<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1996.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PIRANHA INTERACTIVE PUBLISHING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEVADA 7372 86-0779928
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1839 WEST DRAKE, SUITE B
TEMPE, ARIZONA 85283
(602) 491-0500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
TIMOTHY M. BRANNAN
CHAIRMAN OF THE BOARD AND PRESIDENT
1839 WEST DRAKE, SUITE B
TEMPE, ARIZONA 85283
(602) 491-0500
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
JAMES L. ADLER, JR., ESQ. SHELDON MISHER, ESQ.
BRADLEY S. PAULSON, ESQ. STEVEN A. FISHMAN, ESQ.
SQUIRE, SANDERS & DEMPSEY L.L.P. BACHNER, TALLY, POLEVOY
TWO RENAISSANCE SQUARE & MISHER LLP
40 NORTH CENTRAL AVENUE, SUITE 2700 380 MADISON AVENUE, 18TH FLOOR
PHOENIX, ARIZONA 85004 NEW YORK, NEW YORK 10017
TELEPHONE: (602) 528-4000 TELEPHONE: (212) 687-7000
FAX: (602) 253-8129 FAX: (212) 682-5729
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable from time to time after the 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, as amended, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [X]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED AGGREGATE PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Units, each consisting of one share of Common Stock, $.001 value,
one Class A Warrant and one Class B Warrant(2)................... 1,380,000 $ 6,900,000 $ 2,091
Units, each consisting of one share of Common Stock, $.001 par
value, and one Class B Warrant(3)................................ 1,380,000 8,970,000 $ 2,718
Common Stock, $.001 par value(4)................................... 2,760,000 24,150,000 $ 7,318
Unit Purchase Option(5)............................................ 120,000 120 $ 36
Units, each consisting of one share of Common Stock, $.001 par
value, one Class A Warrant and one Class B Warrant(6)............ 120,000 720,000 $ 218
Units, each consisting of one share of Common Stock, $.001 par
value, and one Class B Warrant(6)................................ 120,000 780,000 $ 236
Common Stock, $.001 par value(6)................................... 240,000 2,100,000 $ 636
Class A Warrants(7)................................................ 750,000 -- --
Units, each consisting of one share of Common Stock, $.001 par
value, and one Class B Warrant(8)................................ 750,000 4,875,000 $ 1,477
Common Stock, $.001 par value(9)................................... 750,000 -- --
Class B Warrants(9)................................................ 750,000 -- --
Common Stock, $.001 par value(10).................................. 750,000 6,562,500 $ 1,989
Total.......................................................... $55,177,500 $16,719
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</TABLE>
(1) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
(2) Includes 180,000 Units subject to the Underwriter's over-allotment option.
(3) Issuable upon exercise of the Class A Warrants.
(4) Issuable upon exercise of the Class B Warrants.
(5) To be issued to the Underwriter.
(6) Issuable upon exercise of the Unit Purchase Option and/or the Warrants
issuable thereunder.
(7) Registered for resale by the Selling Securityholders.
(8) Issuable upon exercise of the Class A Warrants registered for resale by the
Selling Securityholders.
(9) Included in the Units issuable upon exercise of the Class A Warrants
registered for resale by the Selling Securityholders.
(10) Issuable upon exercise of the Class B Warrants underlying the Class A
Warrants registered for resale by the Selling Securityholders.
------------------------
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there are
also being registered such additional shares of Common Stock as may become
issuable pursuant to anti-dilution provisions upon exercise of the Class A and
Class B Warrants and the Unit Purchase Option.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) up to 1,380,000
units, including units to cover over-allotments, if any, (collectively, the
"Units"), each Unit consisting of one share of Common Stock, $.001 par value
("Common Stock"), of Piranha Interactive Publishing, Inc., a Nevada corporation
(the "Company"), one redeemable Class A Warrant ("Class A Warrant") and one
redeemable Class B Warrant ("Class B Warrant"), for sale by the Company in an
underwritten public offering, (ii) an additional 750,000 Class A Warrants, for
resale by the holders thereof (the "Selling Securityholders' Warrants") in an
offering that is not underwritten, and (iii) 750,000 shares of Common Stock and
750,000 Class B Warrants underlying the Selling Securityholders' Class A
Warrants and 750,000 shares of Common Stock issuable upon exercise of the
Selling Securityholders' Class B Warrants. The securities set forth in clause
(i) hereinabove are being registered for sale by the Company; the securities set
forth in clauses (ii) and (iii) hereinabove are being registered for resale by
the Selling Securityholders. The Selling Securityholders' Warrants are issuable
upon the closing of the Offering to the Selling Securityholders upon the
automatic conversion of 750,000 warrants (the "Bridge Warrants") acquired by
them in the Company's private placement in November and December 1996 (the
"Bridge Financing") into 750,000 Class A Warrants. The Selling Securityholders'
Warrants are expected to become freely tradeable commencing 90 days from the
date of the Prospectus included in this Registration Statement; provided,
however, that the Selling Securityholders have agreed not to exercise their
Selling Securityholders' Warrants for a period of one year from the date of the
Prospectus included in this Registration Statement, but may resell 25% of such
Warrants in the public market between 91 and 150 days from the date of this
Prospectus, an additional 25% thereof between 151 and 210 days therefrom, an
additional 25% thereof between 211 and 270 days therefrom, and any number of
such Warrants after 270 days therefrom. So long as any Selling Securityholders'
Warrants are outstanding, the Company will undertake to maintain the Alternate
Prospectus for the Selling Securityholders' Warrants current use by the Selling
Securityholders upon disposition of the Warrants or the securities issuable upon
exercise of the Warrants. Third parties who purchase Warrants from such Selling
Securityholders in the public market shall, however, be entitled to exercise
them immediately and immediately sell the securities issuable upon exercise of
the Warrants in the public market.
Following the Prospectus for the underwritten offering are pages of the
Prospectus relating solely to the Selling Securityholders' Warrants and the
securities underlying the Selling Securityholders' Warrants: Alternate front and
back cover pages and sections entitled "Selling Securityholders and Plan of
Distribution" and "Concurrent Offering" to be used in lieu of the sections
entitled "Concurrent Offering" and "Underwriting". All other sections of the
Prospectus for the underwritten offering are to be used in the Prospectus
relating to the Selling Securityholders' Warrants and the securities issuable
upon exercise of the Selling Securityholders' Warrants.
<PAGE> 3
PIRANHA INTERACTIVE PUBLISHING, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
INFORMATION REQUIRED TO
BE INCLUDED IN PROSPECTUS LOCATION IN PROSPECTUS
------------------------------------------ ------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page of Prospectus
3. Summary Information and Risk Factors...... Prospectus Summary; Risk Factors;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
4. Use of Proceeds........................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price........... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution.................................. Dilution
7. Selling Security Holders.................. Selling Securityholders and Plan of
Distribution
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Selling Securityholders and Plan of
Distribution
9. Legal Proceedings......................... Business -- Legal Proceedings
10. Directors, Executive Officers, Promoters
and Control Persons....................... Management
11. Security Ownership of Certain Beneficial
Owners and Management..................... Principal Stockholders
12. Description of Securities................. Outside Front Cover Page of Prospectus;
Description of Securities
13. Interest of Named Experts and Counsel..... Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Management
15. Organization Within Last Five Years....... Not Applicable
16. Description of Business................... Business
17. Management's Discussion and Analysis or
Plan of Operation......................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business
18. Description of Property................... Business -- Property
19. Certain Relationships and Related
Transactions.............................. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters....................... Dividends; Description of Securities;
Shares Eligible for Future Sale
21. Executive Compensation.................... Management; Executive Compensation
22. Financial Statements...................... Financial Statements
23. Changes in and Disagreements with Account-
ants on Accounting and Financial
Matters................................... Not Applicable
</TABLE>
<PAGE> 4
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
PROSPECTUS 1,200,000 UNITS
PIRANHA INTERACTIVE PUBLISHING, INC.
All of the Units being offered hereby (the "Offering") are being sold by
Piranha Interactive Publishing, Inc., a Nevada corporation (together with its
predecessor, the "Company"). Each unit ("Unit") offered by the Company consists
of one share of Common Stock, $.001 par value ("Common Stock"), one redeemable
Class A Warrant ("Class A Warrant") and one redeemable Class B Warrant ("Class B
Warrant"). The components of the Units will be separately transferable
immediately upon issuance. Each Class A Warrant entitles the holder to purchase
for $6.50 one share of Common Stock and one Class B Warrant, subject to
adjustment, at any time until the fifth anniversary of the date of this
Prospectus. Each Class B Warrant entitles the holder to purchase one share of
Common Stock at an exercise price of $8.75, subject to adjustment, at any time
until the fifth anniversary of the date of this Prospectus. Commencing one year
from the date hereof, the Class A Warrants and Class B Warrants (collectively,
the "Warrants") are subject to redemption by the Company at a redemption price
of $.05 per Warrant on 30 days' written notice, provided the average closing bid
price of the Common Stock for any 30 consecutive trading days ending within 15
days of the notice of redemption exceeds $9.10 and $12.25 per share,
respectively (subject to adjustment in each case). See "Description of
Securities".
Prior to this Offering, there has been no public market for the Units,
Common Stock or the Warrants and there can be no assurance that such a market
will develop. The Company has applied for quotation of the Common Stock, Units,
Class A Warrants and Class B Warrants on the Nasdaq SmallCap Market ("Nasdaq")
under the symbols , , and , respectively. It is
anticipated that the initial public offering price will be $5.00 per Unit. See
"Underwriting" for a discussion of factors considered in determining the initial
public offering price. FOR INFORMATION CONCERNING A SECURITIES AND EXCHANGE
COMMISSION INVESTIGATION RELATING TO THE UNDERWRITER, SEE "RISK FACTORS" AND
"UNDERWRITING".
Upon completion of this Offering (assuming no exercise of the Underwriter's
over-allotment option), the Officers and Directors of the Company as a group
will hold approximately 50% of the Company's outstanding voting stock, all of
which voting stock is controlled by Timothy M. Brannan, President and Chairman
of the Company, as Voting Trustee under a Voting Trust Agreement and as proxy
pursuant to an Irrevocable Proxy Agreement. See "Principal Stockholders".
The Registration Statement of which this Prospectus is a part also covers
the offering for resale by certain securityholders (the "Selling
Securityholders") of 750,000 Class A Warrants (the "Selling Securityholders'
Warrants"), the shares of Common Stock and Class B Warrants underlying the
Selling Securityholders' Class A Warrants, and the shares of Common Stock
issuable upon exercise of such Class B Warrants. The Selling Securityholders'
Warrants and the securities underlying such Warrants are sometimes collectively
referred to as the "Selling Securityholders' Securities". The Company will not
receive any proceeds from the sale of the Selling Securityholders' Securities.
See "Concurrent Offering". The Selling Securityholders' Warrants are issuable
upon the closing of the Offering to certain Selling Securityholders upon the
automatic conversion of 750,000 Warrants ("Bridge Warrants") acquired by them in
the Company's private placement in November and December 1996 (the "Bridge
Financing") into 750,000 Class A Warrants. The Selling Securityholders have
agreed not to sell any of the Selling Securityholders' Warrants for at least 90
days after the closing of the Offering and, for the period expiring 270 days
after such closing, have agreed to certain other resale restrictions. Sales of
the Selling Securityholders' Warrants or the underlying securities, or the
potential of such sales, may have an adverse effect on the market price of the
securities offered hereby. See "Capitalization -- Bridge Financing".
------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION" BEGINNING ON
PAGE 7 OF THIS PROSPECTUS. THESE SECURITIES SHOULD NOT BE
PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY NOR HAS THE COMMISSION
OR ANY SUCH AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
=========================================================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit.................................. $5.00 $.50 $4.50
- ---------------------------------------------------------------------------------------------------------
Total(3).................................. $6,000,000.00 $600,000.00 $5,400,000.00
=========================================================================================================
</TABLE>
(1) Does not include additional compensation to be received by D.H. Blair
Investment Banking Corp. (the "Underwriter") in the form of (a) a non-
accountable expense allowance payable by the Company to the Underwriter
equal to 3% ($180,000) of the aggregate initial public offering price of the
Units ($207,000 if the overallotment option is exercised in full) and (b) an
option to the Underwriter (the "Unit Purchase Option") to purchase up to
120,000 Units for $6.00 per Unit (120% of the initial public offering price)
during the three-year period commencing two years after the date of this
Prospectus . The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting".
(2) Before deducting expenses of the Offering payable by the Company estimated
at $515,000 ($542,000 if the over-allotment option is exercised in full),
including the Underwriter's non-accountable expense allowance.
(3) The Company has granted the Underwriter a 45-day option to purchase up to
180,000 additional Units on the same terms and conditions as set forth above
solely to cover over-allotments, if any. If the over-allotment option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $6,900,000, $690,000 and
$6,210,000, respectively. See "Underwriting".
------------------
The Units are offered by the Underwriter on a "firm commitment" basis,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter, and subject to the right of the Underwriter to withdraw, cancel or
modify such offer without notice and to reject orders in whole or in part and to
certain other conditions. It is expected that delivery of the certificates
representing the Units will be made at the offices of D.H. Blair Investment
Banking Corp., 44 Wall Street, New York, New York 10005, on or about
, 1997.
D.H. BLAIR INVESTMENT BANKING CORP.
The date of this Prospectus is , 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
<PAGE> 5
[ PHOTO ]
The Company intends to distribute to its shareholders annual reports
containing financial statements audited by its independent public accountants
and will make available copies of quarterly reports for the first three quarters
of each fiscal year containing unaudited financial information.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, THE
COMMON STOCK AND/OR THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING TRANSACTIONS MAY BE EFFECTED IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
Piranha Interactive Publishing(TM), Majestic(TM), Alien Encounter(TM),
Syn-Factor(TM), Treasured Tales(TM), Travel CD Piranha Pack(TM), The Academic
Edge(TM), Piranha Pack -- Something For Everyone(TM), Piranha Pack(TM), Mother
Goose Preschool Partner(TM) (working title) and the Piranha logo are trademarks
of the Company. This Prospectus also includes trademarks and trade names of
entities other than the Company.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus does not give effect to the exercise of: (i) the Underwriter's
over-allotment option; (ii) the Warrants; or (iii) the Unit Purchase Option.
Except as specifically otherwise set forth elsewhere in this Prospectus, all
share information contained herein gives retroactive effect to the
reincorporation of the Company in the State of Nevada (previously organized and
existing as an Arizona corporation) and a recapitalization effected in November
1996 (the "Recapitalization") consisting of (i) an increase in the Company's
authorized shares of Common Stock to 20,000,000 shares; (ii) the provision for
5,000,000 shares of Preferred Stock, with the designations, powers and
preferences to be determined by the Board of Directors from time to time; and
(iii) the conversion upon such reincorporation and Recapitalization of all of
the issued and outstanding shares of Common Stock, no par value, of the Arizona
corporation into 1,200,000 shares of the Nevada corporation's Common Stock,
$.001 par value, on an approximately 242-for-one basis. When used in this
Prospectus, unless otherwise specified, the term "Common Stock" shall refer to
the $.001 par value Common Stock of the surviving Nevada corporation. See
"Capitalization" and "Description of Securities".
THE COMPANY
Piranha Interactive Publishing, Inc. (the "Company") publishes interactive
multimedia software products providing education and entertainment as well as
reference and personal productivity titles for the home personal computer ("PC")
market. The Company generally licenses software programs being developed by
independent third party developers. The Company then directs and assists the
developers in finishing the programs according to its specifications, imprints
and duplicates the programs in a media format, packages them in a proprietary
manner, and markets and distributes the finished products under the Piranha name
as well as proprietary titles whenever possible. Since the release of its first
title in August 1995, the Company has licensed and marketed five titles under
its own label including (i) three "Piranha Packs," each of which offers 10 or 11
individual subject titles relating to a central theme and (ii) two standalone,
individually packaged titles. In addition, the Company has marketed 13 titles
under affiliate relationships with two third party publishers pursuant to
revenue-sharing agreements. To date, the Company has published all of its titles
in computer compact disc read-only memory ("CD-ROM") format. In the future, the
Company may distribute its products in other media, such as on-line information
services, television-based formats, telephone and cable networks and direct
broadcast satellite, if market acceptance of such formats becomes widespread.
The Company intends to focus its product offerings on "edutainment" titles,
which combine entertainment and educational content, games, reference and
personal productivity titles, and other content titles which it determines to
have market potential. The Company has published and plans to publish titles in
various categories, including entertainment (e.g. Majestic: Alien Encounter, a
deep space adventure game), early childhood education (e.g. Treasured Tales
Presents Alice's Adventures in Wonderland, a children's interactive storybook),
reference (e.g. Academic Edge, a 10 CD educational theme pack), and personal
productivity (e.g. Travel CD Piranha Pack, an 11 CD travel and recreational
theme pack). When practicable, the Company publishes titles which are episodic
in design, thereby facilitating the production of sequential products and the
generation of increased customer loyalty. For example, SynFactor, the sequel to
the Company's game, Majestic: Alien Encounter, is scheduled to be released
during the first quarter of 1997. The Company is also scheduled to release
Mother Goose Preschool Partner (working title), an early childhood educational
product, during the first quarter of 1997.
The Company's strategy is generally to license its software programs from
independent, third party software developers. This strategy enables the Company
to avoid expending significant financial resources over a lengthy period of time
towards the research and development of a product that may never achieve
significant market acceptance, a substantial burden facing in-house software
development companies. By drawing upon independent developers, the Company is
able to capitalize upon the variety of creative products currently being
developed by a growing number of independent software developers, an increase
made possible in part by the availability of industry standard authoring tools
which assist software programmers with the technical
3
<PAGE> 7
development of the titles. Pursuant to license agreements with these developers,
the Company pays a royalty based upon sales of the product and in most instances
an up-front advance and/or guaranteed minimum royalty payment. The Company has
also designed one title, Mother Goose Preschool Partner (working title), with
the assistance of consultants which it then subcontracted to independent
software programmers for development. The Company may follow the same procedure
with additional future titles.
The Company's growth strategy consists of (i) targeting the growing
home-based, consumer PC market, (ii) building the brand recognition of "Piranha"
title offerings, (iii) expanding and enhancing its portfolio of interactive
multimedia software products by generally licensing software programs from third
party developers who are in the process of developing such products, (iv)
expanding the placement of Piranha products with retailers and distributors, and
(v) seeking out appropriate strategic relationships, including the acquisition
of other software publishers.
The Company presently sells its products to retailers and distributors
through its own direct sales and marketing efforts. The Company's marketing
activities include channel marketing in partnership with its retailers and
distributors; direct advertising in PC periodicals; Internet website demos and
advertising; trade shows; and pre-release marketing. Since its inception in
November 1994, the Company has entered into distribution agreements with several
large national software distributors, as well as a number of other smaller and
specialty distributors. The Company currently places its products with a number
of the largest software retailers (in terms of software sales volume) in the
United States.
The Company's management team has worked closely together for the past
three to five years and all have prior software publishing experience. The
Company was incorporated in Arizona on November 14, 1994 and reincorporated in
Nevada on November 22, 1996. Its corporate headquarters are located at 1839 West
Drake, Suite B, Tempe, Arizona 85283, and its telephone number is (602)
491-0500. The Company's website address is http://www.piranhainteractive.com.
------------------------
This Prospectus contains "forward-looking statements," including statements
regarding, among other items, the Company's growth strategy, future products,
sales, ability to license future software programs and market products and
anticipated trends in the Company's business. Actual results could differ
materially from these forward-looking statements as a result of a number of
factors, including, but not limited to, the Company's early stage of
development, the need for additional financing, intense competition in various
aspects of its business, the seasonal nature of its business, its dependence on
third party authors and key personnel, and other factors described under "Risk
Factors" and elsewhere herein.
4
<PAGE> 8
THE OFFERING
Securities Offered by the
Company.................. 1,200,000 Units, each Unit consisting of one share
of Common Stock, one Class A Warrant and one
Class B Warrant of the Company. Each Class A
Warrant is exercisable at any time during the
five years following the date of this Prospectus
to purchase one share of Class A Common Stock and
one Class B Warrant for $6.50, subject to
adjustment. Each Class B Warrant is exercisable
at any time during the five years following the
date of this Prospectus to purchase one share of
Common Stock for $8.75, subject to adjustment.
The Warrants are subject to redemption in certain
circumstances. The Common Stock, Class A and
Class B Warrants will be separately tradeable
immediately upon issuance. See "Description of
Securities".
Securities Offered
Concurrently
by Selling
Securityholders.......... 750,000 Class A Warrants; 750,000 Class B Warrants
issuable upon exercise of these Class A Warrants,
and 1,500,000 shares of Common Stock issuable
upon exercise of these Class A Warrants and Class
B Warrants. See "Concurrent Offering".
Common Stock Outstanding
Before Offering(1)....... 1,200,000 shares(2)
Common Stock Outstanding
After Offering(1)........ 2,400,000 shares(2)(3)
Use of Proceeds............ The Company intends to use the proceeds for
repayment of an aggregate of $1,500,000 principal
amount of notes issued pursuant to the Bridge
Financing (the "Bridge Notes"), plus accrued
interest; acquisition of software programs; sales
and marketing costs, including salaries for
additional personnel; and working capital. See
"Use of Proceeds".
Risk Factors............... The securities offered hereby involve a high degree
of risk and will result in immediate substantial
dilution to public investors. An investment in
the Units offered hereby should be made only
after a careful consideration of the various
risks which may affect the Company and its
operations. See "Risk Factors" and "Dilution".
Proposed Nasdaq Symbols.... Common Stock --
Units --
Class A Warrants --
Class B Warrants --
- ---------------
(1) For a description of the voting and other rights of the Common Stock, see
"Description of Securities -- Common Stock".
(2) Does not include 50,000 shares of Common Stock which are issuable upon
exercise of options to be outstanding at the closing of the Offering at an
exercise price of $5.00 and 150,000 shares of Common Stock reserved for
issuance upon future grants of options to be issued under the Company's 1996
Stock Option Plan. See "Management -- 1996 Stock Option Plan".
(3) Does not include shares of Common Stock issuable upon exercise of (i) the
Unit Purchase Option and the Class A and Class B Warrants underlying the
Unit Purchase Option; (ii) the Class A Warrants and Class B Warrants forming
part of the Units offered hereby; (iii) the 750,000 Class A Warrants issued
to holders of the Bridge Warrants; and (iv) the 750,000 additional Class B
Warrants issuable upon exercise of the Class A Warrants referred to under
(iii) hereinabove. See "Capitalization -- Bridge Financing", "Concurrent
Offering", and "Underwriting".
5
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
NOVEMBER 14, 1994 NINE MONTHS ENDED
(INCEPTION) SEPTEMBER 30,
THROUGH YEAR ENDED (UNAUDITED)
DECEMBER 31, DECEMBER 31, --------------------
1994 1995 1995 1996
----------------- ----------------- -------- ---------
<S> <C> <C> <C> <C>
Revenues................................. $ -- $ 1,342,034 $470,184 $ 403,896
Costs and Expenses....................... 3,704 1,153,891 526,205 893,606
Net income (loss)........................ (3,704) 188,143 (56,021) (489,710)
Pro forma net income (loss)(1)........... (2,148) 109,123 (32,492) (435,775)
Pro forma net income (loss) per share.... (0.01) 0.26 (0.08) (1.08)
Weighted average number of common shares
and common share equivalents
outstanding(2)......................... 302,480 417,347 417,196 402,496
</TABLE>
- ---------------
(1) From inception, until November 15, 1996, the Company elected to be treated
as a Subchapter S corporation for federal income tax purposes. As such, all
tax liability flowed through to the individual shareholders. The pro forma
financial data presented herein is as if the Company had been a C
corporation for federal income tax purposes from inception at an assumed tax
rate of 42%.
(2) Shares outstanding do not include shares held in escrow. See "Principal
Stockholders -- Escrow Arrangements."
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 (UNAUDITED)
-----------------------------------------
DECEMBER 31, 1995 ACTUAL AS ADJUSTED(1)
----------------- ------------------ ------------------
<S> <C> <C> <C>
Current assets............................ $ 491,086 $ 196,400 $5,081,400
Working capital........................... 173,926 (385,997) 4,499,003
Total assets.............................. 521,166 256,572 5,141,572
Total liabilities......................... 353,704 629,566 629,566
Stockholders' equity (deficit)............ 167,462 (372,994) 4,512,006
</TABLE>
- ---------------
(1) Adjusted to give effect to the sale of the 1,200,000 Units offered hereby at
an assumed initial public offering price of $5.00 per Unit less underwriter
discounts, commissions and estimated expenses of the Offering and the
repayment of the Bridge Notes. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Result of Operations".
6
<PAGE> 10
RISK FACTORS
An investment in the Units offered hereby involves a high degree of risk
and should only be made by investors who can afford the loss of their entire
investment. Prospective investors, prior to making an investment decision,
should give careful consideration, in addition to the other information
contained in this Prospectus, to the following risk factors. This Prospectus
contains "forward-looking statements," including statements regarding, among
other items, the Company's growth strategy, future products, sales, ability to
license future software programs and market products and anticipated trends in
the Company's business. Actual results could differ materially from these
forward-looking statements as a result of a number of factors, including, but
not limited to, the Company's early stage of development, the need for
additional financing, intense competition in various aspects of its business,
the seasonal nature of its business, its dependence on third party authors and
key personnel, and other factors described in the Risk Factors sections set
forth below and elsewhere herein.
EARLY STAGE COMPANY; ACCUMULATED DEFICIT; WORKING CAPITAL AND CAPITAL
DEFICITS; LIMITED OPERATING HISTORY. The Company commenced operations in
November 1994 and began shipping its products in August 1995. Although the
Company was profitable during the fourth quarter of 1995, since that time it has
incurred losses. The Company's profitability in 1995 was enhanced due to the
fact that the Company had not then incurred expenses to develop necessary
infrastructure nor incurred any significant overhead. The Company's founders did
not begin drawing a salary until October 1995. Accordingly, past results are not
indicative of future performance. The Company's ability to expand its operations
is dependent upon a number of factors such as the availability of appropriate
programs to the Company, the Company's marketing efforts, trends in personal
computer sales and usage, changes in available technology, changes in the
competitive environment of personal computer software and general economic
conditions. Many of these factors are outside the Company's control and changes
in these factors or the emergence of new competitive or other factors cannot be
accurately predicted. In addition, to become profitable, the Company will need
to substantially expand its product offerings. The Company does not have
experience marketing a significant number of products, and there can be no
assurance that it will be able to do so successfully. There can be no assurance
that revenues will increase significantly in the future or that the Company will
achieve ongoing profitable operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN. The Company has
received a report from its independent auditors that includes an explanatory
paragraph regarding uncertainty as to the ability of the Company to continue as
a going concern. Among the factors raising substantial doubt as to the Company's
ability to continue as a going concern is the Company's difficulty in generating
sufficient cash flows from operations, and its subsequent working capital
deficiency. The Company has incurred operating losses and may continue to do so
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Financial Statements -- Report of Independent
Auditors."
NEED FOR ADDITIONAL FINANCING. The Company has significant cash
requirements in connection with its business. In addition to its working capital
requirements, the Company must fund the production and marketing of its products
prior to the time the products are available for sale. Additionally, the Company
in most cases pays upfront advances and/or guaranteed royalties to third party
authors, which expenditures are expected to increase as the Company expands its
product lines. The Company's potential receipt of revenues from product sales
are subject to substantial contingencies, and there can be no assurances
concerning the timing and amount of future revenues from product sales.
Additionally, the Company generally does not receive payment from its retail and
distribution customers until a period after products are sold to end-users. This
slow revenue receipt cycle which has occurred in the past, and is expected to
continue in the future, has resulted in the Company having inadequate working
capital to maintain its distribution pipelines, fund publication of new products
or otherwise fund its ongoing operations. Further, the Company's sales are
seasonal and, accordingly, during a significant portion of its fiscal year the
Company's revenues have been, and may in the future be, insufficient to fund its
operating expenses. The Company will attempt to obtain credit, such as a
revolving loan facility, to alleviate the effects of its cash flow cycles, but
there can be no assurance that the Company will obtain such credit on
satisfactory terms or at all.
7
<PAGE> 11
The Company expects that the net proceeds of this Offering will enable it
to meet its liquidity and capital requirements for approximately 12 months
following completion of the Offering, although the Company's capital
requirements are subject to numerous contingencies associated with early-stage
companies. The Company may be required to seek additional financing in the event
of delays, cost overruns or unanticipated expenses associated with a company in
an early stage of development, or in the event the Company does not realize
anticipated revenues. In addition, the Company may require additional financing
in the future to further expand its product offerings or to make strategic
acquisitions. There can be no assurance that such additional financing will be
available, or that, if available, such financing will be obtainable on terms
favorable to the Company or its stockholders. The Company has no commitment for
any such financing and in the event such necessary financing is not obtained,
the Company's operations will be materially adversely affected and the Company
will have to cease or substantially reduce operations. Any additional equity
financings may be dilutive to stockholders, and debt financings, if available,
may involve restrictive covenants. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
SEASONALITY; FLUCTUATIONS IN QUARTERLY RESULTS. A significant portion of
the Company's operating expenses are relatively fixed, and planned expenditures
are based in part on sales forecasts. If net sales do not meet the Company's
expectations, the Company's business, operating results and financial condition
could be materially adversely affected. Further, the edutainment and games
software business is highly seasonal. Net revenues are typically significantly
higher during the fourth calendar quarter, due primarily to the increased demand
for such software during the year-end holiday buying season. As the Company's
profitability significantly depends on sales made in the fourth quarter, the
Company's operations could be materially adversely affected by an economic
downturn in any fourth quarter. Additionally, if product introductions planned
for the peak holiday season are delayed, the Company's operating results could
be materially adversely affected. Net revenues in other quarters are generally
lower and vary significantly as a result of new product introductions and other
factors. There can be no assurance that the Company will achieve consistent
profitability on a quarterly or annual basis.
The Company has experienced, and expects to continue to experience,
significant fluctuations in quarterly operating results due to a variety of
factors, including the size and rate of growth of the consumer multimedia
software market, market acceptance of the Company's products and those of its
competitors, development and promotional expenses relating to the introduction
of new products or new versions of existing products, projected and actual
changes in computing platforms, the timing and success of product introductions,
product returns, changes in pricing policies by the Company and its competitors,
the accuracy of retailers' forecasts of consumer demand, the timing of orders
from major customers, order cancellations and delays in shipment. In response to
competitive pressures, the Company may take certain pricing or marketing actions
that could materially adversely affect the Company's business, operating results
and financial condition. Products are generally shipped as orders are received,
and accordingly the Company operates with little backlog. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON THIRD PARTY AUTHORS. The Company does not generally develop
or own the software code to its products, but licenses software programs from
third party developers. Although the Company believes that the lack of in-house
program developers represents a cost advantage, currently the Company is
entirely dependent on third party authors for the development of new software
products. The Company typically receives many new programs each month for
evaluation from independent software developers; however, there can be no
assurance that the Company will continue to obtain a supply of quality software
programs from independent authors. In order to generate a profit, the Company
will need a substantial number of new products, and competition among software
publishers for licenses with independent authors is intensifying. In the future,
the Company may be required to provide higher advance payments, guaranteed
minimum royalties and/or greater royalty percentages to independent authors in
order to compete for licenses of their products. If the Company is unable to
license or acquire new products which are responsive to consumer preferences in
a timely manner in order to offset decreasing revenue from products reaching the
end of their life cycle, the Company's results of operations will be adversely
affected. See "Business -- Products."
8
<PAGE> 12
The Company's success will be dependent upon, among other factors, its
ability to identify and license products that will achieve significant market
penetration and yield profitable margins. To the extent the Company licenses and
markets products that do not gain market acceptance, its operating results will
be adversely affected. In addition, such product failures could adversely impact
the Company's reputation in the industry and impact its ability to secure access
to retail shelf space and distribution channels and to attract new developers.
INTENSE COMPETITION. The consumer software industry is intensely
competitive and subject to rapid change. The Company believes that the principal
competitive factors affecting the markets for its titles include content,
quality, brand recognition, the Company's reputation, price, marketing,
distribution, access to retail shelf space and critical reviews. These factors
could be affected by the Company's ability to license products developed by
third party authors which gain market acceptance and enhance the Company's
reputation with distributors, retailers and consumers. In addition, consumer
demand for particular software products may be adversely affected by the
increasing number of competitive products from which to choose, making it
difficult to predict the Company's future success in publishing packaged
software products for the retail market. Rapid changes in technology, product
obsolescence and advances in computer hardware require the Company to develop or
acquire new products and to enhance its existing products on a timely basis. The
Company's marketplace has recently experienced a higher emphasis on on-line and
Internet related services and content tailored for these new media. To the
extent that demand increases for on-line products and content, the demand for
the Company's existing products and future performance may change.
The consumer multimedia software market is highly fragmented with products
offered by many vendors. The Company's products compete directly with those of
large and established software companies, such as GT Interactive, Broderbund,
and The Learning Company, as well as a large number of small independent
publishers similar to the Company. Most of these competitors have greater
financial, technical, marketing, sales and customer support resources, as well
as greater name recognition and access to customers than the Company. Due to the
low technical and economic barriers to entry into the multimedia software
market, the Company anticipates facing additional competition from an increasing
number of small, privately-held competitors. The Company will compete with such
companies not only for retail shelf space and sales, but also for obtaining
licenses for software programs being developed by third parties. In addition,
many large companies with sophisticated product marketing and technical
abilities and financial resources that do not presently compete with the Company
may enter the multimedia software market. For example, entertainment companies
have begun to produce and directly market their own titles, featuring their
proprietary characters, to the consumer software market. To the extent that
competitors, as a result of their purchasing capacity, have greater access to
financial and other resources or achieve a performance, price or distribution
advantage, the Company's business and results of operations could be adversely
affected. Furthermore, the Company anticipates that there will be consolidation
of the consumer multimedia market around a smaller number of vendors who may be
better positioned and have greater resources with which to compete than the
Company. The Company will also face increased competition as it seeks to deliver
multimedia content through other new media, such as the World Wide Web, the
Internet and on-line proprietary services.
There is no assurance that the Company will have the resources required to
respond to market or technological changes or to compete successfully in the
future. See "Business -- Competition."
