION. In the event any dispute arises with respect to
this letter agreement, such dispute shall be resolved by an arbitrator mutually
acceptable to you and me. If we cannot agree on an arbitrator, we will each
select on arbitrator and then the two arbitrators so selected will select a
third arbitrator who will resolve the dispute. The arbitration will be conducted
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect.
<PAGE>
Stanley Berk
Page 4
Please acknowledge your acceptance of the terms and conditions described
above by executing this letter where indicated below and returning it to me.
/S/ KARL-MAGNUS S. KARLSSON
------------------------------
Karl-Magnus S. Karlsson
Accepted and Agreed
as of February 24, 1997
/s/ STANLEY BERK
- -----------------
STANLEY BERK
<PAGE>
AMENDMENT NO. 1 TO AGREEMENT
This Amendment No. 1 to Agreement ("Amendment") is made and entered into
effective as of February 25, 1997 by and between Intell-X ("IntellX"), a
division on UMI, a Michigan corporation, and Scoop, Inc. ("Distributor").
RECITALS
A. IntellX and Distributor are parties to that certain Agreement dated October
17, 1996 (the "Agreement"). All capitalized terms used but not otherwise
defined herein shall have the meaning ascribed to them in the Agreement.
B. In addition to developing an Internet-delivered information service,
Distributor creates, markets and distributes derivative media products featuring
content from newspapers, magazines and on-line publications.
C. IntellX and Distributor desire to amend the Agreement to authorize
Distributor to use, redistribute and resell content from the IntellX Service in
Distributor's derivative media products.
NOW, THEREFORE, for good and valuable consideration, and in consideration of the
mutual covenants set forth herein, IntellX and Distributor hereby agree as
follows:
1. ADDITIONAL LICENSE. The Agreement is hereby amended by adding a new Section
13 which shall read in its entirety as follows:
13. LICENSE FOR DERIVATIVE MEDIA PRODUCTS
a. IntellX grants Distributor a license to use IntellX Content (as defined
below) for purposes of creating, marketing, distributing and selling wall
displays, reprints, Lucite cubes and other reuse media merchandise
(collectively, "derivative media products") featuring IntellX Content. For
purposes of this Agreement, the term "IntellX Content" shall mean any and
all individual articles, news items, graphics, photographs and images and
other materials which are currently or hereafter available through the
IntellX Service. IntellX agrees that the foregoing license authorizes
Distributor to format, reformat and make aesthetic and artistic alterations
to the IntellX content in connection with designing, marketing and selling
derivative media products.
b. IntellX shall provide Distributor access to the IntellX Content for the
purposes contemplated in the license granted in paragraph a. above
effective immediately.
c. The license granted pursuant to paragraph a. above shall be effective
for the term of Agreement, including any Renewal Term(s) thereof.
<PAGE>
d. Distributor shall have the unilateral right to establish and alter the
prices for all sales by Distributor of derivative media products featuring
IntellX Content.
e. In consideration of the license granted in paragraph a. above,
Distributor shall pay IntellX a flat fee of $1,000 for each of the
following three months: March, April and May 1997. Thereafter, for each
month from June 1997 through the remaining term of the Agreement, including
any Renewal Terms thereof, Distributor shall pay IntellX a royalty equal to
the greater of (i) $5,000 or (ii) thirty percent (30%) of the revenue
received by Distributor during such month from the sale of derivative media
products featuring IntellX Content. Distributor shall pay IntellX the fees
payable under this paragraph e. within thirty (30) days of the end of the
month for which the fees are due.
f. IntellX represents and warrants to Distributor that IntellX has full
and unrestricted right to authorize Distributor to use the IntellX Content
for purposes of creating, marketing, distributing and selling derivative
media products featuring the IntellX Content and that such use of the
IntellX Content by Distributor does not and will not infringe on any
copyright, patent or proprietary right of any publisher of the IntellX
Content or of any other third party.
g. Notwithstanding anything to the contrary in paragraph e. above or any
other provision of this Section 13, no royalties shall be payable to
IntellX with respect to the sale by Distributor of derivative media
products featuring IntellX Content if Distributor currently has an
agreement or arrangement with the publisher of such IntellX Content which
authorizes Distributor to use the content for such derivative media
products. Distributor currently has such agreements or arrangements with
the following publishers: Investors Business Daily, The Motley Fool,
Orange County Business Journal, San Diego Business Journal, Inland Empire
Business Journal, and Golf Range & Recreation Report.
2. CONTINUED VALIDITY OF AGREEMENT. Except as specifically amended by this
Amendment, all of the terms, conditions and provisions of the Agreement remain
in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
SCOOP, INC. INTELLX, a division of UMI
By: /s/ MARK A. DAVIDSON By: /s/ ARTHUR BUSHNELL
---------------------- ------------------------
Mark A. Davidson Arthur Bushnell
President & CFO Vice President, Sales
2
<PAGE>
EXHIBIT 11.1
SCOOP, INC.
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding . . . . . . . . . . . . . . . . . 5,033,000 4,404,000 2,712,000
Conversion of redeemable common stock . . . . . . . . . . . . . . . . 502,000
Equivalent shares from the assumed exercise of options and warrants . 352,000 352,000 352,000
---------- ---------- ----------
Weighted average shares used in calculation of net loss per share . . 5,385,000 4,756,000 3,566,000
---------- ---------- ----------
---------- ---------- ----------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (220,200) $ (602,700)
---------- ----------
---------- ----------
Net loss applicable to common stock . . . . . . . . . . . . . . . . . ($2,283,900)
----------
----------
Net loss per common share . . . . . . . . . . . . . . . . . . . . . . $ (0.04) $ (0.13) $ (0.64)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
II-11
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-15129 of Scoop, Inc. of our report dated February 17, 1997, except for
information in Note 11, for which the date is March 31, 1997 appearing in the
Prospectus, which is a part of such Registration Statement, and to the
reference to us under the headings "Selected Financial Data" and "Experts" in
such Prospectus.
/s/ Deloitte & Touche LLP
Costa Mesa, California
April 7, 1997