COMPETITION FOR SHELF SPACE AND PROMOTIONAL SUPPORT. The competition for
shelf space in retail stores is intense. To the extent that the number of
consumer software products and computer platforms increases, this competition
for shelf space may further intensify. At present, the Company's products
constitute a small percentage of a retailer's sales volume, and there can be no
assurance that retailers will provide the Company's products with adequate
levels of shelf space and promotional support. Increased competition could
result in loss of shelf space for, and reduction in sell-through of, the
Company's products at retail stores, as well as significant price competition,
any of which could adversely affect the Company's business, operating results
and financial condition.
Due to increased competition for limited retail shelf space and promotional
resources, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts
9
<PAGE> 13
and product return policies, as well as cooperative market development funds.
Retailers often require software publishers to pay fees in exchange for
preferred shelf space. The amounts paid to retailers by software publishers and
distributors for preferred shelf space are generally determined on a case by
case basis and there is, as of yet, no industry standard for determining such
fees, although larger publishers and distributors will likely have a competitive
advantage in this regard to the extent they have greater financial resources and
negotiating leverage. See "Business -- Competition."
COMPETITION FOR DISTRIBUTION CHANNELS; DISTRIBUTION RISKS. Sales to a
limited number of distributors have and will continue to constitute a
substantial portion of the Company's revenues. The Company's agreements with its
distributors generally are terminable by either party, with or without cause and
contain no minimum purchase obligations. During the nine-month period ended
September 30, 1996, sales to three distributors accounted for approximately 20%,
19% and 11%, respectively, of the Company's net sales. If the Company were to
lose all or a significant portion of the revenue attributable to its principal
distributors, or its principal distributors were to lose sales of the Company's
products to their principal accounts, the loss could have a material adverse
effect on the Company's operating results. In addition, the retail sales of the
Company's products are heavily concentrated among a few retailers. During the
nine month period ended September 30, 1996, sales to two retailers accounted for
approximately 22% and 8% respectively, of the Company's net sales. Competition
for access to distributors, as well as for retail shelf space, is intense.
The type and number of distribution channels is increasing to include
non-traditional software retailers such as book, music, video, magazine, toy,
gift, convenience, drug and grocery store chains. Additionally, as technology
changes, the type and number of distribution channels will further change and
new types of competitors, such as cable or telephone companies, and new
distribution channels are likely to emerge. These new methods may include
delivery of software using on-line services or the Internet, which will
necessitate certain changes in the Company's business and operations, including
without limitation, addressing operational challenges such as improving download
time for pictures, images and programs, ensuring proper regulation of content
quality and developing sophisticated security for transmitting payments. Rapid
growth in the use of and interest in the Internet and the World Wide Web is a
recent phenomenon. The Company cannot accurately predict the impact on-line
media will have on the retail computer software industry. Should on-line
distribution channels increase, the Company will be required to modify its
existing technology bases in order for its products to be compatible and thereby
remain competitive. It is critical to the success of the Company that, as these
changes occur, it maintain access to such channels of software distribution in
its market segments.
Even within traditional channels of distribution for consumer software
products there has been rapid change among distributors, including
consolidations and financial difficulties. These factors affecting distribution
channels could negatively affect the Company's business and results of
operations. With increasing concentration in the traditional channels of
distribution, the Company's customers have increased leverage in negotiating
favorable terms of sale, including price discounts and product return policies.
In addition, a number of the Company's larger competitors have attempted, with
some success, to enter into exclusive software distribution arrangements with
certain retail outlets. If the occurrence of these exclusive arrangements
increases and the Company is not able to offer a competing product line or
arrangement, the Company's operating results may be negatively impacted. See
"Business -- Competition."
LICENSING ARRANGEMENTS. The Company's rights to license most of its
software products included in the multiple CD-ROM Piranha Packs are
non-exclusive and, generally, of short duration. When licensing standalone,
individually packaged titles, the Company attempts to obtain exclusive licenses
for a longer term (to date, ranging from three years to five years). The
Company's exclusive license arrangements, however, may become non-exclusive or
terminate if the Company does not satisfy certain performance criteria, such as
selling a minimum amount of units or paying a minimum amount of royalties. There
is no assurance the Company will be able to continue to obtain new products from
developers or to maintain or expand its market share in the event that a
competitor offers the same or similar software products. In circumstances where
the Company has non-exclusive rights, the Company's competitive advantage, if
any, will be limited to its ability to obtain and market in a timely manner
software which is responsive to consumer preferences.
10
<PAGE> 14
The Company has prepaid in the past, and anticipates that it will prepay in
the future, royalties to third party developers. There can be no assurance that
the sales of products associated with such royalties will be sufficient to cover
the amount of such prepayment. Companies with greater financial resources than
the Company may be able to make higher offers or guarantees to developers of
commercially desirable multimedia software products than the Company is able to
make. As competition for products of independent developers intensifies, the
Company may not be able to obtain the products that it desires, or may be
required to reduce its profit margins and pay greater royalties, signing bonuses
and/or advances against royalties in order to license desired software programs.
See "Business -- Intellectual Property Licenses and Distribution Agreements."
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL. The operations
of the Company depend to a significant extent upon the efforts of Timothy M.
Brannan, Chairman of the Board and President, who is substantially responsible
for planning and guiding the Company's direction. In addition, the Company's
success depends upon the contributions of Keith P. Higginson, Chief Financial
Officer, J. Wade Stallings, II, Vice President and General Counsel, Douglas M.
Brannan, Vice President of Sales, and Wyndi D. Ballard, Vice President of
Marketing and Public Relations, each of whose responsibilities for the Company's
operations and strategic planning are very substantial. The loss of any of these
key employees would adversely affect the Company's business. The Company has
obtained $2,000,000 key man life insurance policies on each of the lives of
Messrs. Timothy M. Brannan, Higginson, Stallings and Douglas M. Brannan. See
"Management".
The Company currently has only nine employees, and will need to recruit,
hire and train additional personnel in order to fulfill its business objectives.
Because of the multifaceted and intensely competitive nature of the multimedia
industry, key personnel often require a unique combination of creative and
technical talents, as well as industry reputation. Such personnel are in short
supply, and the competition for their services is intense. The process of
identifying and recruiting key creative, technical and management personnel with
the requisite combination of skills and other attributes necessary to execute
the Company's strategy is expected to be lengthy. The Company has entered into
three-year employment contracts with each of Messrs. Timothy M. Brannan,
Higginson, Stallings, and Douglas M. Brannan and Ms. Ballard; however, all other
employees are currently subject to at-will employment agreements, which are
generally terminable at any time. The loss of the services of any key personnel
or the Company's failure to attract additional qualified employees could have a
material adverse effect on the Company's business and results of operations.
PRODUCT DELAYS AND LIFECYCLES. The Company expends substantial resources
in connection with the initial launch of a new product, which activities
anticipate a particular retail availability date. Any failure to release a new
product as scheduled could result in the inability to recoup such expenditures
and loss of marketing opportunities, retailer fees and consumer interest.
Consumer preference for multimedia software products is difficult to predict,
and only a small percentage of such products enjoy sustained market acceptance.
The Company's success depends upon its ability to publish new, commercially
successful products and to replace revenues from products at the later stages of
their life cycles. There can be no assurance that new products introduced by the
Company will achieve any significant market acceptance or that if such
acceptance occurs, it will be sustained for any significant period. If the
Company does not anticipate and respond to changing demand for its products in a
timely manner, the Company's business, operating results and financial condition
will be materially adversely affected.
The introduction of new products is subject to the inherent risks of
development and manufacturing delays. The Company has in the past and may in the
future experience delays in introducing its products. In the past, the Company's
working capital deficiency has prevented it from shipping its products in a
timely manner and in sufficient quantities to meet customer demand. A
significant delay in the introduction of, or the presence of a defect in, one or
more new products could have a material adverse effect on the ultimate success
of such products and on the Company's business, operating results and financial
condition, particularly in view of the seasonality of the Company's business.
Delays in a product introduction near the end of the Company's third quarter may
materially adversely affect operating results for the entire year, as initial
shipments of a product may be delayed and result in an inability of the Company
to capitalize upon the historical trend of the fourth quarter holiday season
being the most significant, in terms of sales volume, each year. Any such delays
11
<PAGE> 15
could cause the Company to miss this important selling season or other
opportunities and result in a corresponding negative impact on revenues and
results of operations. See "Business -- Products."
PRICE PROTECTIONS AND PRODUCT RETURNS. Industry practice and competitive
pressures generally require the Company to accept returns from distributors and
retailers of the Company's unsold products, including defective, shelfworn and
damaged products, or to reduce the price of previously shipped products to
enable retailers to sell slow moving inventories. The Company's agreements with
its distributors and retailers generally require that sales to a contracting
distributor or retailer be made at a price no greater than that at which product
is sold to any other like distributor or retailer, respectively, and provide
price protection for on-hand inventory in the form of credits to the contracting
distributor or retailer if the Company sells or discounts a particular product
to another distributor or retailer at a price that is lower than the price at
which that product was sold to the contracting distributor or retailer,
respectively. In addition, the Company's agreements with its retailers and
distributors require it to accept returns of products that are not sold. If all
or a significant portion of products are not purchased by consumers, and
distributors and retailers demand that the Company accept returns of the unsold
products, the Company's business, operating results and financial condition
could be materially adversely affected.
At the time of product shipment, the Company establishes reserves,
including reserves which estimate the potential for future returns based on
seasonal terms of sale and distributor and retailer inventories of the Company's
products, as well as other factors. The Company recognizes revenue from the sale
of its products upon shipment to the customer. Product returns or price
protection concessions that exceed the Company's reserves could materially
adversely affect the Company's business, operating results and financial
condition and could increase the magnitude of quarterly fluctuations in the
Company's operating and financial results. Furthermore, if the Company's
assessment of the creditworthiness of its customers receiving product on credit
proves incorrect, the Company could be required to significantly increase the
reserves previously established. There can be no assurance that such future
write-offs will not occur or that amounts written off will not have a material
adverse effect on the Company's business, results of operations and financial
condition.
SIGNIFICANT PRICE REDUCTIONS IN PERSONAL COMPUTER SOFTWARE. Recently,
several major publishers of multimedia software have significantly reduced the
prices of their products with the goal of gaining greater market share.
Competition in Microsoft's Windows application segment from major software
publishers is intensifying, and "competitive upgrade" price discounting among
the major firms is eroding the traditional pricing structures that had
previously existed in the software industry. The Company expects to encounter
increasing price competition in the future. Competitive pressures could result
not only in sustained price reductions, but also in a decline in sales volume.
Such declines could result in a decrease in the revenues from, and gross margins
on, sales of such products in the future and could result in lower cash flow or
operating margins.
RAPID TECHNOLOGICAL DEVELOPMENT AND SOFTWARE MARKET CHANGES. The market
for interactive multimedia software titles continues to evolve and is dependent
upon a number of variables, including consumer preferences, shipments of new
multimedia PCs, the installed base of multimedia PCs and the number of other
developers and publishers creating interactive multimedia software titles to
satisfy market demand. In addition, consumer preferences for particular software
products and titles are subject to rapid change and are highly reactive to
changes in computer technology. Changes in technology and consumer preferences
may render software being marketed by the Company obsolete. In particular, a
continually expanding consumer demand for content-rich multimedia products has
resulted in short life spans for software products. There can be no assurance
that the Company will be able to acquire innovative new products reflecting
technological change and consumer preferences, or that it will do so in a timely
manner. The inability of the Company to publish multimedia software products for
hardware technology with wide consumer acceptance and with high consumer appeal
could result in a material adverse affect on the Company's business, results of
operations and financial condition.
CHANGING PRODUCT PLATFORMS AND FORMATS. The Company's software products
are intended to be used on personal computer hardware systems built by third
party manufacturers. The operating systems of machines currently being
manufactured are characterized by several competing and incompatible formats or
12
<PAGE> 16
"platforms", and new platforms will likely be introduced in the future.
Currently, Microsoft Corporation is the dominant supplier of computer operating
systems and frequently coordinates its operating system marketing efforts with
those for its applications software. In the future, interactive multimedia
titles may be accessible through such platforms as telephone, cable network and
direct broadcast satellite delivery. The Company's success is dependent upon,
among other things, its ability to anticipate future changes in platforms and
their acceptance by the market and to develop compatible software for such
platforms, of which there is no assurance. If the Company invests in software
products for a platform that does not achieve significant market penetration,
the Company's planned revenues from those products will be adversely affected
and it may not recover its development investment. If the Company does not
choose to develop or is unable to develop, due to resource constraints or other
factors, software products for a platform that achieves significant market
success in a timely manner, the Company's revenues may also be adversely
affected. Although the Company is optimistic that it can obtain, where
necessary, licenses to use these platforms, no assurances can be given that such
licenses can be obtained or that they can be obtained on commercially reasonable
terms. The inability of the Company to obtain a license to use a particular
platform or platforms could have a material adverse effect on the Company's
business.
To date, all of the Company's products have been produced, and all of its
product development efforts are directed at creating new products, on CD-ROM
format. Although the Company believes that it would be able to develop software
compatible with new formats in a timely manner, a leveling off or decline in
sales of CD-ROMs could have a material adverse effect on the Company's results
of operations. In addition, although the Company believes that most elements of
its operations and business strategy are applicable to and may be utilized in
the creation of multimedia software products for additional platforms, there can
be no assurance that the Company will be able to adapt its products and
operations to emerging hardware platforms or to successfully create multimedia
software titles for such platforms.
DEPENDENCE ON PC SALES. Personal computer software sales are highly
dependent upon sales of personal computers. During recent years, segments of the
PC industry have experienced significant economic downturns characterized by
decreased product demand and price erosion. Although the Company does not
believe such factors have materially affected the Company in the past, there can
be no assurance that the Company will not be materially adversely affected if
such situation continues or worsens or by future events in the industry.
MANUFACTURING RISK. The production of the Company's products consists of
pressing CD-ROM disks, assembling purchased product components, printing product
packaging and user manuals and packaging finished products, all of which are
performed for the Company by third party vendors in accordance with the
Company's specifications and forecasts. Currently, the Company uses primarily
one vendor for each of these services. While these services are available from
multiple vendors and at multiple sites, there can be no assurance that an
interruption in the manufacture of the Company's products could be remedied
without undue delay and without materially and adversely affecting the Company's
results of operations. In particular, due to the seasonal nature of the software
CD-ROM industry, it is critical that the Company secure adequate production
resources to timely produce and deliver its products for fourth quarter sales.
See "Business -- Manufacturing."
PROTECTION OF PROPRIETARY RIGHTS; RISK OF INFRINGEMENT CLAIMS. The Company
regards its software products as proprietary and relies primarily on a
combination of trademark, copyright and trade secret laws, as well as employee
and third party nondisclosure agreements and other methods to protect its
proprietary rights. The Company generally licenses its externally developed
products rather than transferring title and, as is the industry practice, relies
upon "shrink-wrapped," rather than signed, license agreements with end-users.
The enforceability of such licenses has not been conclusively determined. As is
also the standard practice in the industry, none of the Company's CD-ROM
products include any mechanism to prevent or inhibit unauthorized copying. The
Company is not aware of any unauthorized copying, reverse engineering or other
unauthorized distribution of its proprietary information, but if such
unauthorized copying were to occur, the Company's business, operating results
and financial condition could be materially adversely affected. Further, the
laws of foreign jurisdictions may not protect the Company's proprietary rights
to the same extent as the laws of the United States. Policing unauthorized use
of a broadly disseminated product such as PC software is
13
<PAGE> 17
very difficult. Software piracy has been, and can be expected to be, a
persistent problem for participants in the shrink-wrap software industry,
including the Company. See "Business -- Protection of Proprietary Rights."
As the number of multimedia software products in the industry increases and
the functionality of these products further overlaps, software publishers and
developers may increasingly become subject to infringement claims. There can be
no assurance that third parties will not assert infringement claims against the
Company in the future with respect to current or future products. Although the
Company makes reasonable efforts to ensure that its products do not violate the
intellectual property rights of others, there can be no assurance that claims of
infringement will not be made against the Company. In certain circumstances,
litigation may be necessary to enforce and protect the Company's proprietary
rights. Any such litigation, with or without merit, could be costly and divert
management's attention, which could have an adverse effect on the Company's
business, operating results or financial condition. Adverse determinations in
litigation relating to any of the Company's products could result in the loss of
the Company's proprietary rights, subject the Company to liabilities, require
the Company to seek licenses from third parties or prevent the Company from
selling that product.
PRODUCT LIABILITY EXPOSURE. Sale of the Company's software products
involves the inherent risk of product liability claims against the Company. The
Company currently maintains product liability insurance coverage, however,
product liability insurance is expensive, subject to various coverage
exclusions, and may not be obtainable by the Company in the future on terms
acceptable to the Company. Moreover, the amount and scope of any coverage may be
inadequate to protect the Company in the event that a product liability claim is
successfully asserted against the Company.
CONTROL BY PRESENT STOCKHOLDERS; VOTING TRUST. The Company's present
stockholders will own 1,200,000 shares of Common Stock, representing 50% of the
total combined voting power of all of the Common Stock to be outstanding
immediately after the Offering. In addition, the present stockholders of the
Company have entered into a voting trust agreement and irrevocable proxy
agreement. Pursuant to the voting trust and irrevocable proxy agreement, Timothy
M. Brannan, the Company's Chairman and President, is granted the authority to
vote all of the shares subject to the voting trust and the proxy on all matters
on which the Company's stockholders are entitled to vote. Mr. Brannan,
accordingly, will likely be able to elect all of the Company's directors and
thereby control the policies of the Company. See "Principal Stockholders".
POSSIBLE ADVERSE EFFECT ON LIQUIDITY OF THE COMPANY'S SECURITIES DUE TO THE
INVESTIGATION OF THE UNDERWRITER AND D.H. BLAIR & CO., INC. BY THE SECURITIES
AND EXCHANGE COMMISSION. The Securities and Exchange Commission (the
"Commission") is conducting an investigation concerning various business
activities of the Underwriter and D. H. Blair & Co., Inc. ("Blair & Co."), a
selling group member which will distribute substantially all of the Units
offered hereby. The investigation appears to be broad in scope, involving
numerous aspects of the Underwriter's and Blair & Co.'s compliance with the
Federal securities laws and compliance with the Federal securities laws by
issuers whose securities were underwritten by the Underwriter or Blair & Co., or
in which the Underwriter of Blair & Co. made over-the-counter markets, persons
associated with the Underwriter or Blair & Co., such issuers and other persons.
The Company has been advised by the Underwriter that the investigation has been
ongoing since at least 1989 and that it is cooperating with the investigation.
The Underwriter cannot predict whether this investigation will ever result in
any type of formal enforcement action against the Underwriter or Blair & Co.,
or, if so, whether any such action might have an adverse effect on the
Underwriter or the securities offered hereby. The Company has been advised that
Blair & Co. intends to make a market in the securities following this Offering.
An unfavorable resolution of the Commission's investigation could have the
effect of limiting such firm's ability to make a market in the Company's
securities, which could adversely affect the liquidity or price of such
securities. See "Underwriting".
FUTURE SALES OF COMMON STOCK; ESCROWED SHARES. Upon completion of this
Offering, the Company will have 2,400,000 shares of Common Stock outstanding
excluding shares issuable upon the exercise of warrants and options. The
1,200,000 shares of Common Stock presently outstanding, including the 825,000
Escrow Shares, are subject to the volume, manner of sale and public information
requirements of Rule 144 (described below) promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), unless
14
<PAGE> 18
registered under the Securities Act. The 825,000 escrowed shares will be
released only if the Company achieves certain levels of income or the bid price
for shares of its Common Stock exceed certain thresholds. See "Principal
Stockholders -- Escrow Arrangements." and "Underwriting".
Future sales of Common Stock in the public market after this Offering could
have an adverse effect on the then prevailing market price of the Common Stock.
All of the shares of Common Stock currently outstanding are "restricted
securities" as that term is defined under Rule 144 promulgated under the
Securities Act and under certain circumstances may be sold without registration
pursuant to such rule. The Company's Officers and Directors and holders of all
of the shares of Common Stock and options to purchase Common Stock outstanding
prior to this Offering have agreed with the Underwriter not to offer, sell or
otherwise dispose of any of their shares of Common Stock or other securities
issued by the Company for a period of 13 months after the date of this
Prospectus without the prior written consent of the Underwriter. Upon expiration
of such 13-month period, substantially all of the shares of Common Stock will be
eligible for resale under Rule 144. The Company is unable to predict the effect
that sales made under Rule 144, or otherwise, may have on the then prevailing,
market price of the Company's securities although any future sales of
substantial amounts of securities pursuant to Rule 144 could adversely affect
prevailing market prices. See "Principal Stockholders," "Description of
Securities -- Shares Eligible For Future Sale" and "Underwriting".
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Units offered hereby
will incur immediate substantial dilution of approximately $2.14 (or 43%) in the
per share net tangible book value of their Common Stock (attributing no value to
the Warrants included in the Units). The current stockholders of the Company
acquired their securities at an average price per share of less than $.01.
Therefore, purchasers of the Units offered hereby will bear a proportionately
greater risk of loss than the Company's current stockholders. See "Dilution".
CHARGES ARISING FROM PRIVATE PLACEMENT. The Company incurred approximately
$281,000 of debt issuance costs and debt discount associated with the Bridge
Financing completed in November and December 1996. A substantial portion of such
fees will be charged to income upon the repayment of the Bridge Notes from the
proceeds of this Offering and booked for the quarter ending March 31, 1997. This
charge to income will adversely affect the Company's financial results for that
quarter. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
CHARGES AND POTENTIAL CHARGES TO EARNINGS. The Commission has taken the
position with respect to escrow arrangements such as that entered into by the
Company and its stockholders that in the event any shares are released from
escrow to the holders who are officers, directors, employees or consultants of
the Company, a compensation expense will be recorded for financial reporting
purposes. Accordingly, in the event of the release of the Escrow Shares, the
Company will recognize during the period in which the earnings thresholds are
probable of being met or such Common Stock bid price levels achieved, a
substantial noncash charge (not deductible for income tax purposes) to
operations equal to the then fair market value of such shares, which would have
the effect of significantly increasing the Company's loss or reducing or
eliminating earnings, if any, at such time. The recognition of such compensation
expense may have a depressive effect on the market price of the Company's
securities. Notwithstanding the foregoing discussion, there can be no assurance
that the Company will attain the targets which would enable the Escrow Shares to
be released from escrow.
DIVIDENDS UNLIKELY. The Company does not intend to declare or pay cash
dividends on its Common Stock in the foreseeable future. The Company expects
that it will retain all available earnings, if any, to finance and expand its
business. See "Dividend Policy".
USE OF PROCEEDS FOR PAST DEBT. A significant portion of the proceeds from
this Offering will be used to repay past indebtedness. The Company expects to
use approximately $1,535,000 of the net proceeds from this Offering to redeem
the Bridge Notes. See "Capitalization -- Bridge Financing".
15
<PAGE> 19
BROAD DISCRETION OVER USE OF PROCEEDS. Approximately $1,850,000 (or 38%)
of the proceeds are allocated to working capital. Management will have broad
discretion as to the use of such proceeds. See "Use of Proceeds".
ABSENCE OF PRIOR PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING AND
EXERCISE PRICES. Prior to this Offering, there has been no public market for
any of the Company's securities and there is no assurance that any such market
will develop, or, if one does develop, that it will be sustained. The initial
public offering price for the Units and the exercise prices of the Warrants have
been determined by negotiation between the Company and the Underwriter and are
not necessarily related to the Company's asset value, net worth or other
established criteria of value.
STOCK MARKET VOLATILITY. General market price declines or market
volatility in the future could adversely affect the price of the Common Stock
and the Warrants. In certain cases, volatility in the price of a given security
can result from the short-term trading strategies of certain market segments.
Such volatility can distort market value and can be particularly severe in the
case of smaller capitalization stocks and immediately before or after an
important corporate event such as a public offering. In recent years, the stock
markets in general, and the securities of technology companies in particular,
have experienced extreme price fluctuations in response to such occurrences as
quarterly variations in operating results, changes in earnings estimates by
analysts, announcements concerning new products, strategic relationships or
technological innovations by individual software publishers and developers,
general conditions in the software computer and entertainment industries and
other events or facts. This pattern of extreme volatility in the stock market,
which in many cases was unrelated to the operating performance of, or
announcements concerning, the issuers of the affected stock may adversely affect
the market price of the Common Stock.
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. Upon completion of the
Offering, the Company will have outstanding (i) 1,200,000 Class A Warrants to
purchase an aggregate of 1,200,000 shares of Common Stock and 1,200,000 Class B
Warrants; (ii) 1,200,000 Class B Warrants to purchase 1,200,000 shares of Common
Stock; (iii) the Selling Securityholders' Class A Warrants to purchase an
aggregate of 750,000 shares of Common Stock and 750,000 Class B Warrants; (iv)
the Unit Purchase Option to purchase an aggregate of 120,000 Units; and (v)
options to purchase an aggregate of 50,000 shares of Common Stock. The Company
has an additional 150,000 shares of Common Stock reserved for issuance under its
1996 Stock Option Plan. For the respective terms of such Warrants, options and
the Unit Purchase Option, the holders thereof are given an opportunity to profit
from a rise in the market price of the Company's Common Stock with a resulting
dilution in the interests of the other stockholders. Further, the terms on which
the Company may obtain additional financing during that period may be adversely
affected by the existence of such options and warrants. The holders of the
Warrants may exercise them at a time when the Company might be able to obtain
additional capital through a new offering of securities on terms more favorable
than those provided therein. In addition, holders of the Unit Purchase Option
have registration rights with respect to such option and the underlying
securities. Exercise of the registration rights may involve substantial expense
to the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Description of Securities" and "Underwriting".
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. Commencing one year
from the date hereof, the Warrants may be redeemed by the Company at a
redemption price of $.05 per Warrant upon 30 days' notice provided the average
closing bid price (as defined herein) of the Common Stock for any 30 consecutive
trading days ending within 15 days of the notice of redemption exceeds $9.10, in
the case of the Class A Warrants, or $12.25, in the case of the Class B Warrants
(subject to adjustment in each case). Redemption of the Warrants could force the
holders to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holders to do so, to sell the Warrants at the
then current market price when they might otherwise wish to hold the Warrants,
or to accept the redemption price, which is likely to be substantially less than
the market value of the Warrants at the time of redemption. See "Description of
Securities -- Redeemable Warrants".
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES UNDERLYING THE
WARRANTS; NEED FOR CURRENT PROSPECTUS. The Class A Warrants and Class B
Warrants constituting part of the Units offered hereby are
16
<PAGE> 20
detachable immediately from the Units and may be traded separately. Although the
Units will not knowingly be sold to purchasers in jurisdictions in which the
Units are not registered or otherwise qualified for sale, purchasers may buy
Units or the components thereof in the aftermarket in, or may move to,
jurisdictions in which the shares underlying the Class A Warrants or the Class B
Warrants issuable upon exercise of the Warrants are not so registered or
qualified during the period that the Warrants are exercisable. In this event,
the Company would be unable to issue shares and/or Class B Warrants to those
persons desiring to exercise their Warrants unless and until the underlying
securities could be qualified in such jurisdiction. In addition, investors in
this Offering will not be able to exercise their Warrants, unless at the time of
exercise the Company has a current prospectus covering the shares of Common
Stock underlying the Warrants. No assurances can be given that the Company will
be able to effect any required registration or qualification or maintain a
current prospectus. See "Description of Securities -- Redeemable Warrants".
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK; ANTI-TAKEOVER
PROVISIONS. The Company's Board of Directors has the authority to issue up to
5,000,000 shares of preferred stock, $.001 par value ("Preferred Stock"), in one
or more series and to determine the price, rights, preferences and privileges of
the shares of each such series 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 shares of
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company, thereby
delaying, deferring or preventing a change of control of the company. In
addition, certain provisions in the Company's Articles of Incorporation and
By-laws creating a staggered-term board and relating to supermajority
stockholder approval of certain business combinations by the Company,
restrictions on calling special meetings of stockholders, restrictions on
removal of directors and restrictions on amendments to the By-laws may
discourage or make more difficult any attempt by a person or group of persons to
obtain control of the Company. See "Description of Securities -- Certain
Statutory and Charter Provisions."
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS. The Company's Articles
of Incorporation require the Company to indemnify each of its Officers and
Directors against liabilities and reasonable expenses incurred in any action or
proceeding, including stockholders' derivative actions, by reason of such person
being or having been an Officer or Director of the Company, or of any other
corporation for which he or she serves as such at the request of the Company, to
the fullest extent permitted by Nevada law. The Company's Articles of
Incorporation also limit the liabilities of the Directors and Officers of the
Company for monetary damages for breach of fiduciary duty as a Director or
Officer to the maximum extent permitted by Nevada law. Although such limitation
of liability does not affect the availability of equitable remedies such as
injunctive relief or rescission, the presence of these provisions in the
Articles of Incorporation could prevent the recovery of monetary damages against
Directors and Officers of the Company. See "Management -- Indemnification and
Limitation of Liability".
POSSIBLE RESTRICTIONS ON MARKET-MAKING ACTIVITIES IN COMPANY'S
SECURITIES. The Underwriter has advised the Company that Blair & Co. intends to
make a market in the Company's securities. Rule 10b-6 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), may prohibit Blair & Co.
from engaging in any market-making activities with regard to the Company's
securities for the period from nine business days (or such other applicable
period as Rule 10b-6 may provide) prior to any solicitation by the Underwriter
of the exercise of Warrants until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
that the Underwriter may have to receive a fee for the exercise of Warrants
following such solicitation. As a result, Blair & Co. may be unable to provide a
market for the Company's securities during certain periods while the Warrants
are exercisable. In addition, under applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the Selling
Securityholders' Warrants may not simultaneously engage in market-making
activities with respect to any securities of the Company for the applicable
"cooling off" period (at least two and possibly nine business days) prior to the
commencement of such distribution. Accordingly, in the event the Underwriter or
Blair & Co. is engaged in a distribution of the Selling Securityholders'
Warrants, neither of such firms will be able to make a market in the Company's
securities during the applicable restrictive period. Any temporary
17
<PAGE> 21
cessation of such market-making activities could have an adverse effect on the
market price of the Company's securities. See "Underwriting".
RISK OF LOW-PRICED STOCK. If the Company's securities were delisted from
Nasdaq (See "Risk Factors -- Nasdaq Listing and Maintenance Requirements"), they
could become subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of purchasers in this Offering to sell any
of the securities acquired hereby in the secondary market.
The Commission adopted regulations which generally define a "penny stock"
to be any non-Nasdaq equity security that has a market price (as therein
defined) of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require delivery, prior to any transaction
in a penny stock, of a disclosure schedule prepared by the Commission relating
to the penny stock market. Disclosure is also required to be made about
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6)of the Exchange
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the commission finds that such a restriction would be in
the public interest.
If the Company's securities were subject to the existing or proposed rules
on penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
NASDAQ LISTING AND MAINTENANCE REQUIREMENTS. The Company proposes to list
the Units, Common Stock and Warrants on the Nasdaq SmallCap Market. See "Cover
Page". Under the rules for continued listing in the Nasdaq system, a company is
required to maintain at least $2,000,000 in total assets, two market-makers, a
public float of at least $200,000 and a minimum bid price of $1.00 per share or,
if the share price criterion cannot be met, $2,000,000 in capital and surplus
and a public float of $1,000,000. In addition, Nasdaq has proposed more
stringent maintenance criteria for continued listing, which, among other things,
would require that a company have at least $2,000,000 in "net tangible assets"
("net tangible assets" equals total assets less total liabilities and goodwill)
or at least $35,000,000 in total market value or at least $500,000 in net income
in two out of its last three fiscal years, as well as at least 500,000 shares in
the public float, at least $1,000,000 in market value of the public float, a bid
price of not less than $1.00 per share, and more stringent corporate governance
standards. Adoption of any or all of the proposals could make it more difficult
for the Company to maintain compliance with the listing criteria, assuming the
Company is accepted for listing on the SmallCap Market. Upon notice of a
deficiency in one or more of the maintenance requirements, the Company would be
given 90 days (30 days in the case of the number of market-makers) to comply
with the maintenance standards. Failure of the Company to meet the maintenance
requirements of Nasdaq could result in the Company's securities being delisted
from Nasdaq, with the result that the Company's securities would trade on the
OTC Bulletin Board or in the "pink sheets" maintained by the National Quotation
Bureau Incorporated. As a consequence of such delisting, an investor could find
it more difficult to dispose of or to obtain accurate quotations as to the
market value of the Company's securities. Among other consequences, delisting
from Nasdaq may cause a decline in the stock price, the loss of news coverage
about the Company and difficulty in obtaining future financing.
18
<PAGE> 22
USE OF PROCEEDS
The Company estimates that the net proceeds from the sale of the 1,200,000
Units offered hereby will be approximately $4,885,000 ($5,668,000 if the
Underwriter's over-allotment option is exercised in full), assuming an initial
public offering price of $5.00 per Unit and after deducting underwriting
discounts and commissions and estimated expenses of this offering. The Company
intends to apply the net proceeds of this, as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATIONS AMOUNT PERCENTAGE
------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Repayment of Bridge Notes and related interest(1)............ $1,535,000 31%
Acquisition of Software Programs(2).......................... 1,000,000 21
Marketing and Sales(3)....................................... 500,000 10
Working Capital(1)........................................... 1,850,000 38
---------- ---
Total................................................... $4,885,000 100%
========== ===
</TABLE>
- ---------------
(1) The Bridge Notes are payable upon the earlier of one year after the date of
issuance, or the completion of the public offering contemplated herein. The
proceeds of the Bridge Notes are being used for repayment of a $200,000 loan
(and accrued interest thereon) made by the Underwriter to the Company in
November 1996, payment of accrued officer and employee salaries of $76,000,
loans by Officers to the Company of $100,000, loans by others to the Company
of $25,000 and working capital purposes including general and administrative
expenses. See "Capitalization -- Bridge Financing", "Management's Discussion
and Analysis of Financial Condition and Results of Operations", and
"Business -- Legal Proceedings".
(2) Includes costs associated with the acquisition of new software programs.
(3) Represents funds to be used to implement the Company's marketing and sales
program, including the hiring of additional personnel, exhibition at trade
shows and production of brochures and sales literature. See
"Business -- Marketing and Sales".
If the Underwriter's over-allotment option is exercised, the amount for
which it is exercised will increase the amount of proceeds allocated to sales
and marketing and working capital.
Until applied as set forth above, all proceeds will be invested in
short-term investment grade instruments or bank certificates of deposit. Income
received from investments or from any Warrant exercise will be added to working
capital and used to fund operations. Investment of the net proceeds in
short-term securities rather than operations could adversely affect the
Company's overall return on its capital.
The foregoing represents the Company's present intentions and best estimate
with respect to the allocation of the proceeds of this Offering based upon its
present plans and business conditions. The Company expects that the net proceeds
of this Offering will enable it to meet its liquidity and capital requirements
for approximately 12 months following completion of the Offering, although the
Company's capital requirements are subject to numerous contingencies associated
with early-stage companies. The Company may be required to seek additional
financing in the event of delays, cost overruns or unanticipated expenses
associated with a company in an early stage of development, or in the event the
Company does not realize anticipated revenues. In addition, the Company may
require additional financing in the future to further expand its product
offerings or to make strategic acquisitions. There is no assurance that
unforeseen events or changed business conditions will not result in the
application of the proceeds of this Offering in a manner other than as described
in this Prospectus. This estimate is based on certain assumptions, which are
subject to change. Future events, including changes in the Company's business
plans, results and economic, competitive or industry conditions, may make shifts
in the allocation of funds necessary or desirable. See "Risk Factors -- Need for
Additional Financing," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
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<PAGE> 23
DIVIDEND POLICY
The Company does not intend to declare or pay cash dividends on its Common
Stock (or any other securities) in the foreseeable future. The Company intends
to retain all available earnings to finance and expand its business.
DILUTION
The following discussion and tables allocate no value to the warrants
issued as part of the Units.
The net tangible book value of the Company as of September 30, 1996 was
$(372,994) or $(0.99) per share of Common Stock. Net tangible book value per
share is determined by dividing the number of shares of Common Stock outstanding
(excluding 825,000 shares held in escrow) into the tangible net worth of the
Company (tangible assets less total liabilities). Without taking into account
any changes in such net tangible book value subsequent to September 30, 1996,
other than to give effect to the sale of 1,200,000 Units by the Company at an
assumed initial public offering price of $5.00 per Unit (after deducting the
estimated underwriting discount and estimated offering expenses payable by the
Company), the pro forma net tangible book value at September 30, 1996, would
have been $4,512,006, or $2.86 per common share. This represents an immediate
increase in net tangible book value of $3.85 per common share to existing
shareholders and an immediate dilution of $2.14 per common share to persons
purchasing Units in this Offering ("New Investors"). The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Unit.............. $5.00
Net tangible book value per common share at
September 30, 1996..................................... $(0.99)
Increase in net tangible book value per common share
attributable to the New Investors in the Units......... $ 3.85
------
Pro forma net tangible book value per common share
after offering......................................... $2.86
-----
Dilution per common share to New Investors(1)(2)............ $2.14
=====
</TABLE>
- ---------------
(1) If the Underwriter exercises the over-allotment option in full, the per
share dilution to investors in the Units would be $1.98.
(2) If the 825,000 shares held in escrow were treated as outstanding, the per
share dilution to New Investors would be $3.12.
The following table sets forth on a pro forma basis at September 30, 1996,
the differences between existing shareholders and the New Investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share (assuming
an initial public Offering price of $5.00 per Unit):
<TABLE>
<CAPTION>
SHARES PURCHASED
------------------------------------------ TOTAL CONSIDERATION
NON-ESCROW ESCROW TOTAL -------------------- AVERAGE PRICE
SHARES SHARES SHARES PERCENT AMOUNT PERCENT PER SHARE
---------- ------- --------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Existing shareholders..... 375,000 825,000 1,200,000 50% $4,959 0.1% $ 0.004
New Investors............. 1,200,000 0 1,200,000 50% $6,000,000 99.9% $ 5.00
---------- ------- --------- ------- ----------- -------
Total................ 1,575,000 825,000 2,400,000 100% $6,004,959 100%
========= ======= ======== ===== ========= =====
</TABLE>
The foregoing table assumes no exercise of the over-allotment option. If
such option is exercised in full, the New Investors will have paid $6,900,000
for 1,380,000 shares of Common Stock, representing approximately 100% of the
total consideration for approximately 54% of the total number of shares of
Common Stock outstanding (including escrow shares). The foregoing table also
assumes no exercise of the Underwriter's Unit Purchase Option or any other
options or warrants of the Company and further assumes that all existing
shareholders purchased the Common Stock held by them from the Company at the
price at which such shares were originally sold by the Company. As of the
closing of the Offering, there will be options outstanding to purchase an
aggregate of 50,000 additional shares of Common Stock, which have an exercise
price equal to the initial public offering price of the Units offered hereby.
See "Management -- 1996 Stock Option Plan".
20
<PAGE> 24
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of September 30, 1996, (i) giving effect to the 242-for-1 stock split as part of
the reincorporation of the Company as a Nevada corporation on November 22, 1996,
(ii) pro forma to reflect the sale of $1,500,000 of Bridge Units in November and
December 1996 and the application of the proceeds therefrom to repay short-term
debt, and the change effected in par value and the number of shares authorized,
and (iii) as adjusted to give effect to the issuance and sale of the 1,200,000
Units offered hereby at an initial offering price of $5.00 per Unit and the
repayment of the Bridge Notes out of the net proceeds therefrom as set forth in
"Use of Proceeds". This table should be read in conjunction with the Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
--------- ---------- ----------
<S> <C> <C> <C>
Short-term debt........................................ $ 125,541 $ 0 $ 0
Long-term debt......................................... 35,537 35,537 35,537
Bridge Notes(1)........................................ 1,425,000 0
Preferred Stock, $.001 par value, 5,000,000 shares
authorized, none issued.............................. 0 0
Common Stock, no par value; $.001 par value, pro forma
and adjusted; 10,000,000 shares authorized;
20,000,000 shares authorized, pro forma and adjusted;
1,200,000 shares issued and outstanding; 2,400,000
shares issued and outstanding as adjusted(2)......... 0 1,200 2,400
Additional paid in capital............................. 4,959 3,759 4,887,559
Additional paid in capital -- warrants................. 75,000 75,000
Stockholders' equity (deficit)......................... (372,994) (297,994) 4,587,005
--------- ---------- ----------
Total capitalization......................... $(211,916) $1,162,542 $4,622,542
========= ========= =========
</TABLE>
- ---------------
(1) The amount set forth for Bridge Notes represents the price of the Units
issued in the Bridge Financing less the value ascribed to the Bridge
Warrants ($75,000). Bridge Notes accrue interest at the rate of 10% per
annum and are payable upon the earlier of November 27, 1997 or completion of
this Offering. See "Use of Proceeds" and "-- Bridge Financing".
(2) Does not include: (i) 180,000 shares of Common Stock included in Units which
may be sold pursuant to the Underwriter's over-allotment option and 360,000
shares of Common Stock issuable upon exercise of the Class A and Class B
Warrants included in and underlying such Units; (ii) 3,600,000 shares of
Common Stock reserved for issuance upon exercise of the Class A and Class B
Warrants included in the Units offered hereby; and (iii) 120,000 shares of
Common Stock issuable upon exercise of the Unit Purchase Option and/or
240,000 shares of Common Stock issuable upon exercise of the Class A and
Class B Warrants included in or underlying such option; and (iv) 200,000
shares reserved for issuance under the Company's 1996 Stock Option Plan, of
which options to purchase 50,000 shares will be outstanding at the closing
of the Offering. See "Principal Stockholders", "Description of Securities",
and "Underwriting".
BRIDGE FINANCING
In November and December 1996, the Company completed the Bridge Financing
consisting of an aggregate of $1,500,000 principal amount of Bridge Notes and
750,000 Bridge Warrants from which it received net proceeds of approximately
$1,294,000 (after deduction of the Placement Agent's commissions and expenses of
such financing). The Bridge Notes are payable, together with interest at the
rate of 10% per
21
<PAGE> 25
annum, on the earlier of November 27, 1997 or the closing of this Offering. See
"Use of Proceeds". The Bridge Warrants entitle the holders thereof to purchase
one share of Common Stock for $3.00, but will be exchanged automatically on the
closing of this Offering for 750,000 Selling Securityholders' Warrants, each of
which will be identical to the Class A Warrants included in the Units offered
hereby (including the $6.50 exercise price). The Selling Securityholders'
Securities have been registered for resale in the Registration Statement of
which this Prospectus forms a part, but are subject to the agreement of the
Selling Securityholders not to exercise such Selling Securityholders' Warrants
for a period of one year from the closing of the Offering and not to sell such
Securityholders' Warrants except after specified periods commencing 90 days
after the closing date of the Offering. See "Concurrent Offering".
22
<PAGE> 26
SELECTED FINANCIAL DATA
The selected financial data set forth below for the year ended December 31,
1995 and the period from November 14, 1994 (inception) through December 31,
1994, have been derived from the financial statements of the Company, which
together with the notes thereto and the related report of Coopers & Lybrand
L.L.P., are included elsewhere in this Prospectus. The selected financial data
as of and for the nine-month period ended September 30, 1996 and 1995 are
derived from the Company's unaudited financial statements. The Company's
unaudited financial statements include all adjustments, consisting of only
normal recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for future periods.
The selected financial data set forth below should be read in conjunction with
the financial statements of the Company and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 14, 1994 NINE MONTHS ENDED
(INCEPTION) SEPTEMBER 30,
THROUGH YEAR ENDED (UNAUDITED)
DECEMBER 31, DECEMBER 31, --------------------
1994 1995 1995 1996
------------------ ------------ -------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ -- $1,342,034 $470,184 $ 403,896
Costs and Expenses........................... 3,704 1,153,891 526,205 893,606
Net income (loss)............................ (3,704) 188,143 (56,021) (489,710)
Pro forma net income (loss)(1)............... (2,148) 109,123 (32,492) (435,775)
Pro forma net income (loss) per share........ (0.01) 0.26 (0.08) (1.08)
Weighted average number of common shares and
common share equivalents outstanding(2).... 302,480 417,347 417,196 402,496
</TABLE>
- ---------------
(1) From inception, until November 15, 1996, the Company elected to be treated
as a Subchapter S corporation for federal income tax purposes. As such, all
tax liability flowed through to the individual shareholders. The pro forma
financial data presented herein is as if the Company had been a C
corporation for federal income tax purposes from inception at an assumed tax
rate of 42%.
(2) Shares outstanding do not include shares held in escrow. See "Principal
Stockholders -- Escrow Arrangements."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, 1995 (UNAUDITED)
----------------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets............................................. $ 491,086 $ 196,400
Working capital............................................ 173,926 (385,997)
Total assets............................................... 521,166 256,572
Total liabilities.......................................... 353,704 629,566
Stockholders' equity (deficit)............................. 167,462 (372,994)
</TABLE>
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<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the financial
statements and notes thereto set forth elsewhere in this Prospectus.
GENERAL
The Company was incorporated in November 1994 to publish interactive
multimedia software products for the home PC market. The Company generally
licenses software programs being developed by independent third party developers
in return for which the independent developers generally receive an advance
royalty payment and a future royalty stream based on a percentage of the net
sales of the product. The Company then generally produces, packages and markets
the completed software products under its own name. In addition, the Company has
in the past and may in the future enter into affiliate relationships with other
publishers or developers ("Affiliates") pursuant to which the Company markets
titles owned by an Affiliate under a revenue sharing arrangement.
From inception until August 1995, the Company's activities included
assembling its management team, developing infrastructure and obtaining titles
for publication. The Company recognized its first sales revenues in August 1995.
As a result of its start up activity, the Company recorded revenues during only
the final two months of the nine month period ended September 30, 1995, and it
recorded no revenues during the period from November 14, 1994 (inception)
through December 31, 1994. In addition, during 1994 and the first nine months of
1995, the Company had not incurred the expenses necessary to develop
infrastructure nor incurred any significant overhead. In addition, the founders
of the Company did not draw or accrue salaries. Accordingly, general and
administrative expenses during those periods were unusually low. As a result of
its working capital deficiency during the second and third quarters of 1996, the
Company's net sales during the first nine months of 1996 were materially
hampered by its inability to ship quantities of products to satisfy customer
demand and to launch new products. Consequently, the Company believes that the
comparisons below in "Results of Operations" are neither meaningful nor
representative of future results. In addition, the Company's product mix and
distribution channels have changed significantly from past periods.
The Company's initial strategy was to bring rapidly to market multiple
products with high visibility in order to establish credibility in the retail
channel. To implement that strategy, the Company relied primarily on licensing
finished products for inclusion in multipack bundles and entering into Affiliate
relationships for the non-exclusive rights to market products from other
companies. As a result of this strategy, the Company had sold approximately
40,000 units by the end of the third quarter of 1995. The Company, however,
recognized minimal profit on these low margin, budget category titles, and in
some cases actually lost money on certain titles. In addition, the Company
experienced greater than expected customer price reductions and product returns
on many of these products.
After establishing an initial portfolio of products in the retail channel,
the Company began to shift its strategy to publishing premium products with
higher gross profit margins. In addition, the Company also began to expand its
retail distribution base. As of September 30, 1995, one large national retail
chain accounted for substantially all of the Company's sales. By the end of
1995, the Company had begun to sell products to a few other retailers, but the
Company's sales continued to be dominated by the same national retail chain.
During 1996, however, the Company has begun to establish relationships with
several distributors and more retail accounts. During the nine months ended
September 30, 1996, sales to the Company's primary 1995 account had declined as
a percentage of net sales to 22%. In addition, sales to distributors accounted
for 52% of the Company's net sales during the nine month period ended September
30, 1996, and sales to an original equipment manufacturer ("OEM") represented
12% of net sales during such period.
As is typical in the interactive multimedia software industry, the Company
depends on the introduction of new titles or sequels to existing titles to
replace declining revenues from older titles. In order to generate revenues in
the future, it will be necessary for the Company to obtain rights to new titles
that are developed for the appropriate platforms, are introduced in a timely
manner and are able to achieve market acceptance for a
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<PAGE> 28
significant period of time. Consequently, the Company will need to expend
financial and other resources to obtain and market new products.
The Company's quarterly operating results have in the past and are likely
in the future to vary significantly depending on factors such as the timing of
new hardware and software products, the degree of market acceptance of such
products and the introduction of titles competitive with those of the Company.
In addition, the home education and entertainment software business is highly
seasonal. Typically, revenues are highest during the third and fourth calendar
quarters (which includes the holiday buying season), decline in the first
calendar quarter and are lowest in the second calendar quarter. This seasonal
pattern is due primarily to the increased demand for home education and
entertainment software titles during the year-end holiday buying season. The
Company expects its future revenues and operating results will reflect these
seasonal factors.
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1996 and 1995
Net Sales. Net sales decreased $66,288, or 14%, during the nine months
ended September 30, 1996 as compared to the corresponding period during 1995,
despite the fact that the 1995 period included sales for only two months, August
and September. Net sales for the 1996 nine-month period were adversely affected
by the Company's working capital deficiency in the latter part of the second
quarter and all of the third quarter. This deficiency prevented the Company from
shipping existing products in a timely manner and in sufficient quantities to
meet customer demand and from acquiring and launching new products. In addition,
net sales in the 1995 period were enhanced by volume sales of low margin, budget
titles.
The Company was dependent on three distributors and two retailers for
approximately 80% of its net sales during the first nine months of 1996.
Allowances for product returns are determined by estimates on a
product-by-product basis. Allowances were approximately $29,000 and $16,000 in
the nine months ended September 30, 1996 and 1995, respectively.
The following table summarizes the composition of the Company's net sales
by product categories for the nine month period ended September 30, for the
years indicated.
<TABLE>
<CAPTION>
1995 1996
---------------- ----------------
$ % $ %
-------- --- -------- ---
<S> <C> <C> <C> <C>
Products from Affiliate relationships...... $175,528 37% $ 7,905 2%
Theme Packs................................ 294,656 63% 224,668 56%
Games...................................... 148,980 37%
Educational................................ 21,286 5%
Other...................................... 1,057 *
-------- --- -------- ---
$470,184 100% $403,896 100%
======== === ======== ===
</TABLE>
- ---------------
* Less than 1%.
Gross Profits. The Company's gross profit increased from $939, or less
than 1% of net sales, during the nine months ended September 30, 1995 to
$169,006, or 42% of net sales, during the corresponding 1996 period. Cost of
goods sold declined from $470,000 during the nine months ended September 30,
1995 to $235,000 during the corresponding 1996 period. The increase in gross
profit is primarily attributable to the shift in product mix from low margin,
budget titles in the 1995 period to higher margin educational and entertainment
titles in the 1996 period. The Company anticipates that gross profit margins may
improve in the future due to increased emphasis on sales of higher margin
products and decreased sales of budget products and theme multipacks, although
there can be no assurance in this regard. In addition, the Company intends to
continue to focus on entertainment and educational titles, which tend to have
higher profit margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to approximately $645,000 during the nine
months ended September 30, 1996, compared with approximately
25
<PAGE> 29
$57,000 during the corresponding period in 1995. The increase was attributable
to the fact that the Company was in a start-up phase during the 1995 period, and
the founders of the Company did not accrue or draw salaries during that period.
In addition, the Company had marginal rent expense during the nine months ended
September 30, 1995. Salaries and payroll taxes increased from $0 during the 1995
period to approximately $265,000 in 1996. In addition, sales, advertising and
marketing costs increased from approximately $13,000 during the 1995 period to
approximately $200,000 during the 1996 period. This increase was largely
attributable to the Company's expansion of its distribution channels into new
retailers and distributors, as well as the launch of new products. During the
1996 period, the Company also substantially increased its reserves for bad
debts. Due primarily to the recent bankruptcy filing of a large national
software retailer, the Company increased its expenses for bad debts from $9,200
at September 30, 1995 to $36,000 at September 30, 1996. In addition, greater
general and administrative costs were incurred in 1996 due to the Company's
relocation to larger offices. The Company anticipates that future selling,
general and administrative expenses will increase in the aggregate as the
Company adds personnel, launches new products and expands its marketing efforts
and distribution channels. Management expects, however, that such expenses will
decrease as a percentage of net sales as the Company's revenues from product
sales increase.
Due to the above, the Company had a net loss for the nine months ended
September 30, 1996 of $(435,775) or $(1.08) per share, compared to $(32,492) or
$(0.08) per share for the period ended September 30, 1995.
Comparison of Periods Ended December 31, 1995 and 1994
The Company was incorporated on November 14, 1994. From that date through
the remaining 49 days of 1994 only minimal expenses were incurred. The Company
had no full-time employees and none of the Company's officers were paid or
accrued a salary. No revenues were recorded for the period from November 14,
1994 (inception) through December 31, 1994, and consequently the Company did not
have any cost of sales or gross profit. The Company incurred $3,704 in general
and administrative expenses for the period and, as a result incurred a loss for
the period of $3,704.
Net Sales. The Company recorded net sales for the year ended December 31,
1995 of approximately $1,342,000. All sales were recorded in the last five
months of the year. Sales were comprised of four multipack products that the
Company published under its own name, which accounted for approximately 53% of
total net sales, and 13 other titles, which accounted for approximately 47% of
total net sales, that were owned and published by Affiliates and marketed by the
Company under revenue sharing arrangements. At December 31, 1995, the Company
had established a reserve for returned merchandise of approximately $45,000.
Gross Profits. The Company incurred costs for the merchandise sold in 1995
of approximately $901,000. This includes costs of product duplication, packaging
and package design, shipping to customers and the royalties paid to product
developers for the right to sell the products. This resulted in a gross profit
for the year of approximately $441,000, or a profit margin of 33%. Profit
margins increased in November and December as the Company began shipping
entertainment and education titles, categories which typically command higher
margins.
Selling, General and Administrative Expenses. The Company incurred
approximately $66,000 in selling expenses, $181,000 in general and
administrative costs and $6,000 in interest expense in 1995. These amounts are
unusually low due to the fact that the Company was still in an early stage of
operations through much of the year and had not yet incurred many of the normal
and necessary expenses of an established business.
Due to the above, the Company had net income (loss) for the year ended
December 31, 1995 of $188,143 or $0.26 per share, compared to $(3,704) or
$(0.01) per share for the period ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation in 1994, the Company has financed its operations
primarily through the equity investments of its founders and credit extended by
its vendors. In recent periods, the Company's expenditures have exceeded its
revenues. As a result of the Company's difficulty in generating sufficient cash
flows from
26
<PAGE> 30
operations, the Company has received a report from its independent auditors that
includes an explanatory paragraph regarding uncertainty as to the ability of the
Company to continue as a going concern. The Company's operating activities used
cash for operations of $174,339 during the nine months ended September 30, 1996,
while revenues for the same period were $403,896. The Company experiences long
customer payment cycles for its products, which is typical in the CD-ROM
industry. In addition, the Company's cash flow from operations can be affected
significantly by greater than expected product returns and pricing reductions.
The Company's allowance for estimated returns is established by taking into
consideration historical return rates, sell-through information and data
regarding the mix of products in the distribution channel. Returns are typically
highest in the first two quarters of the calendar year, as distributors and
retailers adjust their inventory product mix following the year-end holiday
buying season.
In November and December 1996, the Company completed the Bridge Financing
of $1,500,000 principal amount of Bridge Notes and 750,00 Bridge Warrants (which
will automatically convert into Class A Warrants upon completion of this
Offering). See "Capitalization -- Bridge Financing" and "Concurrent Offering."
The net proceeds of the Bridge Financing were approximately $1,294,000 after
deducting the Placement Agent's 10% commission and a 3% non-accountable expense
allowance aggregating $195,000 and other expenses of the Bridge Financing. The
net proceeds of the Bridge Financing are being used to repay indebtedness,
including accrued salaries and employee-advanced business expenses, and trade
payables and for working capital purposes, including general and administrative
expenses and the production and marketing of products. The Company has allocated
a portion of the net proceeds of this Offering to repay principal and accrued
interest on the Bridge Notes. See "Use of Proceeds."
The Company currently has no credit facility with a bank or other financial
institution. The Company will attempt to obtain a credit facility to address
short-term cash flow needs resulting from its slow payment cycles. There can be
no assurance that any such financing will be available if needed, or, if
available will be on terms acceptable to the Company.
The Company is obligated under a long-term lease for its corporate offices
through the year 1999, with minimum annual lease payments of $34,890 in 1996,
$45,234 in 1997, $46,421 in 1998 and $43,551 in 1999. The Company had no other
material capital commitments at September 30, 1996.
The Company anticipates that its expenses will increase as it attempts to
expand its business by acquiring new products and increasing sales and marketing
efforts and other operations. The Company expects to continue to incur losses
until such time as it is able to sell a sufficient volume of products at prices
that provide adequate gross profit to cover operating costs. The Company's
working capital requirements will depend upon numerous factors, including
payment cycles for its shipped products, credit arrangements with suppliers, the
scale-up of its sales and marketing resources, acquisition of new products and
the terms upon which such products are acquired, competitive factors including
costs associated with obtaining adequate levels of retail shelf space, and
marketing activities. The Company expects that the net proceeds of this Offering
will enable it to meet its liquidity and capital requirements for approximately
12 months following completion of the Offering, although the Company's capital
requirements are subject to numerous contingencies associated with early-stage
companies. The Company's capital requirements after such period will depend upon
the extent to which its product sales are able to generate sufficient revenue to
sustain its operations. The Company may be required to seek additional financing
or alter its business plan in the event of product delays, cost overruns or
unanticipated expenses.
POTENTIAL CHARGES TO INCOME
The Company expects to incur a charge to income of approximately $211,000
upon repayment of the Bridge Notes, representing the unamortized portion of the
debt discount, interest and deferred financing costs of the Bridge Financing.
The charge to income will be recorded in the first quarter of 1997.
Key Officers, employees and Directors of the Company have agreed to place
825,000 shares of common stock in escrow (the "Escrow Shares"), to be released
only upon the Company attaining certain minimum earnings thresholds or the
market price of the Company's Common Stock meeting certain minimum levels. In
the event the requirements for the release of the Escrow Shares are attained,
the Company will be required to
27
<PAGE> 31
recognize significant compensation expense in the period in which the stated
criteria for release of the Escrow Shares are probable of being met.
INFLATION
Management does not believe that inflation has had a material effect on the
Company's sales during the past two fiscal years. However, to the extent a
significant increase in the inflation rate adversely impacted the rate of
consumer purchases of PCs and CD-ROM software, the Company's results of
operations would be adversely affected.
NET OPERATING LOSSES IN SUBCHAPTER S CORPORATION -- CONVERSION TO C CORPORATION
FOR TAX PURPOSES
Prior to November 15, 1996, the Company had elected to be taxed under
Subchapter S of the Internal Revenue Code and corresponding provisions of
Arizona tax laws. As a result of the election, federal and state income taxes on
the net income of the Company were payable personally by the shareholders.
Accordingly, the statements of operations for all prior years do not include a
provision for federal and state income taxes. As of November 16, 1996, the
Company became subject to federal and state income taxes as a result of its
conversion from a Subchapter S corporation to a C corporation.
OUTLOOK
The Company's future operating results and many of the forward looking
statements contained in this document are dependent upon a number of factors,
including economic factors affecting sales in the software market, the Company's
dependence on key personnel, and the Company's ability to acquire and publish
new software titles, add additional distribution channels and customers, address
the impact of the World Wide Web and the Internet on its markets, enter
successfully into new markets, react to changing technology and effectively
manage resources, as well as other factors. See "Risk Factors." The software
industry recently has experienced a general slowing in the sale of multimedia
products in the retail software channel. As a result, the Company may experience
higher product returns and lower product sales. The impact that market trends
and the Company's actions may have on its operations cannot be accurately
measured at this time. A key challenge to the Company's continued growth is to
sell increased volumes of CD-ROMs at competitive prices and sufficient profit
margins. There is a significant amount of competition in the home-based PC
market and the Company's success is substantially dependent upon continued
demand for existing PC products, its ability to market in a timely manner new
products and its ability to meet the pricing and functionality requirements of
the consumer.
28
<PAGE> 32
BUSINESS
This Prospectus contains "forward-looking statements," including statements
regarding, among other items, the Company's growth strategy, future products,
sales, ability to license future software programs and market products and
anticipated trends in the Company's business. Actual results could differ
materially from these forward-looking statements as a result of a number of
factors, including, but not limited to, the Company's early stage of
development, the need for additional financing, intense competition in various
aspects of its business, the seasonal nature of its business, its dependence on
third party authors and key personnel, and other factors described under "Risk
Factors" and elsewhere herein.
The Company publishes interactive multimedia software products providing
education and entertainment as well as reference and personal productivity
titles for the home personal computer ("PC") market. The Company generally
licenses software programs being developed by independent third party
developers. The Company then directs and assists the developers in finishing the
programs according to its specifications, imprints and duplicates the programs
in a media format, packages them in a proprietary manner, and markets and
distributes the finished products under the Piranha name as well as proprietary
titles whenever possible. Since the release of its first title in August 1995,
the Company has licensed and marketed five titles under its own label including
(i) three "Piranha Packs," each of which offers 10 or 11 individual subject
titles relating to a central theme and (ii) two standalone, individually
packaged titles. In addition, the Company has marketed 13 titles under affiliate
relationships with two third party publishers pursuant to revenue-sharing
agreements. To date, the Company has published all of its titles in CD-ROM
format. In the future, the Company may distribute its products in other media,
such as on-line information services, television-based formats, telephone and
cable networks and direct broadcast satellite, if market acceptance of such
formats becomes widespread.
The Company intends to focus its product offerings on "edutainment" titles,
which combine entertainment and educational content, games, reference and
personal productivity titles, and other content titles which it determines to
have market potential. The Company has published and plans to publish titles in
various categories, including entertainment (e.g. Majestic: Alien Encounter, a
deep space adventure game), early childhood education (e.g. Treasure Tales
Presents Alice's Adventures in Wonderland, a children's interactive storybook),
reference (e.g. Academic Edge, a 10 CD educational theme pack), and personal
productivity (e.g. Travel CD Piranha Pack, an 11 CD travel and recreational
theme pack). When practicable, the Company publishes titles which are episodic
in design, thereby facilitating the production of sequential products and the
generation of increased customer loyalty. For example, Syn-Factor, the sequel to
the Company's game, Majestic: Alien Encounter, is scheduled to be released
during the first quarter of 1997. The Company is also scheduled to release
Mother Goose Preschool Partner (working title), an early childhood educational
product, during the first quarter of 1997.
The Company's strategy is generally to license its software programs from
independent, third party software developers. This strategy enables the Company
to avoid expending significant financial resources over a lengthy period of time
towards the research and development of a product that may never achieve
significant market acceptance, a substantial burden facing in-house software
development companies. By drawing upon independent developers the Company is
able to capitalize upon the variety of creative products currently being
developed by a growing number of software developers, an increase made possible
in part by the availability of industry standard authoring tools which assist
software programmers with the technical development of the titles. Pursuant to
license agreements with these developers, the Company pays a royalty based upon
sales of the product and in most instances an up-front advance and/or guaranteed
minimum royalty payment. The Company has also designed one title, Mother Goose
Preschool Partner (working title), with the assistance of consultants, which it
then subcontracted to independent software programmers for development. The
Company may follow the same procedure with additional future titles.
The Company's growth strategy consists of (i) targeting the growing
home-based, consumer PC market, (ii) building the brand recognition of "Piranha"
title offerings, (iii) expanding and enhancing its portfolio of interactive
multimedia software products by generally licensing software programs from third
party developers who are in the process of developing such products, (iv)
expanding the placement of Piranha products with
29
<PAGE> 33
retailers and distributors, and (v) seeking out appropriate strategic
relationships, including the acquisition of other software publishers.
The Company presently sells its products to retailers and distributors
through its own direct sales and marketing efforts. The Company's marketing
activities include channel marketing in partnership with its retailers and
distributors; direct advertising in PC periodicals; Internet website demos and
advertising; trade shows; and pre-release marketing. Since its inception in
November 1994, the Company has entered into distribution agreements with several
large national software distributors, as well as a number of other smaller and
specialty distributors. The Company currently places its products with a number
of the largest software retailers (in terms of software sales volume) in the
United States.
The Company's management team has worked closely together for the past
three to five years and all have prior software publishing experience. The
Company was incorporated in Arizona on November 14, 1994 and reincorporated in
Nevada on November 22, 1996. Its corporate headquarters are located at 1839 West
Drake, Suite B, Tempe, Arizona 85283, and its telephone number is (602)
491-0500. The Company's website address is http://www.piranhainteractive.com.
INDUSTRY OVERVIEW
As a result of technological advances, increased functionality, and
declining prices for entry level systems, the PC has become a mass market
consumer electronics product. Industry analysts estimate that the worldwide
installed base of PCs at the end of 1995 had grown to approximately 225 million
units. The demand for multimedia PC software is expected to be largely driven by
the rapid increase in home-based PC use. It is estimated that the installed base
of multimedia home-based PCs will grow from approximately 45 million in 1995 to
approximately 77 million by the year 2000. Additionally, the increased use of
PCs in schools, increased quality of production, decreasing cost of PCs and
multimedia software and the demographic increase in teen consumers (who tend to
be heavily concentrated in entertainment software) all suggest significant
future growth in the consumer multimedia software market. Home education and
entertainment software products are currently the fastest growing categories of
retail software sales.
In recent years, tremendous advances in computer hardware and software, as
well as the decreasing cost of such products, have resulted in a rapid expansion
of the number of users in home environments prepared to consume new multimedia
products. As a result, total sales of multimedia software in the U.S. have been
projected to increase from approximately $1.2 billion in 1995 to approximately
$1.7 billion in 1996 and $2.3 billion in 1997. Most of the multimedia products
have been delivered on CD-ROMs. In addition, other systems have evolved for
delivery of multimedia products including the Internet, other proprietary
on-line services and television-based systems. The Company believes that there
will be an increasing convergence between CD-ROM and on-line distribution of
multimedia content, with on-line information sources increasingly used in
connection with CD-ROMs to update and supplement the CD-ROM experience. To the
extent that these new delivery systems achieve significant market acceptance,
management believes it will be able to capitalize on this increasing demand for
high quality interactive multimedia.
BUSINESS STRATEGY
As a result of management's experience in the software industry, the
Company believes it has the foundation to become a successful provider of high
quality multimedia software products for the consumer PC market. The Company
intends to focus on the following strategic objectives.
Target Growing Consumer PC Market. The Company is positioning its product
portfolio to take advantage of the fast-growing consumer PC market. The
Company's existing content-rich products -- entertainment, early childhood
education, reference and personal productivity -- are intended for home-based PC
users from adults to teenagers to pre-schoolers. The Company endeavors to
anticipate this market's demand for particular software in order to provide
products that meet such demand. The Company also seeks to offer unique software
products that will generate demand within this market as well as the education
market.
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Publish a Portfolio of Multimedia Software Titles. The Company's objective
is to publish an inventory of diverse software titles. As the installed base of
multimedia PCs grows, consumers increasingly demand a greater variety of content
rich, high quality software products. In response to this demand, independent
software developers are generating a greater number and variety of products.
The Company's strategy is generally to license software programs from
independent developers. The Company intends to capitalize upon this growing pool
of software developed by independent developers by identifying products which
the Company believes have an ability to achieve significant market penetration.
The Company uses a three-step selection process to identify such products. This
process entails a preliminary technical review, sales and marketing analysis,
and legal and financial review. By licensing software programs from third party
developers, the Company reduces its front-end financial commitment and its risk
of loss if the product is not ultimately successful.
Develop Name Recognition for Piranha and its Products. Management believes
that a recognized and respected brand name will enhance initial interest in and
acceptance of new product offerings. In this regard, the Company selected its
name and logo and develops a packaging and advertising concept designed to
generate customer interest and create a Piranha brand image. At the same time,
the Company seeks to build customer loyalty by providing high quality software
products that satisfy customers. In order to create brand name recognition, the
Company initially introduced software products in the lower price ranges in
order to maximize its volume of products sold and secure retail shelf space.
Soon thereafter, the Company began to offer theme-oriented Piranha Packs, each
containing multiple CD-ROM titles, in order to enhance the perceived value and
increase customer recognition of Piranha products. Although budget software and
Piranha Packs will still be considered in appropriate circumstances, the Company
now intends to focus primarily on publishing premium products with higher gross
margins. The Company will continue to seek titles that enhance its name
recognition.
Place Piranha Products with Major Retailers and Distributors. The
Company's strategy is to expand the number of retailers and distributors
carrying its products. Management believes that its prior industry experience
has resulted in a certain degree of credibility for the Company and its products
with retailers and distributors. According to Computer Retail Week, in 1995
approximately 30 retailers accounted for over 90% of total U.S. retail software
sales. To date, the Company has placed products with many of these retail
chains. In addition, software distribution is dominated by several large
distributors. The Company currently has distribution agreements with a few of
these distributors. The Company intends to expand its retailer and distributor
relationships by maintaining and improving its existing accounts and developing
additional national, regional and specialty retail and distribution accounts.
Its strategy is to maintain these relationships and add additional distributor
relationships.
Seek Strategic Partnerships and Acquisition Opportunities. The Company
intends to expand its operations and product line by establishing strategic
partnerships and acquiring other software publishers or developers when
appropriate. Piranha has entered into marketing relationships with two national
companies in connection with certain products lines. The Company's Academic Edge
product has been supplied to Apple Computers, Inc. ("Apple") for use by Apple in
conjunction with a nationwide promotion of Apple's hardware through Sears retail
outlets. Academic Edge is one of the products offered in the promotional
material distributed by Apple. Through the promotion, schools are permitted to
redeem free copies of the product from Apple. In addition, the Company was
granted a license from United Airlines to include United's proprietary travel
software package, United Connection, in the Travel CD Piranha Pack. The Company
may also license some of its products near the end of their retail lifecycles to
original equipment manufacturers. In addition, the Company believes there are
many companies with one or two attractive products but a limited number of total
products or marketing resources, which may be attractive candidates for
acquisition. The Company intends to pursue these opportunities to enhance its
product portfolio, but there can be no assurance that any acquisition will be
consummated.
PRODUCTS
Current Products. The Company has released and currently markets five
multimedia software titles under its name, three of which are thematic Piranha
Packs of 10 or 11 CD-ROM titles, and has additionally
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executed two license agreements for titles expected to be launched during the
first quarter of 1997. In addition, the Company is continually evaluating other
titles submitted to it by independent developers. All of the Company's products
to date have been released in CD-ROM format. The following table sets forth the
titles released, or to be released, by the Company in each of its three current
product families:
<TABLE>
<CAPTION>
PRODUCTS RELEASE DATE
- --------------------------------------------------------------------------- -----------------
<S> <C>
THEME PACKS
Piranha Pack -- Something for Everyone. The Company's first multipack August 1995
includes 10 CD-ROM titles offering a variety of title categories: games,
business and home management, utilities, edutainment, pastimes and
exercise. The Company does not intend to produce any further units of
this product.
Academic Edge Piranha Pack. The 10 CD Academic Edge Piranha Pack includes November 1995
nine curriculum-based titles for subjects such as Biology, Literature,
World History, Art History and more, as well as quizzes to test
comprehension. Also featured are Webster's New Collegiate Dictionary and
the American Concise Encyclopedia.
Travel CD Piranha Pack. This 11 CD Theme Pack is comprised of software July 1996
suited for the business and vacation traveler. It includes United
Connection, which allows flight scheduling and reservations with over 500
airlines, 30,000 hotels and 50 car rental companies worldwide. Other
titles include Street Wizard mapping and routing software, National
Parks, Vacation Dreamer, Sports Fishing, Ballooning and Soaring,
Adventures, White Water Rafting, Great Restaurants, Wineries and
Breweries and Explore America.
EARLY CHILDHOOD EDUCATION
Treasured Tales Presents Alice's Adventures in Wonderland. This program is November 1995
an adaptation of Lewis Carroll's classic tale Alice in Wonderland and is
intended for young children. The program is an interactive storybook
created specifically for Windows 95 containing hundreds of animations and
a classical music score. The Company's license for this product has
terminated, but the Company is entitled to sell its existing inventory.
Mother Goose Preschool Partner (working title). This multimedia program Scheduled for
leads children through six animated learning activities accompanied by 1st Quarter 1997
narrated direction. Mother Goose Preschool Partner (working title) is
designed to teach children the fundamentals of counting, reading, music
appreciation, foreign language and other cognitive skills. The program
includes parent and teacher icons that allow adults to extend the
learning lessons.
ENTERTAINMENT
Majestic: Alien Encounter. This multimedia program is a deep space November 1995
adventure game. The S. S. Majestic, a luxury space cruiser which
inexplicably disappeared on her maiden voyage, has suddenly reappeared in
the Pleiades Nebula. The user's mission is to enter the craft, determine
the fate of her crew and solve the mystery of her ill fated voyage.
Syn-Factor. This multimedia sequel to the game Majestic contains a new Scheduled for
musical score, expanded gaming theater and improved 3-D graphics. The 1st Quarter 1997
user's adventure begins as a crew member aboard a spaceship which has
just been the target of a brutal attack by unknown forces. The ensuing
investigation pits the user against the galaxy's largest corporation.
</TABLE>
In addition, the Company has marketed 13 titles in partnership with third
party Affiliates, pursuant to revenue sharing arrangements. The Company has no
proprietary rights in the products marketed under such arrangements and receives
a lesser percentage of gross revenues on such products than it does on products
proprietary to the Company.
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Product Development. The Company's strategy is to license software
programs from independent software developers. The Company believes that this
strategy minimizes the financial risks associated with in-house research and
development activities and capitalizes upon the large pool of creative, high
quality products currently produced by independent developers. While several
publishers have spent millions of dollars on the research and development of a
single new title, a number of the best selling entertainment software titles in
the United States during recent years were developed by small, independent
developers and were licensed to software publishers. The Company uses a variety
of forums to identify high quality, completed or substantially completed
software programs produced by independent developers which generally lack the
sales, marketing and distribution resources offered by the Company and necessary
to introduce their products into the retail marketplace.
The Company has also designed one title, Mother Goose Preschool Partner
(working title), with the assistance of consultants which it then subcontracted
to independent software programmers for development. The Company may follow the
same procedure with additional future titles. The Company has agreed to pay
minimal advance royalties and future royalties based on product sales to the
independent developers who designed Mother Goose Preschool Partner (working
title). Although all of the Company's current products were developed by
independent developers, the Company may fund in-house development at some time
in the future if management deems it advisable.
The Company's product development activities are conducted with constant
attention given to the sales, marketing and technical support aspects of
publishing a successful title. The Company seeks to identify and attract new
developers through a variety of methods, including regular postings on the
Internet and on-line developer forums, existing developer relationships,
attendance at popular trade shows and conferences, referrals from retailers,
industry reputation and contacts, and developers' agencies. The Company also
launched its own on-line Developers' Forum in August 1996 which can be found at
the Company's website. See also "-- Sales and Marketing".
Once the Company has identified a potential title for publication, the
title is submitted to a three-step selection process. First, the Company
conducts a preliminary technical review to (i) assess the title's technical
operating stability, (ii) determine whether the title's technology and design
meet or exceed the then current industry standards and (iii) assess the
developer's technical proficiency. Next, the Company performs a sales and
marketing review to assess (i) the potential market share for the product, (ii)
the degree of consumer demand for, and media interest in, the product and (iii)
the potential interest of the Company's retailers and distributors in the
product. Finally, the Company reviews the legal and financial issues associated
with publishing the potential title to determine (i) the cost to bring the
product to market, (ii) the absence of any perceived risk of intellectual
property infringement and (iii) acceptable license agreement terms.
Before and after a title is published, the Company employs various quality
assurance methods to measure consumer reaction to the product and the
effectiveness of the various marketing programs utilized by the Company and its
retailers and distributors. Focus groups, independent quality assurance teams,
demonstrations and end-user questionnaires are among the methods which the
Company uses in its quality assurance activities. The Company seeks to use the
information received from consumers of its products to remain abreast of and
satisfy consumer expectations for technical stability, performance, content and
market image of its products.
Recent advances in software authoring systems have removed many of the
technical barriers previously associated with software development. These
advances and the rapidly increasing base of installed multimedia hardware have
resulted in an expanding pool of technically sound, content rich software
programs. As a result, the current trend in development has shifted competition
away from purely technical skills to creative ones. This newly emerging pool of
independent developers generally lacks the sales, marketing and distribution
resources offered by publishers such as the Company.
The Company seeks to increase revenues, market predictability and product
lifecycles and limit the effects of seasonality by offering a mix of three types
of titles: evergreen titles, hits, and sequels. Evergreen titles, such as the
Travel CD Piranha Pack, are intended to produce stable sales over a relatively
long period of time. In addition, they may be revised and updated to extend
their profitable lifecycles. Hit titles, such as
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Majestic: Alien Encounter, are developed in response to market trends and are
promoted through aggressive product positioning and rigorous development and
quality control management. Finally, sequels such as Syn-Factor are titles
intended to capitalize on the success of earlier titles by exploiting a consumer
base loyal to such titles. Sequels tend to have a higher degree of market
predictability.
SALES AND MARKETING
Customers. The Company sells its products to distributors and directly to
certain retailers. Currently, the retail merchandisers of the Company's products
include computer "superstores", national and regional retail stores, mass
merchandisers, corporate resellers, direct mail accounts, consumer electronic
stores, warehouse clubs and office supply stores. The Company also distributes
its products through several of the largest national distributors which have
access to desirable retail accounts. By making its products available through a
number of large distributors, the Company believes it is able to fill retailers'
orders more quickly and increase the name recognition of the Company and its
products.
For the nine months ended September 30, 1996, 52% of the Company's net
sales were to distributors, 34% of net sales were direct to retailers and 12% of
net sales were to an OEM. Three distributors accounted for approximately 20%,
19% and 11%, respectively, of the Company's net sales during the first nine
months of 1996. Two retailers accounted for approximately 22% and 8%,
respectively, and one OEM accounted for 12%, of the Company's net sales during
such nine-month period. International sales accounted for only 2% of the
Company's net sales during the nine-month period. During the fiscal year ended
December 31, 1995, one retailer accounted for substantially all of the Company's
net sales.
Sales Activities. The Company's sales activities are focused upon
fostering familiarity among the buyers for the various retail chains with the
Company and its products, whether they purchase Piranha products directly from
the Company or through a distributor, building upon the philosophy that retail
stores will put more effort behind and give better placement to products they
are familiar with. In addition, management believes that the key to developing
successful relationships with retail merchants of its products is the ability to
develop an understanding of each retailer's customers, including, what they buy,
how they make their purchases and which marketing programs are most successful
in promoting a particular type of software title. The retail software market is
intensely competitive in terms of shelf space and promotional support. Although
the Company believes that it will continue to secure adequate shelf space and
promotional support from retailers of its products, the competition for such
access is intense and there can be no assurance that the Company will be
successful in this regard.
As the number of home-based PCs increases and the use of multimedia
software becomes more widespread, the number and variety of software retailers
have rapidly increased. Examples of new software retailers include bookstores,
grocery, music and convenience stores and even specialty shops. The Company has
already begun to access these new retail sales channels and has placed its
products in record stores and book stores. In addition to these emerging retail
sales channels, the Company markets its products to alternative markets, such as
international sales, original equipment manufacturers and educational markets.
In addition to its retail customers, the Company sells its products to
distributors who resell such products to various retailers. The Company believes
that access to these distributors permits the Company to more rapidly fill
customer orders and increases the name recognition of Piranha and its products.
To date, the Company has entered into distribution agreements with a few of the
largest national distributors.
Marketing Activities. The Company's marketing activities are organized
around direct advertising, product packaging and public relations and media. The
Company strives to create a highly visible and appealing brand image through its
corporate name and logo, its customer service number, its World Wide Web site
and the design and packaging of its products. The Company pays close attention
to the brand image created through its product packaging and seeks to develop an
appropriate packaging concept and design that will be attractive to its
customers and end-users. The Company's packaging is designed not only to get the
product on the shelf, but also to entice the customer to purchase the product.
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In order to generate consumer awareness, the Company advertises in various
trade and general circulation publications. Additionally, the Company often
participates in cooperative marketing efforts with its distributors and
retailers. Retailer marketing programs include in-store premium shelf placement,
flyers, in-store promotions, advertisements and customer service employee
training. In addition, each distributor promotes its products with marketing
programs, including trade publications and catalogs targeted at retail buyers
and in-house education seminars designed to permit vendors such as the Company
an opportunity to increase the distributors' sales force's familiarity with
their products.
The Company intends to aggressively market its new product releases. In
connection with the launch of new products, the Company seeks to generate
initial retailer and distributor interest by sending a "teaser" prior to the
completion of the new product. The "teaser" is a marketing pre-mailer designed
to draw attention to a product, which also contains brief information regarding
the actual product and its functions.
Once the product is completed, the Company focuses on sending advance
copies of the product to the media and retail and distribution buyers for
review. Management believes that maintaining a relationship with the media is
crucial in receiving the recognition and product reviews needed to support new
product releases and continuing product sales. A number of publications,
including The New York Times and industry magazines, have previously responded
to the Company's products with reviews.
The Company seeks to anticipate consumer demands by establishing channels
of communication between itself and consumers through registration cards, trade
shows and user groups and to find additional avenues for increasing the
visibility for its products and its name. Capitalizing on the rapid increase in
consumer use of the Internet, the Company has developed its own website, which
it uses in connection with its sales and marketing and product development
activities. The website is designed for instant communication, feedback and
product delivery to users. The website includes a Products Forum with full-page
graphical product descriptions and downloadable, interactive game demos; a Sales
Forum where customers can locate and contact resellers; and a Distributor's
Forum with product descriptions and part numbers with direct ordering
capability.
INTELLECTUAL PROPERTY LICENSES AND DISTRIBUTION AGREEMENTS
Software Licenses. The Company's licenses for the software contained in
its multiple CD-ROM Piranha Packs are generally non-exclusive and generally of
short duration (to date ranging from one to two years). The Company does not own
the source code to the software contained in the Piranha Packs published to
date, but has published the products with proprietary packaging and titles. Two
of the three Piranha Packs published to date have been in Windows only format
and one has been published in dual platform formats, Windows and Macintosh.
Piranha Pack licenses to date have not contained any rights of first refusal for
any future products produced by the developers. The permitted sales territory
for two of the Company's Piranha Packs is world-wide, while the territory for
the third is limited to North America. All three Piranha Packs published to date
are English language only. Technical support for the software programs in the
three Piranha Packs published to date is the responsibility of the respective
third party licensors.
The Company's licenses for the software contained in its standalone,
individually packaged titles are generally exclusive licenses for longer terms
(to date ranging from three years to five years). However, generally the
Company's exclusive license arrangements may become non-exclusive or terminate
if the Company does not satisfy certain performance criteria, such as selling a
minimum amount of units or paying a minimum amount of royalties. In September
1996, the Company's exclusive license for the title Treasured Tales Presents
Alice's Adventures in Wonderland terminated when product sales failed to satisfy
the required minimum threshold. Some of the Company's licenses have become, or
will become, non-exclusive with the passage of specified time periods. The
Company does not own the source code to the software contained in the licensed,
standalone titles published to date, but the license agreements provide that the
Company exclusively owns the proprietary packaging and titles that it develops
for such software programs. One of the individual titles published to date has
been in Windows only format and one has been published in dual platform formats,
Windows and Macintosh. Two licensed individual titles which have yet to be
published by the Company are
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both dual platform, Windows and Macintosh. The Company has a right of first
refusal to the sequel of only one of its individual titles licensed to date.
The Company has paid advances against royalties for only one individual
title licensed to date but anticipates that it may pay advances against
royalties for many future individual titles in order to obtain competitive
content and technology. The permitted sales territory for both individual titles
published to date, and for the two additional individual titles which the
Company plans to launch in the first quarter of 1997, is world-wide. The Company
has the right to publish three of the individual titles in languages other than
English, but the Company currently has no plans for such publication. The
Company is required to supply technical support to the end users for both
published individual titles and for the two additional titles planned for launch
in the first quarter of 1997. The Company anticipates that it will be required
to supply technical support for all such future titles as well.
Distribution Agreements. The Company's distribution agreements generally
permit the distributor to sell the Company's products on a non-exclusive basis
for a limited term. Distributors are not generally required to purchase any
minimum amount of products from the Company, and are entitled to make purchases
at prices at least as favorable as those at which the Company sells comparable
products to other distributors. In addition, most of these agreements permit the
distributor to return unsold products and require the Company to indemnify the
distributor against certain intellectual property and product design related
liabilities. Generally, the distribution agreements require the distributors to
pay the Company for products purchased within a specified period of time,
however, two distribution agreements with significant distributors permit such
distributors to delay payment until product is sold by the distributor to retail
customers. Consequently, the Company incurs longer delays in cash receipts for
products distributed through these channels. The Company's distribution
agreements also permit distributors to apply credits against invoices for
certain advertising and marketing efforts associated with the Company's
products.
MANUFACTURING
All of the Company's titles are currently pressed, reproduced, and packaged
at third party fulfillment houses. The Company's printed materials are produced
by third party vendors that ship such materials directly to the fulfillment
house for product assembly and packaging. The Company places orders with such
vendors for production of completed products in amounts specified by the Company
based upon forecasted sales. Most products are shipped directly to distributors
and retailers by the fulfillment houses. An unanticipated delay in the
manufacture of products, particularly during the fourth quarter, could result in
a material adverse effect on the Company's financial condition and results of
operations. Demand for fulfillment houses is greatest in the third and fourth
quarters, as publishers build inventory for holiday sales. Although the Company
has been utilizing one particular fulfillment house, it is negotiating with
several others in order to attempt to reduce such problems.
Generally, the Company is obligated to pay its vendors within 30 days of
shipment, although the Company's customers' payment cycles are often much
longer. Previously, this discrepancy in payment cycles has resulted in
inconsistent cash flows for the Company, which condition may recur in the
future. The Company does not have contractual agreements with any of its outside
vendors, including its fulfillment house. As a result, the outside vendors are
not committed to provide services or products to the Company when the Company
may require such services or products, and the Company may not be able to seek
indemnification from its vendors for potential product liability or other
manufacturing defects.
COMPETITION
Software Industry. The consumer software industry is intensely competitive
and subject to rapid change. The Company believes that the principal competitive
factors affecting the markets for its titles include content, quality, brand
recognition, price, marketing, distribution, access to shelf space and critical
reviews. In addition, consumer demand for particular software products may be
adversely affected by the increasing number of competitive products from which
to choose, making it difficult to predict the Company's future success in
publishing packaged software products for the retail market. Rapid changes in
technology, product
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obsolescence and advances in computer hardware require the Company to develop or
acquire new products and to enhance its existing products on a timely basis. The
Company's marketplace has recently experienced a higher emphasis on on-line and
Internet related services and content tailored for this new delivery vehicle. To
the extent that demand increases for on-line products and content, the demand
for the Company's existing products and future performance may change.
The consumer multimedia market is highly fragmented with products offered
by many vendors. The Company's products compete directly with those of large and
established software companies, such as GT Interactive, Broderbund, and The
Learning Company, as well as a large number of small independent publishers like
the Company. Most of these competitors have greater financial, technical,
marketing, sales and customer support resources, as well as greater name
recognition and access to customers than the Company. Due to the low technical
and economic barriers to entry into the multimedia software market, the Company
anticipates facing additional competition from an increasing number of small,
privately-held competitors. In addition, many large companies with sophisticated
product marketing and technical abilities and financial resources that do not
presently compete with the Company may enter the multimedia software market. For
example, content-rich companies such as Mattel, The Walt Disney Company, and
Viacom have begun to produce and directly market their own titles to the
consumer software market. To the extent that competitors, as a result of their
purchasing capacity, have greater access to financial and other resources or
achieve a performance, price or distribution advantage, the Company's business
and results of operations could be adversely affected. Furthermore, the Company
anticipates that there will be consolidation of the consumer multimedia market
around a smaller number of vendors who may be better positioned and have greater
resources to compete than the Company. The Company will also face increased
competition as it seeks to deliver multimedia content through other new media,
such as the World Wide Web, the Internet and on-line proprietary services.
There is no assurance that the Company will have the resources required to
respond to market or technological changes or to compete successfully in the
future.
Retail Shelf Space. The competition for shelf space in retail stores is
intense. To the extent that the number of consumer software products and
computer platforms increases, this competition for shelf space may further
intensify. At present, the Company's products constitute a small percentage of a
retailer's sales volume, and there can be no assurance that retailers will
provide the Company's products with adequate levels of shelf space and
promotional support. Increased competition could result in loss of shelf space
for, and reduction in sell-through of, the Company's products at retail stores,
as well as significant price competition, any of which could adversely affect
the Company's business, operating results and financial condition.
Due to increased competition for limited retail shelf space and promotional
resources, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies, as well as cooperative market development funds. Retailers often
require software publishers to pay fees in exchange for preferred shelf space.
The amounts paid to retailers by software publishers and distributors for
preferred shelf space are generally determined on a case by case basis and there
is, as of yet, no industry standard for determining such fees, although larger
publishers and distributors will likely have a competitive advantage in this
regard to the extent they have greater financial resources and negotiating
leverage.
Distribution Channels. Competition for access to distributors, as well as
for retail shelf space and inclusion in OEM sales programs is intense. In
addition, the type and number of distribution channels is increasing to include
non-traditional software retailers such as book, music, video, magazine, toy,
gift, convenience, drug and grocery store chains. Additionally, as technology
changes, the type and number of distribution channels will further change and
new types of competitors, such as cable or telephone companies, and new
distribution channels are likely to emerge. These new distribution channels may
include delivery of software using on-line services or the Internet, which will
necessitate certain changes in the Company's business and operations, including
without limitation, addressing operational challenges such as improving download
time for pictures, images and programs, ensuring proper regulation of content
quality and developing sophisticated security for transmitting payments. Even
within traditional channels of distribution for consumer
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software products there has been rapid change among distributors, including
consolidations and financial difficulties. These factors affecting distribution
channels are likely to increase competition and negatively affect the Company's
business and results of operations. With increasing concentration in the
traditional channels of distribution, the Company's customers have increased
leverage in negotiating favorable terms of sale, including price discounts and
product return policies. In addition, a number of the Company's larger
competitors have attempted, with some success, to enter into exclusive software
distribution arrangements with certain retail outlets. If the occurrence of
these exclusive arrangements increases and the Company is not able to offer a
competitive product line or arrangement, the Company's operating results may be
negatively impacted.
PROTECTION OF PROPRIETARY RIGHTS
The Company regards its software as proprietary and relies primarily on a
combination of trademark, copyright and trade secret laws, as well as employee
and third party nondisclosure agreements and other methods to protect its
proprietary rights. The Company generally licenses its externally developed
products rather than transferring title and, as is the industry practice, relies
upon "shrink-wrapped," rather than signed, license agreements with end-users.
The enforceability of such licenses has not been conclusively determined. As is
also the standard practice in the industry, none of the Company's CD-ROM
products include any mechanism to prevent or inhibit unauthorized copying. The
Company is not aware of any unauthorized copying, reverse engineering or other
unauthorized distribution of its proprietary information, but if such
unauthorized copying were to occur, the Company's business, operating results
and financial condition could be materially adversely affected. Further, the
laws of foreign jurisdictions may not protect the Company's proprietary rights
to the same extent as the laws of the United States. Policing unauthorized use
of a broadly disseminated product such as PC software is very difficult.
Software privacy has been, and can be expected to be, a persistent problem for
participants in the shrink-wrap software industry, including the Company.
As the number of multimedia software products in the industry increases and
the functionality of these products further overlaps, software publishers and
developers may increasingly become subject to infringement claims. There can be
no assurance that third parties will not assert infringement claims against the
Company in the future with respect to current or future products. Although the
Company makes reasonable efforts to ensure that its products do not violate the
intellectual property rights of others, there can be no assurance that claims of
infringement will not be made against the Company. In certain circumstances,
litigation may be necessary to enforce and protect the Company's proprietary
rights. Any such litigation, with or without merit, could be costly and divert
management's attention, which could have an adverse effect on the Company's
business, operating results or financial condition. Adverse determinations in
litigation relating to any of the Company's products could result in the loss of
the Company's proprietary rights, subject the Company to liabilities, require
the Company to seek licenses from third parties or prevent the Company from
selling that product.
The Company currently has Federal trademark applications pending for the
"Piranha Interactive Publishing" name and logo. The Company has not filed any
other Federal trademark applications, although it may do so in the future. The
Company is not currently aware of any objections to its pending Federal
trademark applications but there can be no assurance that such trademarks will
be awarded.
The Company believes that its products do not infringe upon the proprietary
rights of third parties. The Company seeks whenever possible to obtain
warranties and indemnification from its third party software developers to
protect the Company from claims of infringement by third parties of their
property rights. However, there can be no assurance that such warranties,
indemnifications and disclaimers will protect the Company from liability arising
from such claims or from any resulting material adverse effects to its business.
EMPLOYEES
The Company currently has nine full-time employees and expects to hire at
least four additional full-time employees in the next six months. None of the
Company's employees are represented by labor unions. The Company believes that
its relations with its employees are good.
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<PAGE> 42
PROPERTY
The Company subleases its principal offices in Tempe, Arizona, which are
used to house all of its operations, including marketing, sales and all
administrative operations. The 4,750 square foot facility is subleased pursuant
to an agreement under which the Company is obligated to make minimum annual
rental payments of $34,890 in 1996, $45,234 in 1997, $46,421 in 1998 and $43,551
in 1999. The sublease has a four-year term which expires in November 1999. The
Company believes that its facilities are adequate for its current and
foreseeable operations over the next 12 months.
LEGAL PROCEEDINGS
The Company is not a party to any pending or threatened legal proceedings
that it believes will have a material impact on the Company's business.
39
<PAGE> 43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Company, and their respective
ages and positions with the Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -----------------------------------------------
<S> <C> <C>
Timothy M. Brannan................. 39 President, Chief Executive Officer and Chairman
of the Board of Directors
Keith P. Higginson................. 32 Vice President, Chief Financial Officer and
Director
J. Wade Stallings, II.............. 36 Vice President, General Counsel and Director
Douglas M. Brannan................. 30 Vice President, Sales
Wyndi D. Ballard................... 27 Vice President, Marketing and Public Relations
George W. Gregg.................... 29 Vice President, Product Planning and
Development
Ian D. Berman...................... 41 Director-Nominee
Michael D. Flink................... 36 Director-Nominee
</TABLE>
DIRECTORS AND OFFICERS
TIMOTHY M. BRANNAN. Mr. Brannan has served as President, Chief Executive
Officer and Chairman of the Board of the Company since its inception in November
1994. Mr. Brannan served as Executive Vice President for Software Marketing
Corporation ("SMC"), a privately held software publisher, from November 1991
until October 1994. Mr. Brannan served as Executive Vice President for Automap,
Inc. ("Automap"), also a privately held publisher of interactive software, from
November 1991 until June 1993. Mr. Brannan attended Arizona State University
where he studied Business and Marketing.
KEITH P. HIGGINSON. Mr. Higginson has served as Vice President, Chief
Financial Officer and a Director of the Company since its inception in November
1994. From January 1993 until October 1994, Mr. Higginson served as Controller
for SMC. From January 1993 until June 1993, Mr. Higginson also served as
Controller of Automap. Mr. Higginson was self-employed as an accountant from
March through December 1992. From August 1991 until February 1992, Mr. Higginson
was employed as Controller for TimeMax Corporation, a provider of corporate
training and time management materials. Mr. Higginson received a Bachelor's
Degree in Accounting from San Diego State University.
J. WADE STALLINGS, II. Mr. Stallings has served as Vice President, General
Counsel and a Director of the Company since its inception in November 1994. From
February through October 1994, Mr. Stallings served as Vice President and
General Counsel to SMC. Prior thereto, Mr. Stallings was the Coordinator of the
Office of Properties for the Baha'i World Center, an international non-profit
organization. Mr. Stallings received a Bachelor's Degree in Management from the
University of Alabama and a Juris Doctor Degree from Washington and Lee
University School of Law.
DOUGLAS M. BRANNAN. Mr. Brannan has served as Vice President, Sales for
the Company since October 1995. Prior thereto, Mr. Brannan served as Director,
Western Sales for Softkey International (recently renamed The Learning Company),
a publicly traded software company, from September 1994 until October 1995. From
January 1992 until September 1994, Mr. Brannan was Vice President, Sales, for
SMC. In addition, from January 1992 until June 1993, Mr. Brannan was Director of
Sales for Automap. Mr. Brannan received a Bachelor's Degree in Health Science
from San Diego State University.
WYNDI D. BALLARD. Ms. Ballard has served as Vice President, Marketing &
Public Relations for the Company since April 1995. From November 1994 to April
1995, Ms. Ballard served as Director of Public Relations for SC&T International,
a publicly traded corporation developing and marketing sound enhancement
products for the personal computer and video game markets. From June 1991 until
October 1994, Ms. Ballard served as Director of Public Relations and Director of
Marketing for SMC. In addition, from June 1991 to June 1993, Ms. Ballard served
as Director of Public Relations and Marketing for Automap. Ms. Ballard attended
University of Wyoming and Phoenix College where she studied Business and
Marketing.
40
<PAGE> 44
GEORGE W. GREGG. Mr. Gregg has been employed as the Company's Vice
President, Product Planning and Development, since June 1995. From November 1992
through May 1995, Mr. Gregg served as Project Director, Lead Software Developer
and Operations Manager for Mythos Software Corporation, a software developer
which Mr. Gregg also co-founded. In addition, Mr. Gregg worked with several
members of the Company's management while serving as an independent software
design consultant to SMC during the Fall of 1992. Mr. Gregg received a
Bachelor's Degree in Chemistry from Arizona State University and a Master's
Degree and a Ph.D. in Chemistry from the University of Southern California.
IAN D. BERMAN. Mr. Berman has agreed to become a director of the Company
effective upon the closing of the Offering. In 1991, Mr. Berman co-founded Frost
Capital Partners, Inc., an investment banking and financial advisory consulting
firm. Since that time, Mr. Berman has served as Managing Director for the firm,
which focuses exclusively on the entertainment and education software industry.
From 1985 to 1991, Mr. Berman served as a Senior Manager with the Capital
Markets Group for Touche Ross. From 1983 to 1985, Mr. Berman served as a Senior
Analyst with Salomon Brothers, Inc. Mr. Berman is a Certified Public Accountant
and received a Bachelor of Commerce Degree in Accounting and a Master's Degree
in Finance from the University of Witwatersrand University (Johannesburg).
MICHAEL D. FLINK. Mr. Flink has agreed to become a Director of the Company
effective upon the closing of the Offering. Since October 1995, Mr. Flink has
served as the Senior Vice President, Merchandising & Advertising for
Communication EXPO, a communication products superstore. From January 1994 until
September 1995, Mr. Flink served as Vice president of Computer City, a division
of Tandy Corporation, where he was responsible for all merchandising,
advertising and strategic planning functions for the computer and software
retailer. From 1992 through 1994, Mr. Flink served as Consumer Brand and Product
Management Consultant to IBM. From 1990 through 1992, Mr. Flink served as
President and Chief Operating Officer of R&R Electronics, a regional chain of
consumer electronics and appliance superstores. From 1978 through 1990, Mr.
Flink served in various management capacities with Tandy Corporation's Radio
Shack division. Mr. Flink received a Bachelor of Arts in Communication from
North Carolina State University.
Messrs. Douglas M. Brannan and Timothy M. Brannan are brothers. No other
directors or officers are related by blood or marriage.
CLASSIFIED BOARD
Pursuant to the Company's Articles of Incorporation and Bylaws, the Board
of Directors is divided into three classes, as nearly equal in number as is
feasible. Each class serves for a term of three years, and election of the
classes is staggered so that one class is elected each year. The Director
serving in Class III, which class term expires in 1999, is Timothy M. Brannan.
The Director serving in Class II, which class term expires in 1998, is Keith P.
Higginson and the Director serving in Class I, which class term expires in 1997,
is J. Wade Stallings. Upon the effective date of the Registration Statement, of
which this Prospectus forms a part, the number of Directors on Board will be
increased to five and Michael D. Flink and Ian D. Berman two non-employee
directors will be appointed as Directors to serve in Classes II and I,
respectively. At the Company's 1997 Annual Meeting of Stockholders, stockholders
will vote to elect Class I of the Board.
BOARD COMMITTEES
The Board of Directors has authorized a Compensation Committee that will
commence upon the effective date of the Registration Statement of which this
Prospectus forms a part. The Compensation Committee will be comprised of Timothy
M. Brannan, Michael D. Flink and Ian D. Berman. The Compensation Committee will
review and recommend to the Board of Directors the compensation and benefits of
all officers of the Company and also administer the Company's stock plans,
pursuant to which stock options are granted to Officers, Directors, key
employees and consultants. The Board of Directors has authorized an Audit
Committee to commence upon the effective date of the Registration Statement of
which this Prospectus forms a part. The Audit Committee will be comprised of
Michael D. Flink and Ian D. Berman. The Audit Committee will review, with the
Company's independent accountants, the annual
41
<PAGE> 45
financial statements of the Company, and also review the effectiveness of the
Company's financial and accounting functions and organization and make
recommendations to the Board of Directors in that regard.
DIRECTORS' COMPENSATION
Directors are not currently compensated for their services in that capacity
or for serving on committees but are reimbursed for their reasonable expenses
incurred in connection with serving as Directors. Non-employee Directors serving
on the Company's Board currently receive an initial grant of options to purchase
10,000 shares of Common Stock at the time they commence service to the Company
and may receive additional future options at the discretion of the Board. See
"-- 1996 Stock Option Plan".
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company's Articles of Incorporation and Bylaws require the Company to
indemnify each of its Officers and Directors against liabilities and reasonable
expenses incurred in any action or proceeding, including stockholders'
derivative actions, by reason of such person being or having been an Officer or
Director of the Company, or of any other corporation for which he or she serves
as such at the request of the Company, to the fullest extent permitted by Nevada
law. Pursuant to Nevada law, the Company has adopted provisions in its Articles
of Incorporation and Bylaws that eliminate, to the fullest extent available
under Nevada law, the personal liability of its Directors and Officers of the
Company or its stockholders for monetary damages incurred as a result of the
breach of their duty of care. These provisions neither limit the availability of
equitable remedies nor eliminate Directors' or Officers' liability for engaging
in intentional misconduct or fraud, knowingly violating a law or unlawfully
paying a distribution.
The Company has been advised that it is the position of the Commission that
insofar as the foregoing provision may be invoked to disclaim liability for
damages arising under the Securities Act, such provision is against public
policy as expressed in the Securities Act and is therefore unenforceable.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company for the services rendered during the fiscal year ended December 31, 1995
to the Company's Chief Executive Officer (the "Named Officer"). No executive
officer of the Company earned in excess of $100,000 during that period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
-----------------
NAME AND POSITION SALARY BONUS
--------------------------------------------------------- ------- -----
<S> <C> <C>
Timothy M. Brannan....................................... $12,926 0
Chairman, President
</TABLE>
- ---------------
(1) The Company was not formed until November 14, 1994 and no salaries were paid
until October 1995. Effective November 1, 1996, Mr. Brannan became subject
to an employment agreement pursuant to which he is compensated thereafter at
an annual base rate of $75,000.
During the Company's fiscal year ended December 31, 1995, Mr. Brannan did
not receive any other annual compensation, long-term compensation or other
compensation.
EMPLOYMENT AGREEMENTS
Effective November 1, 1996, the Company entered into three-year employment
agreements with its senior executive officers, Timothy M. Brannan, Keith P.
Higginson, J. Wade Stallings, II, Douglas M. Brannan and Wyndi D. Ballard. The
agreements provide for base salaries of $75,000, $65,000, $65,000, $65,000 and
$50,000 for Mr. Timothy M. Brannan, Mr. Higginson, Mr. Stallings, Mr. Douglas M.
Brannan
42
<PAGE> 46
and Ms. Ballard, respectively, subject to review at least annually by the Board
of Directors. The executives may receive bonuses at the discretion of the Board.
The Company may unilaterally terminate the agreements for "Cause," which
includes (i) conviction of a felony, or (ii) failure to diligently cure a
specified deficiency in the executive's performance within 30 days.
In the event the Company terminates the executive's employment during the
term of the agreement without Cause, or in the event the executive terminates
the agreement for "Good Reason" (as defined in the agreements), which includes
certain changes in the executive's duties or a change in control of the Company,
the Company shall pay to the executives (i) his/her salary through the
termination date plus any accrued but unpaid bonuses and (ii) with respect to
executives other than Timothy M. Brannan, a severance payment equal to the
executive's current annual salary and an amount equal to the average of all
bonuses paid to the executive in the three years immediately preceding
termination, which the Company has the option to pay over one year. With respect
to Timothy M. Brannan, the severance payment would be equal to two times his
current annual salary and an amount equal to the average of all bonuses paid to
him in the three years immediately preceding termination, which the Company has
the option to pay over two years. In addition, the Company must maintain until
the first to occur of (i) the executive's attainment of substitute employment or
(ii) two years from the date of termination with respect to Timothy M. Brannan
and one year from the date of termination with respect to the other executives,
the executive's benefits under the Company's benefit plans to which the
executive and his/her eligible beneficiaries were entitled immediately prior to
the date of termination. If the executive requests, the Company must also assign
to the executive any assignable insurance policy on the life of the executive
owned by the Company and at the end of the period of coverage. If the executive
is terminated for Cause or if the executive terminates his/her employment other
than for Good Reason, the Company's only obligation is to pay the executive
his/her base salary and accrued vacation pay through the date of termination. If
any of the executives are terminated without Cause or resign for Good Reason
following a change in control of the Company, the executive is entitled to two
years' severance compensation including benefits until obtaining alternate
employment.
If the executive is incapacitated due to physical or mental illness during
the term of his/her employment, the agreements provide that the Company shall
pay to the executive a lump sum equal to the executive's current base salary and
the average of all bonuses paid to the executive in the three years preceding
the date of termination due to illness. If the executive dies during his/her
employment, his/her salary through the date of his/her death, any accrued but
unpaid bonuses and any benefits payable pursuant to the Company's survivor's
benefits insurance and other applicable programs and plans then in effect are
payable to his/her estate.
If the executive's employment is terminated, the Company has agreed to
indemnify the executive for claims and expenses associated with certain personal
guarantees, if any, made by the executive. The Company also has agreed to use
its best efforts to secure the release of such personal guarantees following the
Offering. In addition, the Company has agreed to indemnify the executive against
all costs incurred in enforcing his/her rights under the agreement following a
change in control of the Company. See "Certain Transactions."
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Plan") authorizes the Board
to grant options to Directors, employees and consultants of the Company to
purchase shares of Common Stock. An aggregate of 200,000 shares of Common Stock
are reserved for issuance upon exercise of options granted or to be granted
under the 1996 Plan. Directors, officers, employees and consultants of the
Company who, in the opinion of the Board of Directors, are responsible for the
continued growth and development and the financial success of the Company are
eligible to be granted options by the Board under the 1996 Plan. Options may be
nonqualified options, incentive stock options, or any combination of the
foregoing. In general, options granted under the 1996 Plan are not transferable
and expire ten years after the date of grant. The per share exercise price of
any incentive stock option granted under the 1996 Plan may not be less than the
fair market value of the Common Stock on the date of grant. Incentive stock
options granted to persons who have voting control over 10% or more of the
company's capital stock are granted at 110% of the fair market value of the
underlying shares on the date of grant and expire five years after the date of
grant. No option may be granted after December 13, 2006.
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<PAGE> 47
The 1996 Plan provides the Board of Directors with the discretion to
determine when options granted thereunder will become exercisable. Generally,
such options may be exercised after a period of time specified by the Board of
Directors at any time prior to expiration. No option granted under the 1996 Plan
is transferable by the optionee other than by will or the laws of descent and
distribution, and each option is exercisable during the lifetime of the optionee
only by the optionee. As of the closing date of the Offering, options to
purchase an aggregate of 50,000 shares of Common Stock at an exercise price of
$5.00 per share will be outstanding under the 1996 Plan. The Company has agreed
with the Underwriter that it will not, without the prior written consent of the
Underwriter, grant any options to employees that are exercisable at a price
below the public offering price set forth on the Cover or the fair market value
on the date of grant, for a period of 18 months from the date of this
Prospectus.
Possible Need for Additional Plan Securities or Plans. It may become
necessary to grant options for more shares of Common Stock than are available
under the 1996 Plan in order to attract additional members to its Board of
Directors or Officers, consultants or employees. In such events, additional
shares may be required to be added to the Company's 1996 Plan or new plans may
be adopted with shares reserved for exercise thereunder, either of which events
may have a dilutive effect to shareholders.
CERTAIN TRANSACTIONS
On November 15, 1994, in connection with the founding of the Company, the
Company issued 1,436 shares of Common Stock to Timothy M. Brannan, 1,000 shares
of Common Stock to J. Wade Stallings, II and 1,000 shares of Common Stock to
Keith P. Higginson. On January 1, 1995, the Company issued 564 shares of Common
Stock to Douglas M. Brannan, 564 shares of Common Stock to Wyndi D. Ballard and
282 shares of Common Stock to George Gregg. The per share consideration received
by the Company in each of the aforementioned transactions was $1.00. In November
1996, pursuant to the Company's recapitalization and reincorporation in the
State of Nevada, all of the outstanding shares of Common Stock of the Company,
including the aforementioned shares, were split on an approximately 242-for-1
basis.
44
<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of November 30, 1996, certain
information concerning the beneficial ownership of the Company's Common Stock,
by (i) each stockholder known by the Company to own beneficially 5% or more of
the outstanding Common Stock of the Company, (ii) each Director, (iii) each
Executive Officer and (iv) all Executive Officers and Directors of the Company
as a group, and their percentage ownership before and after this Offering and
voting power after this Offering. See "Description of Securities" for a
discussion of the voting and other rights of holders of each class of Common
Stock.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
NUMBER OF % BEFORE % AFTER
NAME(1) SHARES(2) OFFERING OFFERING
------------------------------------------------------ ---------- -------- --------
<S> <C> <C> <C>
Timothy M. Brannan.................................... 330,463 27.54 13.77
Keith P. Higginson(3)................................. 230,127 19.18 9.59
J. Wade Stallings, II................................. 230,127 19.18 9.59
Douglas M. Brannan.................................... 129,791 10.82 5.41
Wyndi D. Ballard...................................... 129,791 10.82 5.41
George W. Gregg....................................... 64,895 5.41 2.70
All Directors and Executive Officers as a group (6
persons)............................................ 1,115,194 92.95 46.47
</TABLE>
- ---------------
(1) Except as otherwise noted, each of the parties listed above has sole voting
and investment power over the securities listed. The address for all
officers and directors of the Company is 1839 West Drake, Suite B, Tempe,
Arizona 85283.
(2) Includes Escrow Shares as follows: Timothy M. Brannan, 227,193 shares; Keith
P. Higginson, individually, 79,106 shares and as trustee, 79,106 shares; J.
Wade Stallings, II, 158,212 shares; Douglas M. Brannan, 89,231 shares; Wyndi
D. Ballard, 89,231 shares; and George W. Gregg, 44,615 shares. See "--
Escrow Arrangements".
(3) Includes 35,957 shares of which Mr. Higginson is the record and beneficial
owner and 35,958 shares held by a trust of which Mr. Higginson is trustee
and has sole voting power, but in which he disclaims any beneficial
interest.
VOTING TRUST AGREEMENT AND IRREVOCABLE PROXY AGREEMENT
Eight stockholders of the Company owning an aggregate of 1,200,000 shares
of Common Stock, which will represent 50% of the total voting power immediately
after the Offering (47% if the over-allotment option is exercised in full),
entered into a Voting Trust Agreement and an Irrevocable Proxy Agreement ("Proxy
Agreement"), in November 1996. Of the 1,200,000 shares, 825,000 shares (which
825,000 shares have been placed in Escrow, see "Escrow Arrangements", below),
are subject to a Voting Trust Agreement and 375,000 shares are subject to the
Proxy Agreement. All 1,200,000 shares also are subject to the 13-month Lock-Up
Agreement. See "Underwriting".
Timothy M. Brannan, the President and Chairman of the Company, is
designated as both the trustee of the Voting Trust Agreement and the proxy
holder under the Proxy Agreement, and is empowered to vote all shares subject to
the Voting Trust Agreement and the Proxy Agreement with respect to any matter
subject to a vote by the Company's stockholders. Such matters include voting in
favor of the election of himself as a Director and an Officer of the Company and
in favor of ratification or approval of acts of himself as a Director and an
Officer in the conduct of business affairs of the Company, and other acts
relating to the Company, including, but not limited to, dissolution,
liquidation, a merger or consolidation of the Company or the sale of all, or
substantially all, of its assets. Consequently, after the Offering, by virtue of
the Voting Trust Agreement and Proxy Agreement, Mr. Brannan will effectively
control 50% of the total voting power (47% if the over-allotment option is
exercised in full) of the Company.
The agreement of the stockholders to deposit their shares in the Voting
Trust and to grant their proxy under the Proxy Agreement is irrevocable for 13
months following the date of this Prospectus. Thereafter,
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<PAGE> 49
parties to the Proxy Agreement may withdraw their respective shares on ten days
prior written notice to the Trustee if they sell them to third parties. Parties
to the Voting Trust Agreement may also withdraw their shares on ten days prior
notice if such shares are not then subject to the Escrow Agreement. The Voting
Trust Agreement and the Proxy Agreement both terminate upon the earliest of five
years, the date on which Mr. Brannan ceases to be an employee of the Company or
resigns as Trustee or Proxy Holder, as applicable, or dies, or upon termination
of the Voting Trust Agreement or the Proxy Agreement by the unanimous written
agreement of the holders of the shares (other than Timothy M. Brannan) subject
to the Voting Trust Agreement or the Proxy Agreement, as applicable.
ESCROW ARRANGEMENTS
In connection with this Offering, present holders of the Company's Common
Stock placed into escrow, on a pro rata basis, an aggregate of 825,000 shares
pursuant to an Escrow Agreement, before this Offering (the "Escrow Agreement").
Such stockholders will continue to vote the Escrow Shares, all of which, except
those held by Timothy M. Brannan, are subject to the Voting Trust described
above of which Mr. Brannan is the trustee. The Escrow Shares are not further
assignable or transferrable.
Escrow Shares will be released from the escrow and placed in the Voting
Trust if the Voting Trust is in existence and, if not, to the stockholders as
follows:
1. 300,000 shares held in escrow shall be released therefrom if:
(a) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings (all as audited and
determined by the Company's independent public accountants) (the
"Minimum Pretax Income") equals at least $2,000,000 before or
during the fiscal year ending on December 31, 1998; or
(b) the Minimum Pretax Income equals at least $3,000,000 during the
fiscal year ending on December 31, 1999; or
(c) the Minimum Pretax Income equals at least $4,000,000 during the
fiscal year ending December 31, 2000; or
(d) commencing at the Effective Date and ending 18 months after the
Effective Date, the Bid Price of the Company's Common Stock shall
average in excess of $11.50 per share (subject to adjustment in
the event of any stock splits, reverse stock splits or other
similar events) for 30 consecutive business days; or
(e) commencing 18 months after the Effective Date and ending 36 months
after the Effective Date, the Bid Price shall average in excess of
$15.00 per share (subject to adjustment in the event of any stock
splits, reverse stock splits or other similar events) for 30
consecutive business days; or
(f) the Company is acquired by or merged with or into another entity
during either of the periods referred to above and as a result
thereof the holders of shares of Common Stock not then subject to
escrow (after giving consideration to the release from escrow of
such 300,000 shares and subject to adjustment in the event of any
stock splits, reverse stock splits or other similar events)
receive per share consideration equal or greater than (i) $11.50
per share during the 18-month period commencing on the Effective
Date; or (ii) $15.00 per share during the 18-month period
commencing 18 months from the Effective Date.
2. The remaining 525,000 shares held in escrow shall be released therefrom
if:
(a) the Minimum Pretax Income equals at least $3,300,000 prior to or
during the fiscal year ending on December 31, 1998; or
(b) the Minimum Pretax Income equals at least $4,400,000 during the
fiscal year ending on December 31, 1999; or
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<PAGE> 50
(c) the Minimum Pretax Income equals at least $5,500,000 during the
fiscal year ending on December 31, 2000; or
(d) commencing at the Effective Date and ending 18 months after the
Effective Date, the Bid Price of the Company's Common Stock shall
average in excess of $12.50 per share (subject to adjustment in
the event of any stock splits, reverse stock splits or other
similar events) for 20 consecutive business days; or
(e) commencing 18 months from the Effective Date and ending 36 months
after the Effective Date, the Bid Price shall average in excess of
$16.50 per share (subject to adjustment in the event of any stock
splits, reverse stock splits or other similar events) for 20
consecutive business days; or
(f) the Company is acquired by or merged with or into another entity
during either of the periods referred to above and as a result
thereof the holder of shares of Common Stock not then subject to
escrow (after giving consideration to the release from escrow of
such 525,000 shares (and the 300,000 shares set forth above, if
not previously released) and subject to adjustment in the event of
any stock splits, reverse stock splits or other similar events)
receive per share consideration equal or greater than (i) $12.50
per share during the 18-month period commencing on the Effective
Date; or (ii) $16.50 per share during the 18-month period
commencing 18 months from the Effective Date.
The Minimum Pretax Income amounts set forth in 1 and 2 above, assume the
release of all of the Escrow Shares and the conversion into Common Stock of any
outstanding securities which are convertible into Common Stock solely upon
surrender of such convertible securities without the payment of any additional
consideration, but shall be increased proportionally to reflect the issuance of
any other additional shares, including any shares that may be issued upon the
exercise of the Class A Warrants, the Class B Warrants or any other options or
warrants presently outstanding or hereafter granted by the Company. The Minimum
Pretax Income shall be calculated exclusive of any extraordinary earnings,
including, but not limited to, any charge to income resulting from the release
of the Escrow Shares. On March 31, 2001, all shares still held in escrow will be
forfeited, which shares will then be placed in the Company's treasury for
cancellation thereof as a contribution to capital.
Distributions, in the event the Company is acquired or merged with or into
another entity, will be made as follows:
(a) if the merger or acquisition proceeds are sufficient to pay the
non-escrowed Common Stock prior to such event up to the applicable
Bid Price amount per share price set forth in paragraphs 1(f) or
2(f) above, then such number of shares of escrowed Common Stock
shall be released from escrow, pro rata, to enable the holders
thereof to participate in the balance remaining up to the
applicable Bid Price per share.
(b) if the merger or acquisition proceeds are sufficient to pay the
then non-escrowed and the then escrowed Common Stock, the full
amount set forth in paragraphs 1(f) or 2(f) above, then
distributions will be made pro rata on all Common Stock
outstanding, whether or not subject to escrow.
Any money, securities, rights, or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Shares. Shares in escrow as to which the applicable earnings levels set forth
above have not been met by March 31, 2001, as well as any dividends or other
distributions made with respect thereto, will be contributed to the capital of
the Company and canceled. The Company expects that the release of the Escrow
Shares held by Officers, Directors, employees, and consultants of the Company
will be deemed compensatory and, accordingly, will result in a substantial
charge to reportable earnings, which would equal the fair market value of such
shares on the date of release. Such charge could substantially eliminate the
Company's net income for financial reporting purposes for the period(s) during
which such shares are, or become probable of being, released from escrow.
Although the amount of compensation expense recognized by the Company will not
affect the
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Company's total stockholder's equity, it may have a negative effect on the
market price of the Company's securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 12 to the
Company's Financial Statements.
The earnings levels set forth above were determined by negotiation between
the Company and the Underwriter and should not be construed to imply or predict
any future earnings by the Company or any increase in the market price of its
securities.
CONCURRENT OFFERING
The Registration Statement of which this Prospectus forms a part also
includes a Prospectus with respect to an offering by the Selling Securityholders
of 750,000 Class A Warrants, 750,000 Class B Warrants issuable upon exercise of
the Class A Warrants and an aggregate of 1,500,000 shares of Common Stock
underlying such Class A and Class B Warrants. The Selling Securityholders' Class
A Warrants are being issued to the Selling Securityholders as of the effective
date of the Offering upon the automatic conversion of all of the Company's
outstanding Bridge Warrants. These Class A Warrants are identical to the Class A
Warrants included in the Units offered hereby. All of the Selling
Securityholders' Class A Warrants, the Common Stock and Class B Warrants
issuable upon exercise of such Class A Warrants and the Common Stock issuable
upon exercise of the Class B Warrants will be registered, at the Company's
expense, under the Securities Act and are expected to become tradeable on or
about the effective date of the Offering, subject to a contractual restriction
with the Selling Securityholders that such Class A Warrants and underlying
securities may not be sold for a period of between 90 and 270 days after the
effective date of the Offering. Such Selling Securityholders have also agreed
not to exercise their Selling Securityholders' Warrants for a period of one year
following the effective date of the Offering; provided, however, that purchasers
of such Selling Securityholders' Warrants are not subject to such restrictions
on exercise. After the one year period following the closing date of the
Offering, such Selling Securityholders may exercise and sell the Common Stock
issuable upon exercise of the Selling Securityholders' Warrants without
restriction if a current prospectus relating to such Common Stock is in effect
and the shares of Common Stock are qualified for sale under applicable state
securities laws. The Company will not receive any proceeds from the sale of the
Selling Securityholders' Warrants or the underlying securities. Sales of Selling
Securityholders' Warrants or the securities underlying such Class A Warrants or
even the potential of such sales could have an adverse effect on the market
prices of the Units, the Common Stock and the Warrants.
There are no material relationships between any of the Selling
Securityholders and the Company, nor have any such material relationships
existed within the past three years. The Company has been informed by the
Underwriter that there are no agreements between the Underwriter and any Selling
Securityholder regarding the distribution of the Selling Securityholders'
Warrants or their underlying securities.
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices or in negotiated transactions, a combination of such methods of sale or
otherwise.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities, from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers from whom such broker-dealer may act as agents or to whom they may
sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholders' Warrants may not
simultaneously engage in market-making activities with respect to any securities
of the Company during the applicable "cooling-off " period (at least two and
possibly nine
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business days) prior to the commencement of such distribution. Accordingly, in
the event the Underwriter or Blair & Co. is engaged in a distribution of the
Selling Securityholders' Warrants, neither of such firms will be able to make a
market in the Company's securities during the applicable restrictive period.
However, neither the Underwriter nor Blair & Co. has agreed to nor is either of
them obligated to act as broker-dealer in the sale of the Selling
Securityholders' Warrants and the Selling Securityholders may be required, and
in the event Blair & Co. is a market-maker, will likely be required, to sell
such securities through another broker-dealer. In addition, each Selling
Securityholder desiring to sell Warrants will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation Rules 10b-6 and 10b-7, which provisions may limit
the timing of the purchases and sales of shares of the Company's securities by
such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to
constitute underwriting discounts and commissions under the Securities Act.
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DESCRIPTION OF SECURITIES
GENERAL
In November 1996, the Board of Directors and the stockholders of the
Company approved the reincorporation of the Company from an Arizona corporation
into a Nevada corporation, by means of a merger of the Arizona corporation into
a Nevada corporation, which merger and the reincorporation became effective as
of November 22, 1996. In connection with the merger (i) all then outstanding
shares of Common Stock of the Arizona corporation were exchanged for shares of
Common Stock of the Nevada corporation on an approximately 242-for-1 basis, (ii)
the authorized Common Stock was increased and a class of Preferred Stock was
created, and (iii) the shares of the Company's former Common Stock, no par
value, were changed into Common Stock, $.001 par value. The Company's authorized
capital stock now consists of (i) 20,000,000 shares of Common Stock, $.001 par
value per share, and (ii) 5,000,000 shares of "blank check" Preferred Stock,
$.001 par value. Immediately prior to this Offering, there were outstanding
1,200,000 shares of Common Stock (held by nine holders) and no outstanding
shares of Preferred Stock.
The foregoing and following summary descriptions of capital stock of the
Company is qualified in its entirety by reference to the Company's Articles of
Incorporation, as amended (the "Articles of Incorporation"), and Bylaws (the
"Bylaws"), a copy of each of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
UNITS
Each Unit consists of one share of Common Stock, one redeemable Class A
Warrant and one redeemable Class B Warrant. Each Class A Warrant entitles the
holder thereof to purchase one share of Common Stock and one additional Class B
Warrant. Each Class B Warrant entitles the holder thereof to purchase one share
of Common Stock. The Common Stock and Warrants comprising the Units are
separately transferable immediately upon issuance.
COMMON STOCK
Holders of Common Stock have the right to cast one vote for each share held
of record on all matters submitted to a vote of holders of Common Stock,
including the election of directors.
Holders of Common Stock are entitled to receive dividends pro rata based on
the number of share held, when, as and if declared by the Board of Directors,
from funds legally available therefor, subject to the rights of holders of any
outstanding preferred stock. In the event of the liquidation, dissolution or
winding up of the affairs of the Company, all assets and funds of the Company
remaining after the payment of all debts and other liabilities, subject to the
rights of the holders of any outstanding preferred stock, shall be distributed,
pro rata, among the holders of the Common Stock. Holders of Common Stock are not
entitled to preemptive, subscription, cumulative voting or conversion rights,
and there are no redemption or sinking fund provisions applicable to the Common
Stock. All outstanding shares of Common Stock are, and the shares of Common
Stock offered hereby will be when issued, fully paid and nonassessable.
See "Management -- Voting Trust" and "-- Escrow Arrangements" regarding a
Voting Trust and Irrevocable Proxy Agreement relating to 1,200,000 shares of
Common Stock and escrow arrangements relating to 825,000 of such shares.
REDEEMABLE WARRANTS
Class A Warrants. Each Class A Warrant entitles the registered holder to
purchase one share of Common Stock and one Class B Warrant at an exercise price
of $6.50 at any time until 5:00 P.M., New York City time, on the fifth
anniversary of the date of this Prospectus. Commencing one year from the date of
this Prospectus, the Class A Warrants are redeemable by the Company on 30 days'
written notice at a redemption price of $.05 per Class A Warrant if the "closing
price" of the Company's Common Stock for any 30 consecutive trading days ending
within 15 days of the notice of redemption averages in excess of $9.10 per
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<PAGE> 54
share. "Closing price" shall mean the closing bid price if listed in the
over-the-counter market on Nasdaq or otherwise or the closing sale price if
listed on The Nasdaq National Market or a national securities exchange. All
Class A Warrants must be redeemed if any are redeemed.
Class B Warrants. Each Class B Warrant entitles the registered holder to
purchase one share of Common Stock at an exercise price of $8.75 at any time
until 5:00 P.M. New York City time, on the fifth anniversary date of this
Prospectus. Commencing one year from the date of this Prospectus, the Class B
Warrants are redeemable by the Company on 30 days' written notice at a
redemption price of $.05 per Class B Warrant, if the closing price of the
Company's Common Stock for any 30 consecutive trading days ending within 15 days
of the notice of redemption averages in excess of $12.25 per share. All Class B
Warrants must be redeemed if any are redeemed.
General. The Class A Warrants and Class B Warrants will be issued pursuant
to a warrant agreement (the "Warrant Agreement") among the Company, the
Underwriter and American Stock Transfer & Trust Company, New York, New York, as
warrant agent, and will be evidenced by warrant certificates in registered form.
The Warrants provide for adjustment of the exercise price and for a change in
the number of shares issuable upon exercise thereof to protect holders against
dilution in the event of a stock dividend, stock split, combination or
reclassification of the Common Stock or upon issuance of shares of Common Stock
at prices lower than the market price then in effect other than issuances upon
exercise of options granted to Officers, employees, Directors and consultants to
the Company under the Company's stock option plans, other outstanding warrants
on the date of this Prospectus or with respect to the Unit Purchase Option.
The exercise prices of the Warrants were determined by negotiation between
the Company and the Underwriter and should not be construed to be predictive of
or to imply that any price increases in the Company's securities will occur.
A Warrant may be exercised upon surrender of the Warrant certificate on or
prior to its expiration date (or earlier redemption date) at the offices of
American Stock Transfer & Trust Company, New York, New York, as Warrant Agent,
with the form of "Election to Purchase" on the reverse side of the Warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified or bank check payable to the order of the
Company) for the number of shares with respect to which the Warrant is being
exercised. Shares issued upon exercise of Warrants and payment in accordance
with the terms of the Warrants will be fully paid and nonassessable.
The Warrants do not confer upon the Warrantholder any voting or other
rights of a stockholder of the Company. Upon notice to the Warrantholders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
PREFERRED STOCK
The Articles of Incorporation of the Company authorize the issuance of up
to 5,000,000 shares of Preferred Stock, none of which are currently outstanding.
The Board of Directors, within the limitations and restrictions contained in the
Articles of Incorporation and without further action by the Company's
stockholders, has the authority to issue shares of Preferred Stock from time to
time in one or more series and to fix the number of shares and the relative
rights, conversion rights, voting rights, and terms of redemption, liquidation
preferences and any other preferences, special rights and qualifications of any
such series. Any issuance of Preferred Stock could, under certain circumstances,
have the effect of delaying, deferring or preventing a change in control of the
Company and may adversely affect the rights of holders of Common Stock. The
Company has no present plans to issue any shares of Preferred Stock.
CERTAIN STATUTORY AND CHARTER PROVISIONS
The Company's Articles of Incorporation and By-laws contain a number of
provisions relating to corporate governance and the rights of stockholders.
These provisions: (i) establish a classified Board of Directors; (ii) permit the
removal of Directors only for cause and only by vote of stockholders owning two-
thirds of the voting power of the Company; (iii) impose conditions on the
ability of stockholders to nominate
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<PAGE> 55
persons for the position of Director; (iv) prohibit stockholders from calling
special meetings; and (v) require the consent of the Board of Directors or the
"disinterested" members thereof and/or the affirmative vote of two-thirds of the
Company's voting stock, excluding stock owned by interested stockholders, to
effect certain business combinations with interested stockholders. An interested
stockholder for purposes of this provision means a person who, together with
affiliates or associates, beneficially owns, or beneficially owned within the
preceding two-year period, 10% or more of the Company's combined voting power.
For purposes of these provisions, at November 30, 1996, five of the Company's
stockholders were deemed to be interested stockholders. The provisions included
in the Company's Articles of Incorporation and certain provisions in the By-laws
may not be amended or repealed without the affirmative vote of two-thirds of the
Company's voting stock, excluding, with respect to the business combination
provision, stock owned by interested stockholders. See "Executive Compensation"
for a discussion of certain indemnification provisions included in the Articles
of Incorporation and By-laws.
The Company believes that these provisions promote the stability and
continuity of the Board of Directors of the Company and assure that stockholders
will receive adequate notice of and an opportunity to consider actions by
stockholders that could materially affect the Company. However, these provisions
could have the effect of deterring unsolicited takeovers or delaying or
preventing changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then-current market prices. In addition, these provisions may limit
the ability of stockholders to approve transactions that they may deem to be in
their best interest.
TRANSFER AGENT AND WARRANT AGENT
American Stock Transfer & Trust Company, New York, New York will serve as
Transfer Agent for the Common Stock and Warrant Agent for the Warrants.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding an
aggregate of 2,580,000 shares of Common Stock (assuming exercise in full of the
Underwriter's over-allotment option). Of all such shares, the 1,380,000 shares
of Common Stock included in the Units sold in this Offering (assuming exercise
in full of the Underwriter's over-allotment option) will be freely transferable
without restriction under the Securities Act except for any shares purchased by
any person who is or thereby becomes an "affiliate" of the Company, which shares
will be subject to the resale limitations contained in Rule 144 promulgated
under the Securities Act. All of the other shares of Common Stock outstanding
prior to this Offering are "restricted securities" as that term is defined under
Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), who has beneficially owned restricted securities
for at least two years, may sell within any three-month period a number of
restricted shares which does not exceed the greater of 1% of the then
outstanding shares of such class of securities or the average weekly trading
volume during the four calendar weeks prior to such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice and
the availability of current public information about the Company. Rule 144 also
permits, under certain circumstances, the sale of shares by a person who is not
an affiliate of the Company, with respect to restricted securities that satisfy
a three-year holding period, without regard to the volume or other resale
limitations. For shares issued in consideration of an unsecured or nonrecourse
promissory note, the holding period does not commence until the note is paid in
full. The above is a brief summary of Rule 144 and is not intended to be a
complete description of Rule 144.
All of the current stockholders, including all of the principal
stockholders, Officers and Directors of the Company (including Timothy M.
Brannan as Voting Trustee and Proxy for 869,537 shares) holding in the aggregate
approximately 1,200,000 shares of Common Stock, have agreed not to sell, assign
or transfer or otherwise dispose publicly of any of their shares for a period of
13 months from the date of this Prospectus without the prior written consent of
the Underwriter. Following the expiration of such period, all 1,200,000 of such
shares of Common Stock will be freely transferrable subject to the requirements
of Rule 144; provided, however, that 825,000 of such shares will remain subject
to the provisions of the Escrow Agreement. See "Principal Stockholders -- Escrow
Agreements". Prior to this Offering, there has been no market for any securities
of the Company and the Company is unable to predict the effect that sales under
Rule 144, pursuant to a registered public Offering or otherwise, may have on the
then prevailing market price of the Common Stock, but such sales may have a
substantial negative effect on such market price.
As of the closing date of this Offering, options to purchase a total of
50,000 shares of Common Stock will be outstanding under the Company's Stock
Option Plan. An aggregate of an additional 150,000 shares are available for
future option grants under the Plan. See "Management -- 1996 Stock Option Plan".
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<PAGE> 57
UNDERWRITING
D. H. Blair Investment Banking Corp., the Underwriter, has agreed, subject
to the terms and conditions of the Underwriting Agreement, to purchase the
1,200,000 Units offered hereby from the Company on a "firm commitment" basis, if
any are purchased. It is expected that Blair & Co. will distribute as a selling
group member substantially all of the Units offered hereby. It is also expected
that Blair & Co. will make a market in the Company's securities. Blair & Co. is
owned by a corporation which is substantially owned by family members of J.
Morton Davis. Mr. Davis is the sole stockholder and director of an entity which
is the parent and sole stockholder of the Underwriter.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering price set forth on the cover page of this
Prospectus and that it may allow to selected dealers who are members of the
National Association of Securities Dealers, Inc. concessions, not in excess of
$. per Unit, of which not more than $. per Unit may be reallowed to certain
other dealers. After this Offering, the public offering price, concessions and
reallowances may be changed by the Underwriter.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance equal to 3% of the aggregate offering price of the Units offered
hereby (including any Units purchased pursuant to the over-allotment option), of
which $40,000 has been paid.
The Company has granted an option to the Underwriter, exercisable for 45
days from the date of this Prospectus, to purchase up to 180,000 additional
Units at the public offering price set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions, solely to cover
over-allotments, if any, made in connection with the sale of the Units offered
hereby.
The Company has agreed to sell to the Underwriter and its designees, for
nominal consideration, the Unit Purchase Option to purchase up to 120,000 Units,
substantially identical to the Units being offered hereby. The Unit Purchase
Option will be exercisable during the three-year period commencing two years
from the date of this Prospectus at an exercise price equal to $6.00 per Unit,
subject to adjustment in certain events to protect against dilution, and are not
transferable for a period of two years from the date of this Prospectus except
to officers of the Underwriter or to members of the selling group, including
Blair & Co. or its officers. The exercise price and all other terms of any
Common Stock, Class A Warrants or Class B Warrants issuable to the Underwriter
upon exercise of the Unit Purchase Option will be substantially identical to
those sold in this Offering except that the Warrants issued to the Underwriter
are not subject to redemption by the Company. The Company has agreed to register
during the five-year period commencing one year from the date of the closing of
the underwriting of 1,200,000 Units pursuant to this Prospectus, on two separate
occasions upon request of the Underwriter, the securities issuable upon exercise
of the Unit Purchase Option under the Securities Act, the initial such
registration to be at the Company's expense and the second at the expense of the
holders. The Company has also granted certain "piggy-back" registration rights
to holders of the Unit Purchase Option.
The Company has agreed to indemnify the Underwriter against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act.
During the five-year period from November 27, 1996, in the event the
Underwriter originates a financing or a merger, acquisition or transaction to
which the Company is a party, the Underwriter will be entitled to receive a
finder's fee in consideration for origination of such transaction. The fee is
based on a percentage of the consideration paid in the transaction ranging from
7% of the first $1,000,000 to 2 1/2% of any consideration in excess of
$9,000,000.
In connection with the Bridge Financing in November and December 1996, the
Underwriter served as placement agent and received an aggregate of $195,000 from
the Company as commission and non-accountable expense allowance.
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In November 1996, the Underwriter loaned the Company $200,000, which bore
interest at the rate of 10% per annum. The loan was repaid out of the proceeds
of the Bridge Financing.
The Company has agreed not to solicit Warrant exercises other than through
the Underwriter unless the Underwriter declines or is unable to make such
solicitation. Except for any Warrants held by the Underwriter at the time of
exercise, commencing one year form the date of this Prospectus, upon any
exercise of the Warrants, the Company will pay the Underwriter a fee (the
"Warrant Fee") of 5% of the aggregate exercise price if (i) the market price of
the Company's Common Stock on the date the Warrants are exercised is greater
than the then exercise price of the Warrants; (ii) the exercise of the Warrants
was solicited by a member of the National Association of Securities Dealers,
Inc. designated in writing by the Warrantholder as having solicited the
exercise; (iii) the Warrants are not held in a discretionary account; (iv)
disclosure of compensation arrangements is made both at the time of the Offering
and at the time of exercise of the Warrants; and (v) the solicitation of
exercise of the Warrants was not in violation of Rule 10b-6 promulgated under
the Securities Exchange Act of 1934, as amended. The Underwriter may reallow a
portion of such fee to members of the National Association of Securities
Dealers, Inc. The costs of the Underwriter's solicitation of exercise or
redemption of the Warrants will be borne by the Company.
Rule 10b-6 of the Exchange Act may prohibit Blair & Co. from engaging in
any market making activities with regard to the Company's securities for the
period from nine business days (or such other applicable period as Rule 10b-6
may provide) prior to any solicitation by the Underwriter of the exercise of
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Underwriter may have
to receive a fee for the exercise of Warrants following such solicitation. As a
result, Blair & Co. may be unable to provide a market for the Company's
securities during certain periods while the Warrants are exercisable.
The Company has agreed to nominate a designee of the Underwriter to the
Company's Board of Directors for a period of five years from the date hereof.
Any such Director will receive the same compensation, if any, which is paid to
Directors who are not employees of the Company and shall be reimbursed all
reasonable expenses in connection with attending all meetings of the Board or
any committees thereof. The Underwriter has not yet designated its nominee, and
such nominee is not expected to be an officer, Director or affiliate of the
Underwriter.
All of the Company's current stockholders, officers and directors have
agreed not to sell, assign, transfer or otherwise dispose publicly any of their
shares of Common Stock for a period of 13 months after the date of this
Prospectus without the prior written consent of the Underwriter.
The Underwriter has informed the Company that the Securities and Exchange
Commission is conducting an investigation concerning various business activities
of the Underwriter and Blair & Co., a selling group member which will distribute
substantially all of the Units offered hereby. The investigation appears to be
broad in scope, involving numerous aspects of the Underwriter's and Blair &
Co.'s compliance with the Federal securities laws and compliance with the
Federal securities laws by issuers whose securities were underwritten by the
Underwriter or Blair & Co., or in which the Underwriter or Blair & Co. made
over-the-counter markets, persons associated with the Underwriter or Blair &
Co., such issuers and other persons. The Company has been advised by the
Underwriter that the investigation has been ongoing since at least 1989 and that
it is cooperating with the investigation. The Underwriter cannot predict whether
this investigation will ever result in any type of formal enforcement action
against the Underwriter or Blair & Co., or, if so, whether any such action might
have an adverse effect on the Underwriter or the securities offered hereby. The
Company has been advised that Blair & Co. will make a market in the securities
following this Offering. An unfavorable resolution of the Commission's
investigation could have the effect of limiting such firm's ability to make a
market in the Company's securities, which could affect the liquidity or price of
such securities.
Prior to this offering, there has been no public market for the Company's
securities. Accordingly, the offering prices of the Units offered hereby and the
terms of the Warrants have been determined by negotiation between the Company
and the Underwriter and are not necessarily related to the Company's asset
value, net worth or other established criteria of value. Among the factors
considered in determining such prices and terms, in addition to prevailing
market conditions, include the history of and the prospects for the industry in
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which the Company competes, the present state of the Company's development and
its future prospects, an assessment of the Company's management and the
Company's capital structure.
The Underwriter has informed the Company that it does not expect sales to
discretionary accounts to exceed 5% of the total number of the Units offered
hereby.
LEGAL MATTERS
Certain legal matters with respect to the Company and the validity of the
securities offered hereby will be passed upon for the Company by Squire, Sanders
& Dempsey L.L.P., Phoenix, Arizona. Certain legal matters will be passed upon
for the Underwriter by Bachner, Tally, Polevoy & Misher, LLP, New York, New
York.
EXPERTS
The balance sheet as of December 31, 1995 and the statements of operations,
stockholders' equity (deficit) and cash flows for the period from November 14,
1994 (date of inception) to December 31, 1994 and for the year ended December
31, 1995, included in this Prospectus have been included herein in reliance on
the report, which includes an explanatory paragraph concerning the substantial
doubt about the Company's ability to continue as a going concern, of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the Units, Warrants and Common
Stock offered hereby. This Prospectus constitutes a part of the Registration
Statement and does not contain all of the information set forth therein and in
the exhibits thereto, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Units, Warrants and Common Stock offered hereby,
reference is hereby make to such Registration Statement and exhibits. Statements
contained in this Prospectus as to the contents of any document are not
necessarily complete and in each instance are qualified in their entirety by
reference to the copy of the appropriate documents filed with the Commission.
The Registration Statement and the reports and other information to be
filed by the Company following the offering in accordance with the Exchange Act
can be inspected and copied at the principal office of the commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, New
York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60601. Copies of such materials may be obtained from the Public
Reference Section of the Commission at its principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the
Commission. In addition, the Commission maintains a website (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Financial Statements:
Balance Sheets as of December 31, 1995 and September 30, 1996 (unaudited)........... F-3
Statements of Operations for the period from November 14, 1994 (date of inception)
to December 31, 1994, for the year ended December 31, 1995, and the nine months
(unaudited) ended September 30, 1995 and 1996.................................... F-4
Statements of Stockholders' Equity (Deficit) for the period from November 14, 1994
(date of inception) to December 31, 1994, for the year ended December 31, 1995,
and the nine months (unaudited) ended September 30, 1996......................... F-5
Statements of Cash Flows for the period from November 14, 1994 (date of inception)
to December 31, 1994, for the year ended December 31, 1995, and for the nine
months (unaudited) ended September 30, 1996...................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Piranha Interactive Publishing, Inc.
We have audited the accompanying balance sheet of Piranha Interactive
Publishing, Inc. (the "Company") as of December 31, 1995, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
period from November 14, 1994 (date of inception) to December 31, 1994 and for
the year ended December 31, 1995. 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 audits 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. An audit 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 Piranha Interactive
Publishing, Inc. as of December 31, 1995, and the results of its operations and
its cash flows for the period from November 12, 1994 (date of inception) to
December 31, 1994 and for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has experienced difficulty in generating
sufficient cash flows from operations which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
November 1, 1996 except for
Note 10 for which the date is
December 10, 1996
F-2
<PAGE> 62
PIRANHA INTERACTIVE PUBLISHING, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $202,216 $ 660
Accounts receivable, net of allowance for returns of $46,541 and
$29,234 and doubtful accounts of $9,195 and $45,000 at
December 31, 1995 and September 30, 1996, respectively........ 137,663 5,250
Inventories...................................................... 143,119 176,428
Prepaid expenses................................................. 8,088 14,062
-------- --------
Total current assets..................................... 491,086 196,400
Property and equipment, net........................................ 25,563 55,822
Other assets....................................................... 4,517 4,350
-------- --------
Total assets............................................. $521,166 $ 256,572
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................. $248,052 $ 375,851
Accrued liabilities.............................................. 5,000 81,005
Notes payable -- officers........................................ 64,108 100,562
Notes payable -- others.......................................... 24,979
-------- --------
Total current liabilities................................ 317,160 582,397
Notes payable -- officers.......................................... 33,000 35,537
Other liabilities.................................................. 3,544 11,632
-------- --------
Total liabilities........................................ 353,704 629,566
-------- --------
Commitments and contingencies (Note 8)
Stockholders' equity (deficit):
Common stock, no par value; 10,000,000 shares authorized;
1,336,479 and 1,200,000 shares issued and outstanding at
December 31, 1995 and September 30, 1996, respectively
Additional paid-in capital....................................... 5,523 4,959
Distributions to stockholders.................................... (22,500) (67,500)
Retained earnings (deficit)...................................... 184,439 (310,453)
-------- --------
Total stockholders' equity (deficit)..................... 167,462 (372,994)
-------- --------
Total liabilities and stockholders' equity (deficit)..... $521,166 $ 256,572
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 63
PIRANHA INTERACTIVE PUBLISHING, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 14, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994,
FOR THE YEAR ENDED DECEMBER 31, 1995, AND THE NINE MONTHS (UNAUDITED) ENDED
SEPTEMBER 30, 1995 AND 1996, RESPECTIVELY
<TABLE>
<CAPTION>
NOVEMBER 14, NINE MONTHS ENDED
1994 -------------------------------
(INCEPTION) TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, 1995 1996
1994 1995 (UNAUDITED) (UNAUDITED)
--------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales.............................. $ $1,342,034 $ 470,184 $ 403,896
Cost of goods sold..................... 900,967 469,245 234,890
-------- ---------- -------- ---------
Gross profit......................... 0 441,067 939 169,006
Selling, general and administrative
expenses............................. 3,704 247,458 56,960 644,994
-------- ---------- -------- ---------
Income (loss) from operations........ (3,704) 193,609 (56,021) (475,988)
Interest expense....................... 5,466 13,722
-------- ---------- -------- ---------
Net income (loss).................... $ (3,704) $ 188,143 $ (56,021) $(489,710)
======== ========== ======== =========
Pro forma net income (loss) data
(unaudited):
Income (loss) before income taxes.... $ (3,704) $ 188,143 $ (56,021) $(489,710)
Pro forma income tax benefit
(expense)......................... 1,556 (79,020) 23,529 53,935
-------- ---------- -------- ---------
Pro forma net income (loss)....... $ (2,148) $ 109,123 $ (32,492) $(435,775)
======== ========== ======== =========
Pro forma net income (loss) per
share............................. $ (0.01) $ 0.26 $ (0.08) $ (1.08)
======== ========== ======== =========
Shares used in pro forma net income
(loss) per share.................. 302,480 417,347 417,196 402,496
======== ========== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 64
PIRANHA INTERACTIVE PUBLISHING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM NOVEMBER 14, 1994 (DATE OF INCEPTION) TO
DECEMBER 31, 1994, FOR THE YEAR ENDED DECEMBER 31, 1995, AND THE
NINE MONTHS (UNAUDITED) ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DISTRIBUTIONS RETAINED
--------------------- PAID-IN TO EARNINGS
SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT) TOTAL
--------- --------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock,
November 14, 1994............ 967,937 $ $4,000 $ $ $ 4,000
Net loss....................... (3,704) (3,704)
--------- --------- ------ -------- --------- ---------
Balance, December 31, 1994..... 967,937 0 4,000 0 (3,704) 296
Issuance of common stock....... 368,542 1,523 1,523
Distributions to
stockholders................. (22,500) (22,500)
Net income..................... 188,143 188,143
--------- --------- ------ -------- --------- ---------
Balance, December 31, 1995..... 1,336,479 0 5,523 (22,500) 184,439 167,462
Distributions to
stockholders................. (45,000) (45,000)
Repurchase of common stock..... (136,479) (564) (5,182) (5,746)
Net loss....................... (489,710) (489,710)
--------- --------- ------ -------- --------- ---------
Balance, September 30, 1996
(Unaudited).................. 1,200,000 $ 0 $4,959 $(67,500) $(310,453) $(372,994)
========= ========= ====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 65
PIRANHA INTERACTIVE PUBLISHING, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM NOVEMBER 14, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994,
FOR THE YEAR ENDED
DECEMBER 31, 1995, AND THE NINE MONTHS (UNAUDITED) ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
NOVEMBER 14, NINE MONTHS
1994 ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, 1996
1994 1995 (UNAUDITED)
-------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ (3,704) $ 188,143 $(489,710)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 37 6,256 10,350
Allowance for bad debts and sales returns........... 55,736 18,498
Net changes in current assets and liabilities:
Accounts receivable............................... (193,399) 113,915
Related party receivables......................... (4,000) 4,000
Inventories....................................... (143,119) (33,309)
Prepaid expenses.................................. (8,088) (5,974)
Accounts payable.................................. 248,052 127,798
Accrued liabilities............................... 5,000 76,005
Other liabilities................................. 3,544 8,088
------- --------- ---------
Net cash provided by (used in) operating
activities................................... (7,667) 166,125 (174,339)
------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment..................... (32,196) (40,443)
Sale of property plant and equipment................... 600
Increase in other assets............................... (1,115) (3,662)
------- --------- ---------
Net cash used in investing activities.......... (1,115) (35,258) (40,443)
------- --------- ---------
Cash flows from financing activities:
Proceeds from notes payable -- officers................ 4,782 92,326 38,992
Proceeds from notes payable............................ 24,979
Issuance of common stock............................... 4,000 1,523
Repurchase of common stock............................. (5,745)
Distributions to stockholders.......................... (22,500) (45,000)
------- --------- ---------
Net cash provided by financing activities...... 8,782 71,349 13,226
------- --------- ---------
Net increase (decrease) in cash and cash equivalents..... 202,216 (201,556)
Cash and cash equivalents, beginning of period........... 202,216
------- --------- ---------
Cash and cash equivalents, end of period................. $ $ 202,216 $ 660
======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 66
PIRANHA INTERACTIVE PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Piranha Interactive Publishing, Inc. (the "Company") was incorporated in
Arizona on November 14, 1994. The Company publishes interactive multimedia
software products providing education and entertainment as well as reference and
personal productivity titles for the home personal computer market. The Company
produces its products by generally licensing software programs being developed
by independent third party developers, imprinting them in media format,
duplicating, packaging, marketing and distributing them.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has experienced difficulty in
generating sufficient cash flows from operations. Management is seeking
additional financing to meet working capital needs for 1996 operations. In
addition, the Company plans to increase revenues through new products while
controlling costs. Since there is no assurance that management will complete
their plans, there is substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a going concern.
Interim Financial Information (Unaudited)
The unaudited interim financial statements for the nine months ended
September 30, 1996 and 1995 have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations in accordance
with generally accepted accounting principles. The results of operations for the
interim periods are not necessarily indicative of the operating results for the
full year.
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 period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the time of
acquisition to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on a first-in, first-out basis. Inventories consist primarily of finished goods,
packaging, supplies and manuals.
F-7
<PAGE> 67
PIRANHA INTERACTIVE PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on
depreciable assets by the straight-line method over estimated useful lives while
leasehold improvements are amortized by the straight-line method over the
shorter of estimated useful lives or the remaining lease terms.
When items are retired or disposed of, the cost and accumulated
depreciation or amortization are removed from the accounts and any gain or loss
is included in the statements of operations.
Organizational Costs
Costs incurred in organizing the Company have been capitalized and are
included in other assets. Organizational costs are being amortized over five
years using the straight-line method.
Revenue Recognition
The Company recognizes revenues upon delivery to customer. The Company's
distributor agreements allow for stock rotation. Reserves are provided for stock
rotation based on industry and past return experience. This reserve is
established at the time of shipment and reduces gross sales to arrive at net
sales as presented in the accompanying statements of operations. The reserve is
reflected as an allowance for returns. It is the policy of the Company's
customers to offset any returns as reductions against payments on accounts
receivable.
Co-op Advertising
Co-op advertising represents credits granted by the Company to its
customers to advertise the Company's products in circulars, catalogs or other
advertisements sponsored by the customer or for special shelf placement or other
types of in-store promotion. Any such advertising is specifically approved by
the Company and the associated costs are expensed as incurred.
Stock-based Compensation
In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation ("FAS
123"), which defines a fair value based method of accounting for employee stock
options or similar equity instruments. However, it also allows an entity to
continue to account for these plans according to Accounting Principles Board
Opinion No. 25 ("APB 25"), provided pro forma disclosures of net income and
earnings per share are made as if the fair value based method of accounting
defined by FAS 123 had been applied. The Company will elect to measure
compensation expense related to employee stock purchase options using APB 25,
and will provide pro forma disclosures as required.
Income Taxes
The Company has elected to be taxed as an S Corporation pursuant to the
Internal Revenue Code which provides that the Company's taxable income or loss
is includable in the tax returns of its shareholders. Therefore, no provision
for income taxes is reflected in the accompanying financial statements.
3. CONCENTRATION OF RISK:
Financial instruments subject to credit risk consist primarily of cash,
cash equivalents, and accounts receivable. At times, the Company's cash
deposited in financial institutions may be in excess of federally insured
limits. In the normal course of business, the Company extends unsecured credit
to its customers.
F-8
<PAGE> 68
PIRANHA INTERACTIVE PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, the Company has certain sales concentrations. As of and for the
year ended December 31, 1995, the following concentrations existed:
Accounts Receivable
One customer comprised approximately 69% of the accounts receivable
balance.
Customer Sales
One customer comprised approximately 96% of net sales for the year ended
December 31, 1995.
Sales By Product
Individually, three products accounted for 43%, 25% and 22%, respectively,
of net sales for the year ended December 31, 1995.
Manufacturing and Distribution
All of the Company's titles are currently pressed, reproduced, and packaged
at third party fulfillment houses. The Company's printed materials are produced
by third party vendors that ship such materials directly to the fulfillment
house for product assembly and packaging. The Company places orders with such
vendors for production of completed products in amounts specified by the Company
based upon forecasted sales. All products are shipped directly to distributors
and retailers by the fulfillment houses. As demand for fulfillment houses is
greatest in the third and fourth quarters due to publishers building inventory
for holiday sales, an unanticipated delay in the manufacture of products,
particularly during the fourth quarter, could result in a material adverse
effect on the Company's financial condition and results of operations. Currently
the Company has been utilizing one fulfillment house.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's financial instruments include cash and cash equivalents,
accounts receivable, accounts payable and notes payable. The carrying amounts of
cash equivalents, accounts receivable and accounts payable approximate fair
value at December 31, 1995 as a result of the short maturity of these
instruments. The carrying value of the notes payable to officers approximates
fair value based on the estimated interest rates for similar types of borrowing
arrangements.
5. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Packaging supplies and manuals................................ $ 40,927
Finished goods................................................ 102,192
--------
$143,119
========
</TABLE>
F-9
<PAGE> 69
PIRANHA INTERACTIVE PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Office furniture.............................................. $ 8,834
Office equipment.............................................. 5,969
Computer equipment............................................ 16,793
-------
31,596
Less accumulated depreciation................................. (6,033)
-------
$ 25,563
=======
</TABLE>
7. RELATED PARTY TRANSACTIONS:
Related party transactions are as follows:
- On January 2, 1995, the Company entered into agreements with certain
officers of the Company. These officers agreed to loan the Company
$30,000 pursuant to various promissory notes bearing interest at 10% and
maturing August 1, 1999. The outstanding principal and interest related
to these notes were $33,000 at December 31, 1995.
- The Company rented office space from an officer of the Company during
1995. Rental expense was approximately $6,000.
- On July 1, 1996, the Company entered into a one-year consulting agreement
with a stockholder who is otherwise unaffiliated with the Company. As
compensation for the stockholder's future services in pursuing and
arranging potential business combinations, the Company has agreed to pay
an amount not to exceed 2.5 percent of the total consideration involved
in such a combination to the stockholder minus any retainer advanced to
the stockholder. The agreement also calls for a $50,000 non-refundable
retainer to be paid in monthly installments over the term of the
agreement and a commitment to grant an option to purchase 12,000 shares
of Common Stock following the adoption of a stock option plan. The
agreement is renewable for one-year terms by mutual consent of the
parties.
8. COMMITMENTS:
Royalties
The Company has entered into several different license and distribution
agreements (the "Agreements") with independent software developers. The
Agreements generally provide that in return for the Company's right to produce,
market and sell certain software products, the developers of these products are
entitled to royalties based on a percentage of the product's net sales. The
Agreements expire through October 2000. Royalty expense for the year ended
December 31, 1995 was $72,547 and was included in the cost of goods sold.
F-10
<PAGE> 70
PIRANHA INTERACTIVE PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Leases
The Company is obligated under a long-term operating lease for its
corporate offices through the year 1999. Annual rent commitments under this
operating lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------------------------------------------------------
<S> <C>
1996.......................................................... $ 34,890
1997.......................................................... 45,234
1998.......................................................... 46,421
1999.......................................................... 43,551
--------
$170,096
========
</TABLE>
Rent expense amounted to $3,804 for the year ended December 31, 1995.
9. UNAUDITED PRO FORMA DATA:
The following pro forma data has been presented on the statements of
operations.
a. Income tax benefit (expense) has been presented as if the Company
was a C corporation. The income tax benefit (expense) was calculated
assuming an effective tax rate of 42%.
The pro forma income tax benefit (expense) consists of:
<TABLE>
<CAPTION>
NOVEMBER 14,
1994 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED -----------------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
-------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Current benefit
(expense):
Federal.............. $1,259 $ (63,969) $ 19,047 $ 43,671
State................ 297 (15,051) 4,482 10,264
------ -------- ------- -------
$1,556 $ (79,020) $ 23,529 $ 53,935
====== ======== ======= =======
</TABLE>
Total pro forma provision for income taxes differs from the "expected"
pro forma tax expense of 34% principally due to state income taxes for all
periods and only partial benefit from the net operating loss for the nine
months ended September 30, 1996. A valuation allowance is required on the
deferred tax asset resulting from the net operating loss for the nine
months ended September 30, 1996 due to the uncertainty surrounding the
realization of such asset.
b. Net income (loss) per share is computed using the weighted average
number of common shares outstanding during each period after giving
retroactive effect to the recapitalization (see Note 10). As the conditions
for release of the escrow shares (see Note 10) have not been met nor will
they be met upon the mere passage of time, the escrow shares have been
considered contingently issuable and, accordingly, have been excluded from
the weighted average number of common shares outstanding.
10. SUBSEQUENT EVENTS:
Proposed Initial Public Offering
The Company signed a letter of intent with an underwriter for a proposed
initial public offering (the "Offering") of 1,200,000 units, consisting of one
share of common stock, one Class A warrant and one Class B warrant. Each Class A
warrant is exercisable at any time during the five years following the date of
the Offering to purchase one share of common stock and one Class B warrant for
$6.50, subject to adjustment.
F-11
<PAGE> 71
PIRANHA INTERACTIVE PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Each Class B warrant is exercisable at any time during the five years following
the date of the Offering to purchase one share of common stock for $8.75,
subject to adjustment. The Company may redeem such warrants at $.05 per warrant
if the Company's stock price meets certain price levels.
The letter of intent also provides that present holders of the Company's
common stock place 825,000 shares in an escrow account to be released only upon
the Company attaining certain minimum earnings thresholds or the market price of
the Company's common stock meeting certain minimum levels. In the event the
requirements for the release of the escrow shares are attained, the Company will
be required to recognize compensation expense based on the share price at the
date of release. On March 31, 2001, all shares still held in escrow will be
forfeited, which shares will then be placed in the Company's treasury for
cancellation thereof as a contribution to capital.
Income Tax Status
Prior to November 15, 1996, the Company elected to be treated as a
Subchapter S Corporation for federal income tax purposes. As such, all tax
liability flowed through to the individual shareholders. Effective November 15,
1996, the Company revoked its Subchapter S Corporation status to become a C
Corporation.
Recapitalization
As of November 22, 1996, the Board of Directors and the stockholders of the
Company approved the reincorporation of the Company from an Arizona corporation
into a Nevada corporation, by means of a merger of the Arizona corporation into
a Nevada corporation, which merger and the reincorporation became effective as
of November 22, 1996. In connection with the merger (i) all outstanding shares
of common stock of the Arizona corporation were exchanged for shares of common
stock of the Nevada corporation on an approximately 242-to-1 basis, (ii) the
authorized common stock was increased and a class of preferred stock was
created, and (iii) the shares of the Company's former common stock, no par
value, were changed into common stock, $.001 par value. The Company's authorized
capital stock now consists of (i) 20,000,000 shares of common stock, $.001 par
value per share, and (ii) 5,000,000 shares of preferred stock, $.001 par value.
All references to the number of common shares outstanding and to per share
information in the financial statements have been adjusted to reflect the
conversion on a retroactive basis.
Bridge Financing
In November and December 1996, the Company completed a bridge financing
("Bridge Financing") consisting of $1,500,000 principal amount of bridge notes
and 750,000 bridge warrants. The bridge notes are payable, together with
interest at the rate of 10% per annum, on the earlier of November 27, 1997 or
the closing of the Offering. The bridge warrants entitle the holders to purchase
one share of common stock for $3.00, but will be exchanged automatically for
750,000 Selling Securityholders' Warrants, each of which will be identical to
the Class A warrants included in the Offering Units.
Additional Agreements
The Underwriter loaned the Company $200,000, which bore interest at the
rate of 10% per annum on November 7, 1996. The loan was repaid out of the
proceeds of the Bridge Financing.
The Company has agreed to sell to the Underwriter, for nominal
consideration, the option to purchase up to 120,000 Units ("Unit Purchase
Option"), substantially identical to the Offering Units. The Unit Purchase
Option will be exercisable during the three-year period commencing two years
from the date of the Offering at an exercise price equal of $6.00 per Unit,
subject to adjustment. The Unit Purchase Options is not transferable for a
period of two years from the date of the Offering except to officers of the
Underwriter or to members of the selling group. The exercise price and all other
terms of any common stock, Class A warrants or Class B warrants issuable to the
Underwriter upon exercise of the Unit Purchase Option will be substantially
identical
F-12
<PAGE> 72
PIRANHA INTERACTIVE PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to those sold in the Offering except that the warrants issued to the Underwriter
are not subject to redemption by the Company.
During the five-year period from November 27, 1996, in the event the
Underwriter originates a financing or a merger, acquisition or transaction to
which the Company is a party, the Underwriter will be entitled to receive a
finder's fee in consideration for origination of such transaction. The fee is
based on a percentage of the consideration paid in the transaction.
During December 1996, the Board of Directors of the Company established the
1996 Stock Option Plan ("1996 Plan") which authorizes them to grant options to
directors, employees and consultants of the Company to purchase shares of common
stock. An aggregate of 200,000 shares of common stock are reserved for issuance
upon exercise of options granted under the 1996 Plan. In general, options
granted under the 1996 Plan are not transferable, expire ten years after date of
grant and the exercise price may not be less than fair market value of common
stock on grant date and no options may be granted with an exercise price less
than the initial public offering price.
On December 13, 1996, the Company issued an option under the 1996 Plan to
purchase 12,000 shares of common stock to a stockholder of the Company (see Note
7) at an exercise price of $5.00 per share. The option becomes fully vested on
September 1, 1997, and may be exercised at any time prior to August 31, 2002.
F-13
<PAGE> 73
- ---------------------------------------------------------
- ---------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS WITH RESPECT TO THE
OFFERING MADE HEREBY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL ANY
OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER. 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 INFORMATION SET FORTH HEREIN OR
IN THE BUSINESS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Use of Proceeds............................ 19
Dividend Policy............................ 20
Dilution................................... 20
Capitalization............................. 21
Selected Financial Data.................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 24
Business................................... 29
Management................................. 40
Certain Transactions....................... 44
Principal Stockholders..................... 45
Concurrent Offering........................ 48
Description of Securities.................. 50
Shares Eligible for Future Sale............ 53
Underwriting............................... 54
Legal Matters.............................. 56
Experts.................................... 56
Available Information...................... 56
Financial Statements....................... F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE UNITS, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
1,200,000 UNITS
PIRANHA LOGO
PIRANHA INTERACTIVE
PUBLISHING, INC.
------------------------
PROSPECTUS
------------------------
D.H. BLAIR INVESTMENT
BANKING CORP.
, 1997
---------------------------------------------------------
---------------------------------------------------------
<PAGE> 74
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[ALTERNATE PROSPECTUS COVER]
SUBJECT TO COMPLETION -- DATED DECEMBER 23, 1996
PROSPECTUS
PIRANHA INTERACTIVE PUBLISHING, INC.
750,000 REDEEMABLE CLASS A WARRANTS TO PURCHASE
750,000 SHARES OF COMMON STOCK
AND 750,000 REDEEMABLE CLASS B WARRANTS TO PURCHASE
750,000 SHARES OF COMMON STOCK
This Prospectus relates to 750,000 redeemable Class A Warrants (the "Class
A Warrants") of Piranha Interactive Publishing, Inc., a Nevada corporation (the
"Company"), issued to investors upon conversion of 750,000 such warrants issued
to such investors (the "Selling Securityholders") in a private placement by the
Company in November and December 1996 (the "Private Placement"), together with
the 750,000 redeemable Class B Warrants (the "Class B Warrants") issuable upon
exercise of the Class A Warrants, and 1,550,000 shares of Common Stock, $.001
par value, of the Company (the "Common Stock") underlying the Class A Warrants
and Class B Warrants. See "Selling Securityholders". Each Class A Warrant
entitles the holder to purchase, at an exercise price of $6.50, subject to
adjustment, one Class B Warrant and one share of Common Stock. Each Class B
Warrant entitles the holder to purchase, at an exercise price of $8.75, subject
to adjustment, one share of Common Stock. The Class A Warrants and the Class B
Warrants (collectively, the "Warrants") are exercisable at any time after
issuance through the fifth anniversary of the date of this Prospectus. The
Warrants are subject to redemption by the Company for $.05 per Warrant, upon 30
days' written notice, if the average closing bid price of the Common Stock
exceeds $9.10 per share with respect to the Class A Warrants and $12.25 per
share with respect to the Class B Warrants (subject to adjustment in each case)
for 30 consecutive business days ending within 15 days of the date the Warrants
are called for redemption. See "Description of Securities".
The securities offered by this Prospectus may be sold from time to time by
the Selling Securityholders, or by their transferees. All of the Class A
Warrants are expected to become freely tradeable commencing 90 days from the
date of this Prospectus, and the securities underlying such Class A Warrants are
expected to become freely tradeable commencing one year from the date of this
Prospectus. See "Concurrent Offering". The distribution of the securities
offered hereby may be effected in one or more transactions that may take place
on the over-the-counter market, including ordinary brokers' transactions,
privately negotiated transactions or through sales to one or more dealers for
resale of such securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Securityholders.
The Selling Securityholders and intermediaries through whom such securities
are sold may be deemed "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Act"), with respect to the securities offered, and any
profits realized or commissions received may be deemed underwriting
compensation. The Company has agreed to indemnify the Selling Securityholders
against certain liabilities, including liabilities under the Act.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders.
On , 1996, the Company filed a Registration Statement under the
Act with respect to a public offering by the Company (the "Offering")
underwritten by D.H. Blair Investment Banking Corp. (the "Underwriter") of
1,200,000 Units, each Unit consisting of one share of Common Stock, one Class A
Warrant and one Class B Warrant, with the Securities and Exchange Commission
(the "Commission"). The Company received approximately $4,885,000 net proceeds
from the offering (assuming no exercise of the Underwriter's over-allotment
option) after payment of underwriting discounts and commissions and estimated
expenses of the offering. In the event the Warrants are fully exercised, the
Company will receive gross proceeds of $34,800,000 (assuming no exercise of the
Underwriter's over-allotment option or the Unit Purchase Option).
------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
IMMEDIATE DILUTION. SEE "RISK FACTORS" AND "DILUTION" BEGINNING ON PAGE
7 OF THIS PROSPECTUS. THESE SECURITIES SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
------------------
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.
The date of this Prospectus is , 1997.
<PAGE> 75
[ALTERNATE PROSPECTUS PAGE]
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 750,000 Class A Warrants, 750,000 shares of Common
Stock, 750,000 Class B Warrants issuable upon exercise of the Class A Warrants
and 750,000 shares of Common Stock issuable upon exercise of the Class B
Warrants may be offered by certain securityholders who received their Class A
Warrants in connection with the Private Placement. See "Capitalization -- Bridge
Financing".
The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering securities for resale
to the public. The Company will not receive any of the proceeds from the sale of
these securities. Except as described below, there are no material relationships
between any of the Selling Securityholders and the Company, nor have any such
material relationships existed within the past three years.
<TABLE>
<CAPTION>
NUMBER OF CLASS A WARRANTS
BENEFICIALLY OWNED AND MAXIMUM
SELLING SECURITYHOLDER NUMBER TO BE SOLD(1)
---------------------------------------------------------- ------------------------------
<S> <C>
Robert P. Adler........................................... 18,750
Brynde Berkowitz.......................................... 18,750
Richard & Beverly Berry, JTWROS........................... 12,500
Benjamin Bollag........................................... 31,250
Michael Bollag Charitable Remainder....................... 25,000
Unitrust
Jacob & Channah Borenstein, JTWROS........................ 25,000
Cohen Family Trust dtd 10/3/80............................ 18,750
Raymond D. Drapkin........................................ 25,000
Rose Eiken................................................ 37,500
Marvin Fischman........................................... 6,250
Yale M. Fishman........................................... 12,500
Robert Foise.............................................. 50,000
Joseph & Zipporah Friedman, JTWROS........................ 6,250
Paul Friedman............................................. 6,250
Barbara Grae.............................................. 12,500
Seth & Beth Grae, JTWROS.................................. 6,250
Melvin Katten............................................. 12,500
Jay Kestenbaum............................................ 25,000
Solomon Kurz.............................................. 12,500
Ben Lehrer................................................ 12,500
Lea & Alfred Mendelsohn, JTWROS........................... 6,250
Albert Milstein........................................... 25,000
Harey N. & Susan G. Mininberg, JTWROS..................... 25,000
Ruth Peyser............................................... 12,500
Marc Roberts.............................................. 12,500
The Rubin Family Foundation, Inc.......................... 18,750
Andrew Schonzeit.......................................... 12,500
E. Donald Shapiro......................................... 12,500
Dvora & Tali Skoczylas, JTWROS............................ 12,500
Miriam Stern.............................................. 12,500
Gary J. Strauss........................................... 18,750
Joel Wolff................................................ 18,750
Wolfson Equities.......................................... 50,000
</TABLE>
A-2
<PAGE> 76
[ALTERNATE PROSPECTUS PAGE]
<TABLE>
<CAPTION>
NUMBER OF CLASS A WARRANTS
BENEFICIALLY OWNED AND MAXIMUM
SELLING SECURITYHOLDER NUMBER TO BE SOLD (1)
---------------------------------------------------------- ------------------------------
<S> <C>
David & Bonnie Anfang, JTWROS............................. 6,250
David James Brown......................................... 50,000
Thomas Dupree, Jr......................................... 25,000
Israel & Joyce Goldberg, JTWROS........................... 6,250
Gloria Maura.............................................. 12,500
Roy & Marlena Schaeffer, JTWROS........................... 12,500
E. Donald Shapiro......................................... 12,500
E&M RP Trust.............................................. 12,500
----------
Total................................................... 750,000
</TABLE>
- ---------------
(1) Does not include shares of Common Stock and Class B Warrants issuable upon
exercise of the Class A Warrants and the shares of Common Stock issuable
upon exercise of the Class B Warrants. The Selling Securityholders have
agreed not to exercise the Class A Warrants being registered hereby for a
period of one year from the date hereof.
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to brokerdealers who may purchase securities as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers for whom such broker-dealers act as agents or to whom they may sell
as principals or otherwise (which compensation as to a particular broker-dealer
may exceed customary commissions).
Under applicable rules and regulations under the Securities Exchange Act of
1934 ("Exchange Act"), any person engaged in the distribution of the Selling
Securityholders' Warrants may not simultaneously engage in market making
activities with respect to any securities of the Company for a period of at
least two (and possibly nine) business days prior to the commencement of such
distribution. Accordingly, in the event the Underwriter of the Company's
offering or D.H. Blair & Co. Inc. ("Blair & Co.") is engaged in a distribution
of the Selling Securityholders' Warrants, neither of such firms will be able to
make a market in the Company's securities during the applicable restrictive
period. However, neither the Underwriter nor Blair & Co. have agreed to nor are
either of them obliged to act as broker/dealer in the sale of the Selling
Securityholders' Warrants and the Selling Securityholders may be required, and
in the event Blair is a marketmaker, will likely be required, to sell such
securities through another broker/dealer. In addition, each Selling
Securityholder desiring to sell Warrants will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rules 10b-6 and 10b-7, which provisions may limit
the timing of the purchases and sales of shares of the Company's securities by
such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
A-3
<PAGE> 77
[ALTERNATE PROSPECTUS PAGE]
PLAN OF DISTRIBUTION
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase securities as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions, or commissions from the Selling Securityholders and/or the
purchasers for whom such broker-dealers act as agents or to whom they may sell
as principals or otherwise (which compensation as to a particular broker-dealer
may exceed customary commissions).
Each Selling Securityholder has agreed (i) not to sell, transfer, or
otherwise dispose of publicly the Selling Securityholders' Warrants except after
the time periods (measured from the closing of this Offering) and in the
percentage amounts set forth below, on a cumulative basis, and (ii) not to
exercise the Selling Securityholders' Warrants for a period of one year after
the closing of this Offering. Purchasers of the Selling Securityholders'
Warrants will not be subject to such restrictions.
<TABLE>
<CAPTION>
PERCENTAGE ELIGIBLE
LOCK-UP PERIOD FOR RESALE
-------------------------------------------------------------------- -------------------
<S> <C>
Before 90 days after closing........................................ 0%
Between 91 and 150 days after closing............................... 25%
Between 151 and 210 days after closing.............................. 50%
Between 211 and 270 days after closing.............................. 75%
After 270 days after closing........................................ 100%
</TABLE>
Under applicable rules and regulations under the Securities Exchange Act of
1934 ("Exchange Act"), any person engaged in the distribution of the Selling
Securityholders' Warrants may not simultaneously engage in market-making
activities with respect to any securities of the Company for a period of at
least two (and possibly nine) business days prior to the commencement of such
distribution. Accordingly, in the event the Underwriter of the Company's
offering or D.H. Blair & Co. Inc. ("Blair & Co.") is engaged in a distribution
of the Selling Securityholders' Warrants, neither of such firms will be able to
make a market in the Company's securities during the applicable restrictive
period. However, neither the Underwriter nor Blair & Co. have agreed to nor are
either of them obliged to act as broker/dealer in the sale of the Selling
Securityholders' Warrants and the Selling Securityholders may be required, and
in the event Blair & Co. is a market-maker, will likely be required, to sell
such securities through another broker/dealer. In addition, each Selling
Securityholder desiring to sell Warrants will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-6 and 10b-7, which provisions may limit
the timing of the purchases and sales of shares of the Company's securities by
such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
A-4
<PAGE> 78
[ALTERNATE PROSPECTUS PAGE]
CONCURRENT OFFERING
On , 1996, the Company filed a Registration Statement under the
Securities Act with respect to an underwritten offering of 1,200,000 Units by
the Company, each Unit consisting of one share of Common Stock, one Class A
Warrant and one Class B Warrant.
A-5
<PAGE> 79
[ALTERNATE PROSPECTUS BACK COVER]
- ---------------------------------------------------------
- ---------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON HAS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE SELLING SECURITYHOLDERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR ANY OFFER TO BUY ANY SECURITY OTHER THAN
THE WARRANTS AND SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE WARRANTS
AND SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED TO DO SO, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO 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
ANY IMPLICATION THAT 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............................. 7
Use of Proceeds.......................... 19
Dividend Policy.......................... 20
Dilution................................. 20
Capitalization........................... 21
Selected Financial Data.................. 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 24
Business................................. 29
Management............................... 40
Certain Transactions..................... 44
Principal Stockholders................... 45
Selling Securityholders and Plan of
Distribution...........................
Concurrent Offering...................... 48
Description of Securities................ 50
Shares Eligible For Future Sale.......... 53
Legal Matters............................ 56
Experts.................................. 56
Available Information.................... 56
Financial Statements..................... F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
PIRANHA LOGO
PIRANHA INTERACTIVE
PUBLISHING, INC.
750,000 REDEEMABLE
CLASS A WARRANTS
750,000 REDEEMABLE
CLASS B WARRANTS
1,500,000 SHARES OF
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1997
---------------------------------------------------------
---------------------------------------------------------
<PAGE> 80
PART II TO FORM SB-2
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 12 of the Company's Articles of Incorporation and Article X of the
Company's Bylaws limit, to the fullest extent permitted by the Nevada General
Corporation law, as amended ("NGCL"), Directors' personal liability to the
Company or its stockholders for monetary damages or breach of fiduciary duty.
Section 78.751 of the NGCL enables a corporation to eliminate or limit personal
liability of members of its board of directors for violations of their fiduciary
duties. However, Nevada law does not permit the elimination of a director's
liability for engaging in any transaction from which the director derived an
improper personal benefit or for unlawfully paying a distribution. The statute
has no effect on the availability of equitable remedies, such as an injunction
or rescission, for breach of fiduciary duty.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses of the
Company in connection with the Offering other than underwriting discounts.
<TABLE>
<S> <C>
SEC Registration Fee.................................................... $ 16,719
NASD Filing Fee......................................................... 6,018
Nasdaq Listing Fee...................................................... 15,000
Legal Fees and Expenses*................................................ 110,000
Accounting Fees and Expenses*........................................... 45,000
Representative's Non-accountable Expense Allowance**.................... 180,000
Printing and Engraving Expenses*........................................ 50,000
Blue Sky Fees and Expenses*............................................. 25,000
Miscellaneous*.......................................................... 67,263
--------
Total.............................................................. $515,000
========
</TABLE>
- ---------------
* Estimated.
** $207,000 if Over-allotment option is exercised in full.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the period commencing November 14, 1994, the Company sold or issued
the securities listed below without registration under the Securities Act of
1933, as amended.
On November 15, 1994, the Company issued (i) 347,489 shares of Common Stock
to Timothy M. Brannan for aggregate consideration of $1,436, (ii) 241,984 shares
of Common Stock to J. Wade Stallings II for aggregate consideration of $1,000,
(iii) 241,984 shares of Common Stock to Keith P. Higginson for aggregate
consideration of $1,000 and (iv) 136,479 shares of Common Stock to Douglas M.
Brannan for aggregate consideration of $564.
On January 1, 1995, the Company issued (i) 136,479 shares of Common Stock
to Wyndi D. Ballard for aggregate consideration of $564, (ii) 136,479 shares of
Common Stock to Richard J. Leitner for aggregate consideration of $564, (iii)
68,240 shares of Common Stock to George W. Gregg for aggregate consideration of
$282 and (iv) 27,344 shares of Common Stock to Karen A. Timmons for aggregate
consideration of $113.
On December 13, 1996, the Company granted an option to purchase 12,000
shares of Common Stock to Milton Cohen, pursuant to a Consulting Agreement dated
July 1, 1996. The per shares exercise price of the options is $5.00.
On November 27, and December 5, 1996, the Company issued an aggregate of 30
Units, each Unit consisting of a Note for $50,000 and warrants, convertible on
closing of this Offering into Class A Warrants, to
II-1
<PAGE> 81
purchase 25,000 shares of Class A Common Stock and one Class B Warrant
exercisable to purchase one share of Class A Common Stock. The aggregate
consideration received by the Company for the Units was $1,500,000, less
placement fees and Placement Agent expenses. All of the Units were sold to
accredited investors, all of whom are the Selling Securityholders identified in
the Alternate Prospectus contained in this Registration Statement.
Unless otherwise noted herein, the issuances of securities in the
transactions described above were deemed to be exempt from registration under
the Act either pursuant to the exemption from registration contained in Section
4(2) thereof, or under the provisions of Regulation D or Rule 701 promulgated
under the Act. Such sales were made solely to investors who represented that
they were accredited investors and to not more than 35 non-accredited investors,
all of whom purchased such securities for investment and not with a view to the
distribution thereof. All sales were made directly by the Company acting through
its Officers and Directors, without any general solicitation or general
advertising. Restrictions have been imposed on the resale of such securities,
including the placement of legends thereon noting such restrictions, and written
disclosure of such restrictions were made prior to issuance of the securities.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------ ------------------------------------------------------------ -------------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Articles of Incorporation of Registrant
3.2 -- Bylaws of Registrant
4.1 -- Form of Certificate for Common Stock **
4.2 -- Form of Class A Warrant **
4.3 -- Form of Class B Warrant **
4.4 -- Form of Bridge Note
4.5 -- Unit Purchase Option
4.6 -- Form of Bridge Warrant
4.7 -- Voting Trust Agreement dated November 13, 1996, among
certain stockholders of the Registrant
4.8 -- Irrevocable Proxy Agreement dated November 13, 1996, among
certain stockholders of the Registrant
5.1 -- Opinion and Consent of Squire, Sanders & Dempsey L.L.P. **
10.1 -- Form of Employment Agreement between Registrant and
Executive Officers
10.2 -- 1996 Stock Option Plan
10.3 -- Software Distribution Agreement between Tech Data and *
Registrant, dated September 23, 1996
10.4 -- Computer Software Distribution Agreement between Navarre *
Corporation and Registrant, dated January 8, 1996
10.5 -- Ingram Micro Start-up Agreement between Ingram Micro Inc. *
and Registrant, dated March 11, 1996
10.6 -- Vendor Agreement between Registrant and American Software *
and Hardware Distributors, Inc., dated April 23, 1996
10.7 -- License Agreement between Registrant and Istvan Pely dated *
October 20, 1995, as amended dated April 12, 1996
10.8 -- Software Manufacturing and Distribution Agreement between *
Registrant and Zane Publishing, Inc., dated August 30, 1995,
as amended dated March 29, 1996, as further amended November
22, 1996
10.9 -- License Agreement between Registrant and Cambrix Publishing, *
Inc., dated May 21, 1996
</TABLE>
II-2
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------ ------------------------------------------------------------ -------------------
<C> <C> <S> <C>
10.10 -- Lease Agreement between Registrant and Phoenix Newspapers,
Inc., dated December 15, 1995
10.11 -- Merger and Acquisition Agreement between Registrant and D.H.
Blair Investment Banking Corp., dated November 27, 1996
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Squire, Sanders & Dempsey L.L.P. Included in Exhibit
5.1
24 -- Powers of Attorney See Signature Page
99.1 -- Consent of Ian D. Berman
99.2 -- Consent of Michael D. Flink
</TABLE>
- ---------------
* This document has been filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment. An excised
version of the documents is being filed as an exhibit hereto.
** To be filed by Amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
ITEM 28. UNDERTAKINGS.
1. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission ("SEC") such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer 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
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act, and will be governed by the final
adjudication of such issue.
2. The undersigned small business issuer will: (i) for determining any
liability under the Act, treat the information omitted from the form of
prospectus filed as a part of this Registration Statement in reliance upon Rule
430A and contained in a form or prospectus filed by the small business issuer
under Rule 424(b)(1), or (4) or 497(h) under the Act as part of this
Registration Statement as of the time the SEC declared it effective and (ii) for
determining any liability under the Act, treat each post-effective amendment
that contains a form of prospectus as a new registration statement, and that
offering of the securities at that time as the initial bona fide offering of
those securities.
3. The undersigned small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar volume of securities offered would
not exceed that which was registered) and any deviations from
the low or high end of the estimated maximum offering range may
be
II-3
<PAGE> 83
reflected in the form of prospectus filed with the SEC pursuant
to Rule 424(b) if, in the aggregate, the changes in the volume
and price represent no more that a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
4. The undersigned small business issuer will provide to the underwriter at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-4
<PAGE> 84
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 of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Phoenix
and State of Arizona on December , 1996.
PIRANHA INTERACTIVE PUBLISHING, INC.,
a Nevada corporation
By:
----------------------------------------
Timothy M. Brannan
Chairman of the Board and President
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, constitutes
and appoints Timothy M. Brannan, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all pre and
post-effective amendments (including all amendments filed pursuant to Rule
462(b)) to this Form SB-2 Registration Statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting such attorney-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorney-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed below by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------- ----------------------------- -------------------
<S> <C> <C>
Chairman of the Board and , 1996
----------------------------------------- President (Principal
Timothy M. Brannan Executive Officer)
Vice President, Chief , 1996
----------------------------------------- Financial Officer and
Keith P. Higginson Director (Principal Financial
and Accounting Officer)
Vice President and Director , 1996
-----------------------------------------
J. Wade Stallings, II
</TABLE>
II-5
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------ ------------------------------------------------------------ -------------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Articles of Incorporation of Registrant
3.2 -- Bylaws of Registrant
4.1 -- Form of Certificate for Common Stock **
4.2 -- Form of Class A Warrant **
4.3 -- Form of Class B Warrant **
4.4 -- Form of Bridge Note
4.5 -- Unit Purchase Option
4.6 -- Form of Bridge Warrant
4.7 -- Voting Trust Agreement dated November 13, 1996, among
certain stockholders of the Registrant
4.8 -- Irrevocable Proxy Agreement dated November 13, 1996, among
certain stockholders of the Registrant
5.1 -- Opinion and Consent of Squire, Sanders & Dempsey L.L.P. **
10.1 -- Form of Employment Agreement between Registrant and
Executive Officers
10.2 -- 1996 Stock Option Plan
10.3 -- Software Distribution Agreement between Tech Data and *
Registrant, dated September 23, 1996
10.4 -- Computer Software Distribution Agreement between Navarre *
Corporation and Registrant, dated January 8, 1996
10.5 -- Ingram Micro Start-up Agreement between Ingram Micro Inc. *
and Registrant, dated March 11, 1996
10.6 -- Vendor Agreement between Registrant and American Software *
and Hardware Distributors, Inc., dated April 23, 1996
10.7 -- License Agreement between Registrant and Istvan Pely dated *
October 20, 1995, as amended dated April 12, 1996
10.8 -- Software Manufacturing and Distribution Agreement between *
Registrant and Zane Publishing, Inc., dated August 30, 1995,
as amended dated March 29, 1996, as further amended November
22, 1996
10.9 -- License Agreement between Registrant and Cambrix Publishing, *
Inc., dated May 21, 1996
10.10 -- Lease Agreement between Registrant and Phoenix Newspapers,
Inc., dated December 15, 1995
10.11 -- Merger and Acquisition Agreement between Registrant and D.H.
Blair Investment Banking Corp., dated November 27, 1996
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Squire, Sanders & Dempsey L.L.P. Included in Exhibit
5.1
24 -- Powers of Attorney See Signature Page
99.1 -- Consent of Ian D. Berman
99.2 -- Consent of Michael D. Flink
</TABLE>
- ---------------
* This document has been filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment. An excised
version of the documents is being filed as an exhibit hereto.
** To be filed by Amendment.
II-6
<PAGE> 1
EXHIBIT 1.1
1,200,000 Units
(each Unit consisting of (i) one share of Common
Stock, par value $.001 per share; (ii) one redeemable
Class A warrant to purchase
one share of Common Stock and one redeemable Class B warrant
and (iii) one redeemable Class B warrant)
PIRANHA INTERACTIVE PUBLISHING, INC.
UNDERWRITING AGREEMENT
D.H. Blair Investment Banking Corp. December , 1996
44 Wall Street
New York, New York 10005
PIRANHA INTERACTIVE PUBLISHING, INC., a Nevada corporation
(the "Company"), proposes to issue and sell to D.H. Blair Investment Banking
Corp. (the "Underwriter") subject to the terms and conditions of this
Underwriting Agreement (the "Agreement"), an aggregate of 1,200,000 Units, each
unit being hereinafter referred to as a "Unit" and consisting of (i) one shares
of Common Stock, par value $.001 per share, ("Shares"), (ii) one redeemable
Class A warrant ("Class A Warrant") to purchase one share of Common Stock and
one redeemable Class B warrant ("Class B Warrant") at a price of $6.50 from
, 1997 to , 2002 and (iii) one Class B Warrant
exercisable to purchase one share of Class A Common Stock for $8.75 from
, 1997 to , 2002. The Class A Warrants and Class B
Warrants are collectively referred to as the "Warrants". The Warrants are
subject to redemption, in certain instances commencing one year from the date of
this Agreement. In addition, the Company proposes to grant to the Underwriter,
the option referred to in Section 2(b) to purchase all or any part of an
aggregate of 150,000 additional Units. Unless the context otherwise indicates,
the term "Units" shall include the 150,000 additional Units referred to above.
The aggregate of 1,200,000 Units to be sold by the Company,
together with all or any part of the 180,000 Units which the Underwriter has the
option to purchase, and the Shares and the Warrants comprising such Units, are
herein called the "Units." The Common Stock of the Company to be outstanding
after giving effect to the sale of the Shares is herein called the "Common
Stock." The Shares and Warrants included in the Units (including the Units which
the Underwriter has the option to purchase) are herein collectively called the
"Securities."
You have advised the Company that you desire to purchase the
Units. The Company confirms the agreements made by it with respect to the
purchase of the Units by you as follows:
-1-
<PAGE> 2
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement (File No. 333- ) on
Form SB-2 relating to the public offering of the Units, including a form of
prospectus subject to completion, copies of which have heretofore been delivered
to you, has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the Commission
under the Act and one or more amendments to such registration statement may have
been so filed. After the execution of this Agreement, the Company will file with
the Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act,
either (A) if the Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Units that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under the
Act or (B) if the Company does not rely on Rule 434 under the Act a prospectus
in the form most recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule 430A under
the Act or permitted by Rule 424(b) under the Act and in the case of either
clause (i)(A) or (i)(B) of this sentence, as has been provided to and approved
by the Underwriter prior to the execution of this Agreement, or (ii) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Underwriter prior to the execution of this
Agreement.
As used in this Agreement, the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules and exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A under the Act
and included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means (A) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Units that is first filed pursuant to Rule 424(b)(7) under
the Act, together with the Preliminary Prospectus identified therein that such
Term Sheet supplements; (B) if the Company does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or (C) if the Company does not rely on Rule 434 under the Act and
if no prospectus is required to be filed pursuant to said Rule 424(b), such term
means the prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as
-2-
<PAGE> 3
hereinafter defined), the terms "Registration Statement" and "Prospectus" shall
include such registration statement and prospectus as so amended, and the term
"Prospectus" shall include the prospectus as so supplemented, or both, as the
case may be; and the term "Term Sheet" means any term sheet that satisfies the
requirements of Rule 434 under the Act. Any reference to the "date" of a
Prospectus that includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus. At the time the
Registration Statement becomes effective and at all times subsequent thereto up
to and on the Closing Date (as hereinafter defined) or the Option Closing Date,
as the case may be, (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus on page 2 with respect to stabilization,
under the heading "Underwriting" and the identity of counsel to the Underwriter
under the heading "Legal Matters" constitute the only information furnished in
writing by or on behalf of the several Underwriter for inclusion in the
Registration Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with full power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus and is
duly qualified to do business as a foreign corporation and is in good standing
in all other jurisdictions in which the nature of its business or the character
or location of its properties requires such qualification, except where failure
to so qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding capital stock of
the Company as of , 1997 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and are
fully paid and non-assessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered into by the
Company; and the capital stock conforms to all statements relating thereto
contained in the Registration Statement and Prospectus.
(e) The Units and the Shares are duly authorized, and when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and
-3-
<PAGE> 4
nonassessable and free of preemptive rights of any security holder of the
Company. Neither the filing of the Registration Statement nor the offering or
sale of the Units as contemplated in this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock, except as described in the
Registration Statement.
The Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement, will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock issuable
upon exercise of the Warrants have been reserved for issuance upon the exercise
of the Warrants and when issued in accordance with the terms of the Warrants and
Warrant Agreement, will be duly and validly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights and no personal liability
will attach to the ownership thereof. The Warrant Agreement has been duly
authorized and, when executed and delivered pursuant to this Agreement, will
have been duly executed and delivered and will constitute the valid and legally
binding obligation of the Company enforceable in accordance with its terms. The
Warrants and the Warrant Agreement conform to the respective descriptions
thereof in the Registration Statement and Prospectus.
The Shares and the Warrants contained in the Unit Purchase
Option have been duly authorized and, when duly issued and delivered, such
Warrants will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms and entitled to the benefits provided
by the Unit Purchase Option. The Shares included in the Unit Purchase Option
(and the shares of Common Stock issuable upon exercise of such Warrants) when
issued and sold, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights and no personal liability will
attach to the ownership thereof.
(f) This Agreement, the Unit Purchase Option, the M/A
Agreement, the Consulting Agreement and the Escrow Agreement have been duly and
validly authorized, executed and delivered by the Company. The Company has full
power and lawful authority to authorize, issue and sell the Units to be sold by
it hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Units or the Unit Purchase Option, except
such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, the
Company is not in violation, breach or default of or under, and consummation of
the transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or
-4-
<PAGE> 5
result in the creation or imposition of any lien, charge or encumbrance upon any
of the property or assets of the Company pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
any of the property or assets of the Company is subject, nor will such action
result in any violation of the provisions of the articles of incorporation or
the by-laws of the Company, as amended, or any statute or any order, rule or
regulation applicable to the Company of any court or of any regulatory authority
or other governmental body having jurisdiction over the Company.
(h) Subject to the qualifications stated in the
Prospectus, the Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to its business; all of the material leases
and subleases under which the Company is the lessor or sublessor of properties
or assets or under which the Company holds properties or assets as lessee or
sublessee as described in the Prospectus are in full force and effect, and,
except as described in the Prospectus, the Company is not in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone adverse to rights
of the Company as lessor, sublessor, lessee or sublessee under any of the leases
or subleases mentioned above, or affecting or questioning the right of the
Company to continued possession of the leased or subleased premises or assets
under any such lease or sublease except as described or referred to in the
Prospectus; and the Company owns or leases all such properties described in the
Prospectus as are necessary to its operations as now conducted and, except as
otherwise stated in the Prospectus, as proposed to be conducted as set forth in
the Prospectus.
(i) Coopers & Lybrand LLP, independent auditors, who
have given their reports on certain financial statements filed and to be filed
with the Commission as a part of the Registration Statement, which are
incorporated in the Prospectus, are with respect to the Company, independent
public accountants as required by the Act and the Rules and Regulations.
(j) The financial statements, and Schedules together
with related notes, set forth in the Prospectus (or if the Prospectus is not in
existence, the most recent Preliminary Prospectus) or the Registration Statement
present fairly the financial position and results of operations and changes in
cash flow position of the Company on the basis stated in the Registration
Statement, at the respective dates and for the respective periods to which they
apply. Said statements and Schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent during the periods involved. The information set forth under
the captions "Dilution", "Capitalization", and "Selected Financial Data" in the
Prospectus fairly present, on the basis stated in the Prospectus, the
information included therein.
-5-
<PAGE> 6
(k) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), the
Company has not incurred any liabilities or obligations, direct or contingent,
not in the ordinary course of business, or entered into any transaction not in
the ordinary course of business, which is material to the business of the
Company, and there has not been any change in the capital stock of, or any
incurrence of short-term or long-term debt by, the Company or any issuance of
options, warrants or other rights to purchase the capital stock of the Company
or any adverse change or any development involving, so far as the Company can
now reasonably foresee a prospective adverse change in the condition (financial
or other), net worth, results of operations, business, key personnel or
properties of it which would be material to the business or financial condition
of the Company and the Company has not become a party to, and neither the
business nor the property of the Company has become the subject of, any material
litigation whether or not in the ordinary course of business.
(l) Except as set forth in the Prospectus, there is
not now pending or, to the knowledge of the Company, threatened, any action,
suit or proceeding to which the Company is a party before or by any court or
governmental agency or body, which might result in any material adverse change
in the condition (financial or other), business prospects, net worth, or
properties of the Company, nor are there any actions, suits or proceedings
related to environmental matters or related to discrimination on the basis of
age, sex, religion or race; and no labor disputes involving the employees of the
Company exist or are imminent which might be expected to adversely affect the
conduct of the business, property or operations or the financial condition or
results of operations of the Company.
(m) Except as disclosed in the Prospectus, the
Company has filed all necessary federal, state and foreign income and franchise
tax returns and has paid all taxes shown as due thereon; and there is no tax
deficiency which has been or to the knowledge of the Company might be asserted
against the Company.
(n) The Company has sufficient licenses, permits and
other governmental authorizations currently required for the conduct of its
business or the ownership of its properties as described in the Prospectus and
is in all material respects complying therewith and owns or possesses adequate
rights to use all material patents, patent applications, trademarks, service
marks, trade-names, trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of such business and had not
received any notice of conflict with the asserted rights of others in respect
thereof. To the best knowledge of the Company, none of the activities or
business of the Company are in violation of, or cause the Company to violate,
any law, rule, regulation or order of the United States, any state, county or
locality, or of any agency or body of the United States or of any state, county
or locality, the violation of which would have a material adverse impact upon
the condition (financial or otherwise), business, property, prospective results
of operations, or net worth of the Company.
-6-
<PAGE> 7
(o) The Company has not, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(p) On the Closing Dates (hereinafter defined) all
transfer or other taxes, (including franchise, capital stock or other tax, other
than income taxes, imposed by any jurisdiction) if any, which are required to be
paid in connection with the sale and transfer of the Units to the Underwriter
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts and other documents of the Company
which are, under the Rules and Regulations, required to be filed as exhibits to
the Registration Statement have been so filed.
(r) The Company has not taken and will not take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Units hereby.
(s) The Company has no subsidiaries.
(t) The Company has not entered into any agreement
pursuant to which any person is entitled either directly or indirectly to
compensation from the Company for services as a finder in connection with the
proposed public offering.
(u) Except as previously disclosed in writing by the
Company to the Underwriter, no officer, director or stockholder of the Company
has any affiliation or association with any member of the National Association
of Securities Dealers Inc. ("NASD").
(v) The Company is not, and upon receipt of the
proceeds from the sale of the Units will not be, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(w) The Company has not distributed and will not
distribute prior to the First Closing Date any offering material in connection
with the offering and sale of the Units other than the Preliminary Prospectus,
Prospectus, the Registration Statement or the other materials permitted by the
Act, if any.
-7-
<PAGE> 8
(x) The conditions for use of Form SB-2, as set forth
in the General Instructions thereto, have been satisfied.
(y) There are no business relationships or
related-party transactions of the nature described in Item 404 of Regulation
S-B2 involving the Company, the Subsidiaries and any person described in such
Item that are required to be disclosed in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) and that have not
been so disclosed.
2. Purchase, Delivery and Sale of the Units.
(a) Subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties, and agreements
herein contained, the Company agrees to issue and sell to the Underwriter, and
the Underwriter agrees to buy from the Company at $5.00 per Unit, at the place
and time hereinafter specified of 1,200,000 Units (the "First Units").
Delivery of the First Units against payment therefor
shall take place at the offices of D.H. Blair Investment Banking Corp., 44 Wall
Street, New York, N.Y. (or at such other place as may be designated by agreement
between you and the Company) at 10:00 a.m., New York time, on , 1997,
or at such later time and date as you may designate, such time and date of
payment and delivery for the First Units being herein called the "First
Closing Date."
(b) In addition, subject to the terms and conditions
of this Agreement, and upon the basis of the representations, warranties and
agreements herein contained, the Company hereby grants an option to the
Underwriter (or, at its option, to the Representative, individually) to purchase
all or any part of an aggregate of an additional 150,000 Units at the same price
per Unit as the Underwriter shall pay for the First Units being sold pursuant to
the provisions of subsection (a) of this Section 2 (such additional Units being
referred to herein as the "Option Units"). This option may be exercised within
45 days after the effective date of the Registration Statement upon notice by
the Underwriter to the Company advising as to the amount of Option Units as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Units are to be registered and the time and date
when such certificates are to be delivered. Such time and date shall be
determined by the Underwriter but shall not be earlier than four nor later than
ten full business days after the exercise of said option, nor in any event prior
to the First Closing Date, and such time and date is referred to herein as the
"Option Closing Date." Delivery of the Option Units against payment therefor
shall take place at the offices of D.H. Blair Investment Banking Corp., 44 Wall
Street, New York, N.Y. The Option granted hereunder may be exercised only to
cover overallotments in the sale by the Underwriter of First Units referred to
in subsection (a) above. In the event the Company declares or pays a dividend or
distribution on its Common Stock, whether in the form of cash,
-8-
<PAGE> 9
shares of Common Stock or any other consideration, prior to the Option Closing
Date, such dividend or distribution shall also be paid on the Option Units on
the Option Closing Date.
(c) The Company will make the certificates for the
securities comprising the Units to be purchased by the Underwriter hereunder
available to you for checking at least two full business days prior to the First
Closing Date or the Option Closing Date (which are collectively referred to
herein as the "Closing Dates"). The certificates shall be in such names and
denominations as you may request, at least two full business days prior to the
Closing Dates. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of each
Underwriter.
Definitive certificates in negotiable form for the
Units to be purchased by the Underwriter hereunder will be delivered by the
Company to you against payment of the purchase price by you, by certified or
bank cashier's checks in New York Clearing House funds, payable to the order of
the Company.
In addition, in the event the Underwriter exercises
the option to purchase from the Company all or any portion of the Option Units
pursuant to the provisions of subsection (b) above, payment for such Units shall
be made to or upon the order of the Company by certified or bank cashier's
checks payable in New York Clearing House funds at the offices of D.H. Blair
Investment Banking Corp., at the time and date of delivery of such Units as
required by the provisions of subsection (b) above, against receipt of the
certificates for such Units by the Underwriter registered in such names and in
such denominations as the Representative may request.
It is understood that the Underwriter proposes to
offer the Units to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
3. Covenants of the Company. The Company covenants and agrees
with the Underwriter that:
(a) The Company will use its best efforts to cause
the Registration Statement to become effective as promptly as possible. If
required, the Company will file the Prospectus or any Term Sheet that
constitutes a part thereof and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rules 434 and
424(b) under the Act. Upon notification from the Commission that the
Registration Statement has become effective, the Company will so advise you and
will not at any time, whether before or after the effective date, file the
Prospectus, Term Sheet or any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you or your counsel shall have objected in
writing or which is not in compliance with the Act and the Rules and
Regulations. At any time prior to the
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<PAGE> 10
later of (A) the completion by the Underwriter of the distribution of the Units
contemplated hereby (but in no event more than nine months after the date on
which the Registration Statement shall have become or been declared effective)
and (B) 25 days after the date on which the Registration Statement shall have
become or been declared effective, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in your opinion, may be necessary or
advisable in connection with the distribution of the Units.
As soon as the Company is advised thereof, the
Company will advise you, and confirm the advice in writing, of the receipt of
any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order or
threat thereof suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Units for offering in any jurisdiction,
or of the institution of any proceedings for any of such purposes, and will use
its est efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company authorizes
the Underwriter and dealers to use the Prospectus in connection with the sale of
the Units for such period as in the opinion of counsel to the Underwriter the
use thereof is required to comply with the applicable provisions of the Act and
the Rules and Regulations. In case of the happening, at any time within such
period as a Prospectus is required under the Act to be delivered in connection
with sales by an underwriter or dealer of any event of which the Company has
knowledge and which materially affects the Company or the securities of the
Company, or which in the opinion of counsel for the Company or counsel for the
Underwriter should be set forth in an amendment of the Registration Statement or
a supplement to the Prospectus in order to make the statements therein not then
misleading, in light of the circumstances existing at the time the Prospectus is
required to be delivered to a purchaser of the Units or in case it shall be
necessary to amend or supplement the Prospectus to comply with law or with the
Rules and Regulations, the Company will notify you promptly and forthwith
prepare and furnish to you copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus
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<PAGE> 11
shall be without expense to the Underwriter, except that in case the Underwriter
is required, in connection with the sale of the Units to deliver a Prospectus
nine months or more after the effective date of the Registration Statement, the
Company will upon request of and at the expense of the Underwriter, amend or
supplement the Registration Statement and Prospectus and furnish the Underwriter
with reasonable quantities of prospectuses complying with Section 10(a)(3) of
the Act.
The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934 and the rules and
regulations thereunder in connection with the offering and issuance of the
Units.
(b) The Company will use its best efforts to qualify
to register the Units for sale under the securities or "blue sky" laws of such
jurisdictions as the Underwriter may designate and will make such applications
and furnish such information as may be required for that purpose and to comply
with such laws, provided the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Units. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as the Underwriter
may reasonably request.
(c) If the sale of the Units provided for herein is
not consummated for any reason caused by the Company, the Company shall pay all
costs and expenses incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in Section
8, including the accountable expenses of the Underwriter.
(d) The Company will use its best efforts to (i)
cause a registration statement under the Securities Exchange Act of 1934 to be
declared effective concurrently with the completion of this offering and will
notify the Underwriter in writing immediately upon the effectiveness of such
registration statement, and (ii) if requested by the Underwriter, to obtain a
listing on the Pacific Stock Exchange and to obtain and keep current a listing
in the Standard & Poors or Moody's Industrial OTC Manual.
(e) For so long as the Company is a reporting company
under either Section 12(g) or 15(d) of the Securities Exchange Act of 1934, the
Company, at its expense, will furnish to its stockholders an annual report
(including financial statements audited by independent public accountants), in
reasonable detail and at its expense, will furnish to you during the period
ending five (5) years from the date hereof, (i) as soon as practicable after the
end of each fiscal year, a balance sheet of the Company and any of its
subsidiaries as at the end of such fiscal year, together with statements of
income, surplus and cash flow of the Company and any subsidiaries for such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as
practicable after the
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<PAGE> 12
end of each of the first three fiscal quarters of each fiscal year, consolidated
summary financial information of the Company for such quarter in reasonable
detail; (iii) as soon as they are available, a copy of all reports (financial or
other) mailed to security holders; (iv) as soon as they are available, a copy of
all non-confidential reports and financial statements furnished to or filed with
the Commission or any securities exchange or automated quotation system on which
any class of securities of the Company is listed; and (v) such other information
as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary
or subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to the Underwriter at or
before the First Closing Date two signed copies of the Registration Statement
including all financial statements and exhibits filed therewith, and of all
amendments thereto, and will deliver to the Underwriter such number of conformed
copies of the Registration Statement, including such financial statements but
without exhibits, and of all amendments thereto, as the Underwriter may
reasonably request. The Company will deliver to or upon the order of the
Underwriter, from time to time until the effective date of the Registration
Statement, as many copies of any Preliminary Prospectus filed with the
Commission prior to the effective date of the Registration Statement as the
Underwriter may reasonably request. The Company will deliver to the Underwriter
on the effective date of the Registration Statement and thereafter for so long
as a Prospectus is required to be delivered under the Act, from time to time, as
many copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriter may from time to time reasonably request. The
Company, not later than (i) 5:00 p.m., New York City time, on the date of
determination of the public offering price, if such determination occurred at or
prior to 12:00 noon, New York City time, on such date or (ii) 6:00 p.m., New
York City time, on the business day following the date of determination of the
public offering price, if such determination occurred after 12:00 noon, New York
City time, on such date, will deliver to the Underwriter, without charge, as
many copies of the Prospectus and any amendment or supplement thereto as the
Underwriter may reasonably request for purposes of confirming orders that are
expected to settle on the First Closing Date.
(h) The Company will make generally available to its
security holders and to the registered holders of its Warrants and deliver to
you as soon as it is practicable to do so but in no event later than 90 days
after the end of twelve months after its current fiscal quarter, an earnings
statement (which need not be audited) covering a period of at least twelve
consecutive months beginning after the effective date of the Registration
Statement, which shall satisfy the requirements of Section 11(a) of the Act.
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<PAGE> 13
(i) The Company will apply the net proceeds from the
sale of the Units for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(j) The Company will, promptly upon your request,
prepare and file with the Commission any amendments or supplements to the
Registration Statement, Preliminary Prospectus or Prospectus and take any other
action, which in the reasonable opinion of Bachner, Tally, Polevoy & Misher LLP,
counsel to the Underwriter, may be reasonably necessary or advisable in
connection with the distribution of the Units, and will use its best efforts to
cause the same to become effective as promptly as possible.
(k) The Company will reserve and keep available that
maximum number of its authorized but unissued securities which are issuable upon
exercise of the Unit Purchase Option outstanding from time to time.
(l) For a period of 13 months from the First Closing
Date, no present stockholders of the Company (except for stockholders who at the
date hereof hold an aggregate of not more than 2% of the Company's common
Stock), and no officer or director of the Company, will directly or indirectly,
offer, sell (including any short sale), grant any option for the sale of,
acquire any option to dispose of, or otherwise dispose of any shares of Common
Stock without the prior written consent of the Underwriter. In order to enforce
this covenant, the Company shall obtain lock-up letters in form satisfactory to
the Underwriter and impose stop-transfer instructions with respect to the shares
owned by such officer, director or stockholder until the end of such period.
(m) Prior to completion of this offering, the Company
will make all filings required, including registration under the Securities
Exchange Act of 1934, to obtain the listing of the Units, Common Stock, and
Warrants on the Nasdaq Small Cap Market (or a listing on such other market or
exchange as the Underwriter consent to), and will effect and maintain such
listing for at least five years from the date of this Agreement.
(n) The Company and each of the Principal
Stockholders represents that it or he has not taken and agree that it or he will
not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Units, Shares or the Warrants
or to facilitate the sale or resale of the Securities.
(o) On the Closing Date and simultaneously with the
delivery of the Units, the Company shall execute and deliver to you the Unit
Purchase Option. The Unit Purchase Option will be substantially in the form of
the Representative's Unit Purchase Option filed as an Exhibit to the
Registration Statement.
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<PAGE> 14
(p) During the 18 month period commencing on the date
of this Agreement, the Company will not, without the prior written consent of
the Underwriter, grant options to purchase shares of Common Stock at an exercise
price less than the greater of (i) the initial public offering price of the
Units (without allocating any value to the Warrants); (ii) the fair market value
of the Common Stock on the date of grant or issue any shares of Common Stock to
its employees, officers, directors or consultants, at less than the greater of
such prices. During the three year period from the First Closing Date, the
Company will not, without the prior written consent of the Underwriter, offer or
sell any of its securities pursuant to Regulation S under the Act; (iii) grant
registration rights to any person which are exercisable sooner than 13 months
from the First Closing Date; (iv) issue any securities which have per share
voting rights greater than the voting rights of the Shares (or take any
corporate action which would have this effect) or (v) during the 18 month period
commencing on the date of this Agreement, enter into any agreement or
arrangement with any investment banking firm other than the Underwriter relating
to investment banking, corporate finance, merger and aquisition or other similar
advisory or consulting services.
(q) Timothy M. Brannan shall be President and Keith
Higginson shall be the Chief Financial Officer of the Company on the Closing
Dates. The Company has obtained key person life insurance on the lives of each
of Messrs. Timothy M. Brannan, Keith Higginson, Wade Stallings and Douglas
Brannan in an amount of not less than $2 million and will use its best efforts
to maintain such insurance during the period commencing with the First Closing
and ending on the three year anniversary of such date or the term of employment
of such individuals, whichever is later. In the event such term of employment is
less than three years, the Company will obtain a comparable policy on the life
of the such individual's successor for the balance of the three year period. For
a period of thirteen months from the First Closing Date, the compensation of the
executive officers of the Company shall not be increased from the compensation
levels disclosed in the Prospectus.
(r) On the Closing Date and simultaneously with the
delivery of the Units the Company shall execute and deliver to you an agreement
with you regarding mergers, acquisitions, joint ventures and certain other forms
of transactions, in the form previously delivered to the Company by you (the
"M/A Agreement").
(s) So long as any Warrants are outstanding, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter and
dealer as many copies of each such Prospectus as the Underwriter or dealer may
reasonably request. The Company shall not call for redemption any of the
Warrants unless a registration statement covering the securities underlying the
Warrants has been declared effective by the Commission and remains current at
least until the date fixed for redemption. In addition, for so long as any
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<PAGE> 15
Warrant is outstanding, the Company will promptly notify the Underwriter of any
material change in the business, financial condition or prospects of the
Company.
(t) Upon the exercise of any Warrant or Warrants
after , 199 , the Company will pay D.H. Blair Investment Banking Corp. a
fee of 5% of the aggregate exercise price of the Warrants, a portion of which
may be reallowed to the dealer who solicited the exercise (which may also be the
Underwriter) if (i) the market price of the Company's Common Stock is greater
than the exercise price of the Warrants on the date of exercise; (ii) the
exercise of the Warrant was solicited by a member of the National Association of
Securities Dealers, Inc., (iii) the Warrant is not held in a discretionary
account; (iv) the disclosure of compensation arrangements has been made in
documents provided to customers, both as part of the original offering and at
the time of exercise, and (v) the solicitation of the Warrant was not in
violation of Rule 10b-6 promulgated under the Securities Exchange Act of 1934,
as amended. The Company agrees not to solicit the exercise of any Warrants other
than through D.H. Blair Investment Banking Corp. and will not authorize any
other dealer to engage in such solicitation without the prior written consent of
D.H. Blair Investment Banking Corp..
(u) For a period of five (5) years from the Effective
Date the Company (i) at its expense, shall cause its regularly engaged
independent certified public accountants to review (but not audit) the Company's
financial statements for each of the first three (3) fiscal quarters prior to
the announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders and (ii) shall not change its accounting firm without the prior
written consent of the Chairman or the President of the Underwriter.
(v) As promptly as practicable after the Closing
Date, the Company will prepare, at its own expense, hard cover "bound volumes"
relating to the offering, and will distribute at least four of such volumes to
the individuals designated by the Representative or counsel to the Underwriter.
(w) For a period of five years from the First Closing
Date (i) the Underwriter shall have the right, but not the obligation, to
designate one director of the Board of Directors of the Company and (ii) the
Company shall engage a public relations firm acceptable to the Underwriter.
(x) The Company shall, for a period of six years
after date of this Agreement, submit which reports to the Secretary of the
Treasury and to stockholders, as the Secretary may require, pursuant to Section
1202 of the Internal Revenue Code, as amended, or regulations promulgated
thereunder, in order for the Company to qualify as a "small business" so that
stockholders may realize special tax treatment with respect to their investment
in the Company.
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<PAGE> 16
(y) With respect to the Selling Securityholders, the
Company will send all post-effective amendments or prospectus supplements
disclosing actual price and selling terms to the NASD concurrently with the
filing thereof with the Commission. The Company will notify the Underwriter and
the NASD if the Company becomes aware that any 5% or greater stockholder of the
Company becomes an affiliated or associated person of an NASD member
participating in the distribution of this offering.
(z) On the First Closing Date, the right of first
refusal granted to the Underwriter pursuant to the Agency Agreement between the
Company and the Underwriter dated November 13, 1996 shall terminate.
4. Conditions of the Underwriter's Obligation. The obligations
of the Underwriter to purchase and pay for the Units which they have
respectively agreed to purchase hereunder, are subject to the accuracy (as of
the date hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become
effective and you shall have received notice thereof not later
than 10:00 A.M., New York time, on the date on which the
amendment to the registration statement originally filed with
respect to the Units or to the Registration Statement, as the
case may be, containing information regarding the initial
public offering price of the Units has been filed with the
Commission, or such later time and date as shall have been
agreed to by the Underwriter; if required, the Prospectus or
any Term Sheet that constitutes a part thereof and any
amendment or supplement thereto shall have been filed with the
Commission in the manner and within the time period required
by Rule 434 and 424(b) under the Act; on or prior to the
Closing Dates no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no
proceedings for that or a similar purpose shall have been
instituted or shall be pending or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the
Commission; any request on the part of the Commission for
additional information shall have been complied with to the
reasonable satisfaction of Bachner, Tally, Polevoy & Misher
LLP, counsel to the Underwriter;
(b) At the First Closing Date, you shall have
received the opinion, together with copies of such opinion for
each of the other several Underwriter, dated as of the First
Closing Date, of Squire, Sanders & Dempsey LLP, counsel for
the Company, in form and substance satisfactory to counsel for
the Underwriter, to the effect that:
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<PAGE> 17
(i) the Company has been duly incorporated and
is validly existing as a corporation in good standing
under the laws of the State of Nevada, with full
corporate power and authority to own its properties
and conduct its business as described in the
Registration Statement and Prospectus and is duly
qualified or licensed to do business as a foreign
corporation and is in good standing in Arizona and in
each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business
requires such qualification;
(ii) to the best knowledge of such counsel, (a)
the Company has obtained, or is in the process of
obtaining, all licenses, permits and other
governmental authorizations necessary to the conduct
of its business as described in the Prospectus, (b)
such licenses, permits and other governmental
authorizations obtained are in full force and effect,
and (c) the Company is in all material respects
complying therewith;
(iii) the authorized capitalization of the
Company as of , 1996 is as set forth under
"Capitalization" in the Prospectus; all shares of the
Company's outstanding stock requiring authorization
for issuance by the Company's board of directors have
been duly authorized, validly issued, are fully paid
and non-assessable and conform to the description
thereof contained in the Prospectus; the outstanding
shares of Common Stock of the Company have not been
issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do
not have any preemptive rights or other rights to
subscribe for or to purchase, nor are there any
restrictions upon the voting or transfer of any of
the Stock, except with respect to the shares that are
subject to the Voting Trust described in the
Prospectus; the Common Stock, the Warrants, the Unit
Purchase Option and the Warrant Agreement conform to
the respective descriptions thereof contained in the
Prospectus; the Shares have been, and the shares of
Common Stock to be issued upon exercise of the
Warrants and the Unit Purchase Option, upon issuance
in accordance with the terms of such Warrants, the
Warrant Agreement and Unit Purchase Option have been
duly authorized and, when issued and delivered, will
be duly and validly issued, fully paid,
non-assessable, free of preemptive rights and no
personal liability will attach to the ownership
thereof; all prior sales by the Company of the
Company's securities have been made in compliance
with or under an exemption from registration under
the Act and applicable state securities laws and no
shareholders of the Company have any rescission
rights with respect to Company securities; a
sufficient number of shares of Common Stock has been
reserved for issuance upon exercise of the Warrants
and Unit Purchase Option and to the best of such
counsel's
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<PAGE> 18
knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any
registration rights or other rights, other than those
which have been waived or satisfied for or relating
to the registration of any shares of Common Stock;
(iv) this Agreement, the Unit Purchase Option,
the Warrant Agreement and the M/A Agreement have been
duly and validly authorized, executed and delivered
by the Company and, assuming due execution by each
other party hereto or thereto, each constitutes a
legal, valid and binding obligation of the Company
enforceable against the Company in accordance with
its respective terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application relating to or affecting enforcement of
creditors' rights and the application of equitable
principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be
limited by applicable law;
(v) the certificates evidencing the shares of
Common Stock are in valid and proper legal form; the
Warrants will be exercisable for shares of Common
Stock of the Company in accordance with the terms of
the Warrants and at the prices therein provided for;
at all times during the term of the Warrants the
shares of Common Stock of the Company issuable upon
exercise of the Warrants have been duly authorized
and reserved for issuance upon such exercise and such
shares, when issued upon such exercise in accordance
with the terms of the Warrants and at the price
provided for, will be duly and validly issued, fully
paid and non-assessable;
(vi) such counsel knows of no pending or
threatened legal or governmental proceedings to which
the Company is a party which could materially
adversely affect the business, property, financial
condition or operations of the Company; or which
question the validity of the Securities, this
Agreement, the Warrant Agreement, the Unit Purchase
Option or the M/A Agreement, or of any action taken
or to be taken by the Company pursuant to this
Agreement, the Warrant Agreement, the Unit Purchase
Option or the M/A Agreement, and no such proceedings
are known to such counsel to be contemplated against
the Company; there are no governmental proceedings or
regulations required to be described or referred to
in the Registration Statement which are not so
described or referred to;
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<PAGE> 19
(vii) the Company is not in violation of or
default under, nor will the execution and delivery of
this Agreement, the Unit Purchase Option, the Warrant
Agreement or the M/A Agreement and the incurrence of
the obligations herein and therein set forth and the
consummation of the transactions herein or therein
contemplated, result in a breach or violation of, or
constitute a default under the certificate or
articles of incorporation or by-laws, in the
performance or observance of any material
obligations, agreement, covenant or condition
contained in any bond, debenture, note or other
evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, lease, joint
venture or other agreement or instrument to which the
Company is a party or by which it or any of its
properties may be bound or in violation of any
material order, rule, regulation, writ, injunction,
or decree of any government, governmental
instrumentality or court, domestic or foreign;
(viii) the Registration Statement has become
effective under the Act, and to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been
instituted or are pending before, or threatened by,
the Commission; the Registration Statement and the
Prospectus (except for the financial statements and
other financial data contained therein, or omitted
therefrom, as to which such counsel need express no
opinion) comply as to form in all material respects
with the applicable requirements of the Act and the
Rules and Regulations;
(ix) such counsel has participated in the
preparation of the Registration Statement and the
Prospectus and nothing has come to the attention of
such counsel to cause such counsel to have reason to
believe that the Registration Statement or any
amendment thereto at the time it became effective or
as of the Closing Dates contained any untrue
statement of a material fact required to be stated
therein or omitted to state any material fact
required to be stated therein or necessary to make
the statements therein not misleading or that the
Prospectus or any supplement thereto contains any
untrue statement of a material fact or omits to state
a material fact necessary in order to make statements
therein, in light of the circumstances under which
they were made, not misleading (except, in the case
of both the Registration Statement and any amendment
thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto
and other financial information and schedules
contained therein, as to which such counsel need
express no opinion);
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<PAGE> 20
(x) all descriptions in the Registration
Statement and the Prospectus, and any amendment or
supplement thereto, of contracts and other documents
are accurate and fairly present the information
required to be shown, and such counsel is familiar
with all contracts and other documents referred to in
the Registration Statement and the Prospectus and any
such amendment or supplement or filed as exhibits to
the Registration Statement, and such counsel does not
know of any contracts or documents of a character
required to be summarized or described therein or to
be filed as exhibits thereto which are not so
summarized, described or filed;
(xi) no authorization, approval, consent, or
license of any governmental or regulatory authority
or agency is necessary in connection with the
authorization, issuance, transfer, sale or delivery
of the Units by the Company, in connection with the
execution, delivery and performance of this Agreement
by the Company or in connection with the taking of
any action contemplated herein, or the issuance of
the Unit Purchase Option or the Securities underlying
the Unit Purchase Option, other than registrations or
qualifications of the Units under applicable state or
foreign securities or Blue Sky laws and registration
under the Act;
(xii) the statements in the Registration
Statement under the captions "Business", "Use of
Proceeds", "Management", and "Description of
Securities" have been reviewed by such counsel and
insofar as they refer to descriptions of agreements,
statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions,
are correct in all material respects;
(xiii) the Units, the Common Stock and the
Warrants have been duly authorized for quotation on
the Nasdaq Small Cap Market and
(xiv) to such counsel's knowledge, there are no
business relationships or related-party transactions
of the nature described in Item 404 of Regulation
S-B2 involving the Company, any Subsidiary and any
person described in such Item that are required to be
disclosed in the Prospectus and which have not been
so disclosed.
(c) All corporate proceedings and other legal matters
relating to this Agreement, the Registration Statement, the Prospectus and other
related matters shall be satisfactory to or approved by Bachner, Tally, Polevoy
& Misher LLP, counsel to the Underwriter, and you shall have received from such
counsel a signed opinion, dated as of the First Closing Date, with respect to
the validity of the issuance of the Units, the form of the
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<PAGE> 21
Registration Statement and Prospectus (other than the financial statements and
other financial data contained therein), the execution of this Agreement and
other related matters as you may reasonably require. The Company shall have
furnished to counsel for the Underwriter such documents as they may reasonably
request for the purpose of enabling them to render such opinion.
(d) You shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the First
Closing Date from Coopers & Lybrand LLP, independent public accountants for the
Company, substantially in the form approved by you, and including estimates of
the Company's revenues and results of operations for the period ending at the
end of the month immediately preceding the effective date and results of the
comparable period during the prior fiscal year.
(e) At the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the Company
shall have performed all of its obligations hereunder and satisfied all the
conditions on its part to be satisfied at or prior to such Closing Date; (ii)
the Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; (iii) there shall have been, since the respective dates as of
which information is given, no material adverse change, or any development
involving a prospective material adverse change, in the business, properties,
condition (financial or otherwise), results of operations, capital stock,
long-term or short-term debt or general affairs of the Company from that set
forth in the Registration Statement and the Prospectus, except changes which the
Registration Statement and Prospectus indicate might occur after the effective
date of the Registration Statement, and the Company shall not have incurred any
material liabilities or entered into any agreement not in the ordinary course of
business other than as referred to in the Registration Statement and Prospectus;
and (iv) except as set forth in the Prospectus, no action, suit or proceeding at
law or in equity shall be pending or threatened against the Company which would
be required to be set forth in the Registration Statement, and no proceedings
shall be pending or threatened against the Company before or by any commission,
board or administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding would materially and adversely affect
the business, property, condition (financial or otherwise), results of
operations or general affairs of the Company, and (v) you shall have received,
at the First Closing Date, a certificate signed by each of the Chairman of the
Board or the President and the principal financial or accounting officer of the
Company, dated as of the First Closing Date, evidencing compliance with the
provisions of this subsection (e).
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<PAGE> 22
(f) Upon exercise of the option provided for in
Section 2(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Units referred to therein will be subject (as of the date hereof and
as of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, and no stop
order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall
have been instituted or shall be pending, or, to your
knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any reasonable
request on the part of the Commission for additional
information shall have been complied with to the
satisfaction of Bachner, Tally, Polevoy & Misher LLP,
counsel to the Underwriter.
(ii) At the Option Closing Date there shall
have been delivered to you the signed opinion of
Squire, Sanders & Dempsey LLP, counsel for the
Company, dated as of the Option Closing Date, in form
and substance satisfactory to Bachner, Tally, Polevoy
& Misher LLP, counsel to the Underwriter, which
opinion shall be substantially the same in scope and
substance as the opinion furnished to you at the
First Closing Date pursuant to Section 4(b) hereof,
except that such opinion, where appropriate, shall
cover the Option Units.
(iii) At the Option Closing Date there shall
have been delivered to you a certificate of the
Chairman of the Board or the President and the
principal financial or accounting officer of the
Company, dated the Option Closing Date, in form and
substance satisfactory to Bachner, Tally, Polevoy &
Misher LLP, counsel to the Underwriter, substantially
the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant
to Section 4(e) hereof.
(iv) At the Option Closing Date there shall
have been delivered to you a letter in form and
substance satisfactory to you from Coopers & Lybrand
LLP, dated the Option Closing Date and addressed to
the Underwriter confirming the information in their
letter referred to in Section 4(d) hereof and stating
that nothing has come to their attention during the
period from the ending date of their review referred
to in said letter to a date not more than five
business days prior to the Option Closing Date, which
would require any change in said letter if it were
required to be dated the Option Closing Date.
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<PAGE> 23
(v) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the
Option Units shall be satisfactory in form and substance to
you, and you and Bachner, Tally, Polevoy & Misher LLP, counsel
to the Underwriter, shall have been furnished with all such
documents, certificates, and opinions as you may request in
connection with this transaction in order to evidence the
accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with
any of the covenants or conditions contained herein.
(g) No action shall have been taken by the Commission
or the NASD the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Units, Common Stock or the Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriter or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or the
NASD. The Company shall have advised the Underwriter of any NASD affiliation of
any of its officers, directors, stockholders or their affiliates.
(h) If any of the conditions herein provided for in
this Section shall not have been fulfilled as of the date indicated, this
Agreement and all obligations of the Underwriter under this Agreement may be
cancelled at, or at any time prior to, each Closing Date by the Underwriter. Any
such cancellation shall be without liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company. The
obligation of the Company to sell and deliver the Units is subject to the
condition that at the Closing Dates, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the condition to the obligations of the Company provided
for in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Units on
exercise of the option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation
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<PAGE> 24
and all attorneys' fees), to which the Underwriter or such controlling person
may become subject, under the Act or otherwise, and will reimburse, as incurred,
the Underwriter and such controlling persons for any legal or other expenses
reasonably incurred in connection with investigating, defending against or
appearing as a third party witness in connection with any losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, (B) any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Units under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto. This indemnity will
be in addition to any liability which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the
Company, each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
director, nominee, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto (i) in reliance upon and in conformity with written
information furnished to the Company by you specifically for use in the
preparation thereof and (ii) relates to the transactions effected by the
Underwriter in
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<PAGE> 25
connection with the offer and sale of the Units contemplated hereby. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is the Underwriter
or a person who controls the Underwriter within the meaning of the Act, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Underwriter, it is advisable for the Underwriter or controlling persons to be
represented by separate counsel (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of the Underwriter
or such controlling person, it being understood, however, that the indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys for the Underwriter and
such controlling persons, which firm shall be designated in writing by you). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnifying party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnifying party.
7. Contribution.
In order to provide for just and equitable contribution under the
Act in any case in which (i) the Underwriter makes claim for indemnification
pursuant to Section 6 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent
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<PAGE> 26
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that the express provisions of Section 6 provide for
indemnification in such case, or (ii) contribution under the Act may be required
on the part of the Underwriter, then the Company and each person who controls
the Company, in the aggregate, and the Underwriter shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees) in either case (after contribution from others) in such
proportions that the Underwriter is responsible in the aggregate for that
portion of such losses, claims, damages or liabilities represented by the
percentage that the underwriting discount per Unit appearing on the cover page
of the Prospectus bears to the public offering price appearing thereon, and the
Company shall be responsible for the remaining portion, provided, however, that
(a) if such allocation is not permitted by applicable law then the relative
fault of the Company and the Underwriter and controlling persons, in the
aggregate, in connection with the statements or omissions which resulted in such
damages and other relevant equitable considerations shall also be considered.
The relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the omission to
state a material fact, such statement or omission relates to information
supplied by the Company, or the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Underwriter agree that it
would not be just and equitable if the respective obligations of the Company and
the Underwriter to contribute pursuant to this Section 7 were to be determined
by pro rata or per capita allocation of the aggregate damages (even if the
Underwriter in the aggregate were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the first sentence of this Section 7 and (b) that
the contribution of the Underwriter shall not be in excess of its proportionate
share of such losses, claims, damages or liabilities for which it is
responsible. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company
and the Underwriter. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in light
of all factors of importance to such party.
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<PAGE> 27
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Units to the Underwriter is consummated, the Company will pay all
costs and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented, or the Term Sheet, the fee of the NASD in connection with the
filing required by the NASD relating to the offering of the Units contemplated
hereby; all expenses, including reasonable fees (not to exceed $25,000) and
disbursements of counsel to the Underwriter, in connection with the
qualification of the Units under the state securities or blue sky laws which the
Underwriter shall designate; the cost of printing and furnishing to the
Underwriter copies of the Registration Statement, each Preliminary Prospectus,
the Prospectus, this Agreement, Selling Agreement, Underwriter's Questionnaire,
Underwriter's Power of Attorney and the Blue Sky Memorandum, any fees relating
to the listing of the Units, Common Stock and Warrants on the Nasdaq Small Cap
Market or any other securities exchange, the cost of printing the certificates
representing the securities comprising the Units, the fees of the transfer agent
and warrant agent the cost of publication of at least three "tombstones" of the
offering (at least one of which shall be in national business newspaper and one
of which shall be in a major New York newspaper) and the cost of preparing at
least four hard cover "bound volumes" relating to the offering, in accordance
with the Underwriter's request. The Company shall pay any and all taxes
(including any transfer, franchise, capital stock or other tax imposed by any
jurisdiction) on sales to the Underwriter hereunder. The Company will also pay
all costs and expenses incident to the furnishing of any amended Prospectus or
of any supplement to be attached to the Prospectus as called for in Section 3(a)
of this Agreement except as otherwise set forth in said Section .
(b) In addition to the foregoing expenses the Company
shall at the First Closing Date pay to the Underwriter, a non-accountable
expense allowance of $180,000 of which $40,000 has been paid. In the event the
overallotment option is exercised, the Company shall pay to D.H. Blair
Investment Banking Corp. at the Option Closing Date an additional amount equal
to 3% of the gross proceeds received upon exercise of the overallotment option.
In the event the transactions contemplated hereby are not consummated by reason
of any action by the Underwriter (except if such prevention is based upon a
breach by the Company of any covenant, representation or warranty contained
herein or because any other condition to the Underwriter's obligations hereunder
required to be fulfilled by the Company is not fulfilled) the Company shall be
liable for the accountable expenses of the Underwriter, including legal fees up
to a maximum of $25,000. In the event the transactions contemplated hereby are
not consummated by reason of any action of the Company or because of a breach by
the Company of any covenant, representation or warranty herein, the Company
shall be liable for the accountable expenses of the Underwriter, including legal
fees, up to a maximum of $150,000.
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<PAGE> 28
(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Underwriter or from any other person for
services as a finder in connection with the proposed offering, and the Company
agrees to indemnify and hold harmless the Underwriter against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which the Underwriter or such other
Underwriter or person may become subject insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
the claim of any person (other than an employee of the party claiming indemnity)
or entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution except
that you may, at your option, delay its effectiveness until 11:00 A.M., New York
time on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective date of the
Registration Statement as you in your discretion shall first commence the
initial public offering by the Underwriter of any of the Units. The time of the
initial public offering shall mean the time of release by you of the first
newspaper advertisement with respect to the Units, or the time when the Units
are first generally offered by you to dealers by letter or telegram, whichever
shall first occur. This Agreement may be terminated by you at any time before it
becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13,
14, 15 and 16 shall remain in effect notwithstanding such termination.
10. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12,
13, 14 and 15 hereof, may be terminated at any time prior to the First Closing
Date, and the option referred to in Section 2(b) hereof, if exercised, may be
cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriter for the resale of the Units agreed to be purchased hereunder by
reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree; (ii)
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq SmallCap Market or the Nasdaq National Market having been
suspended or limited; (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof); (iv) a banking moratorium having been declared by federal or New York
state authorities; (v) an outbreak of international hostilities or other
national or international calamity or crisis or change in economic or political
conditions
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<PAGE> 29
having occurred; (vi) a pending or threatened legal or governmental proceeding
or action relating generally to the Company's business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which could materially adversely affect the Company; (vii) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
(viii) the passage by the Congress of the United States or by any state
legislative body or federal or state agency or other authority of any act, rule
or regulation, measure, or the adoption of any orders, rules or regulations by
any governmental body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed likely by the Underwriter
to have a material impact on the business, financial condition or financial
statements of the Company or the market for the securities offered pursuant to
the Prospectus; (ix) any adverse change in the financial or securities markets
beyond normal market fluctuations having occurred since the date of this
Agreement, or (x) any material adverse change having occurred, since the
respective dates of which information is given in the Registration Statement and
Prospectus, in the earnings, business prospects or general condition of the
Company, financial or otherwise, whether or not arising in the ordinary course
of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 11 or in
Section 10, the Company shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
11. Unit Purchase Option.
At or before the First Closing Date, the Company will sell to
D.H. Blair Investment Banking Corp., or its designees for a consideration of
$.0001 and upon the terms and conditions set forth in the form of Unit Purchase
Option annexed as an exhibit to the Registration Statement, a Unit Purchase
Option to purchase an aggregate of 120,000 Units. In the event of conflict in
the terms of this Agreement and the Unit Purchase Option, the language of the
Unit Purchase Option shall control.
12. Representations, Warranties and Agreements to Survive
Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company or its Principal Stockholders,
where appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriter, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
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<PAGE> 30
13. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be mailed, delivered and confirmed to
them at D.H. Blair Investment Banking Corp., 44 Wall Street, New York, New York
10005, with a copy sent to Bachner, Tally, Polevoy & Misher LLP, 380 Madison
Avenue, New York, New York 10017, or if sent to the Company, will be mailed,
delivered and confirmed to it at 1839 West Drake, Suite B, Tempe, Arizona 85283.
14. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of
the Underwriter, the Company and, to the extent expressed, the Principal
Stockholders, any person controlling the Company or the Underwriter, and
directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from the Underwriter of the Units. All of the obligations of the Underwriter
hereunder are several and not joint.
15. Applicable Law.
This Agreement will be governed by, and construed in accordance
with, the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
PIRANHA INTERACTIVE PUBLISHING, INC.
By: ____________________________________
Timothy M. Brannan
President
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
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<PAGE> 31
D.H. BLAIR INVESTMENT BANKING CORP.
By: ____________________________________
Authorized Officer
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<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PIRANHA INTERACTIVE PUBLISHING, INC.
1. The name of the Corporation is Piranha Interactive Publishing, Inc.
2. Its principal office in the State of Nevada is located at One East
First Street, Reno, Washoe County, Nevada 89501. The name and address of its
resident agent is the Corporation Trust Company of Nevada, One East First
Street, Reno, Nevada 89501.
3. The purpose for which the Corporation is organized is the transaction
of any and all lawful activities for which corporations may be incorporated
under the laws of the State of Nevada, as the same may be amended from time to
time, including but not limited to the business of interactive multimedia
software publishing.
4. The total authorized capital stock of the Corporation is Twenty Million
(20,000,000) shares of common stock, $.001 par value, and Five Million
(5,000,000) shares of preferred stock, $.001 par value. Such shares may be
issued by the Corporation from time to time for such consideration as may be
fixed by the Board of Directors.
As to the preferred stock of the Corporation, the power to issue any
shares of preferred stock of any class or any series of any class and
designations, voting powers, preferences, and relative participating, optional
or other rights, if any, or the qualifications, limitations, or restrictions
thereof, shall be determined by the Board of Directors.
5. The governing board of this Corporation shall be known as Directors,
and the number of Directors may from time to time be increased up to ten (10) or
decreased in such manner as shall be provided by the Bylaws of this Corporation.
The first Board of Directors shall consist of three (3) directors.
The number of Directors shall be divided into three (3) classes, as nearly
equal in number as may be, to serve in the first instance until the first,
second and third annual meetings of the stockholders to be held, respectively,
and thereafter until the third annual meeting of stockholders to be held after
their election and until their successors shall be elected and shall qualify. In
the case of any increase in the number of Directors of the Corporation, the
additional Directors shall be so classified that all classes of Directors shall
be increased equally as nearly as may be, and the additional Directors shall be
elected as provided in the Bylaws. In case of any decreases in the number of
Directors of the Corporation, all classes of Directors shall be decreased
equally, as nearly as may be. Election of Directors shall be conducted as
provided in these Articles, by law or in the Bylaws.
1
<PAGE> 2
The names and mailing addresses of the first Board of Directors who are to
serve until the first, second and third annual meetings of the stockholders and
until their successors are elected and qualified, and the class designation and
term of office of each director is as follows:
NAME CLASS & TERM POST OFFICE ADDRESS
- ---- ------------- -------------------
Timothy M. Brannan III, Term Ending 1999 1839 West Drake, Suite B
Tempe, AZ 85283
Keith Higginson II, Term Ending 1998 1839 West Drake, Suite B
Tempe, AZ 85283
J. Wade Stallings, II I, Term Ending 1997 1839 West Drake, Suite B
Tempe, AZ 85283
6. The capital stock, after the amount of the subscription price or par
value has been paid in, shall not be subject to assessment to pay the debts of
the Corporation.
7. The name and post office address of each of the incorporators signing
the Articles of Incorporation are as follows:
NAME POST OFFICE ADDRESS
- -------------------------- ------------------------------
------------------------------
- -------------------------- ------------------------------
------------------------------
- -------------------------- ------------------------------
------------------------------
8. The Corporation is to have perpetual existence.
9. The fiscal year of the Corporation shall initially end on December 31
and begin on January 1 of each year; provided, however, that such date may be
changed from time to time as determined by the Board of Directors to be in the
best interest of the Corporation.
2
<PAGE> 3
10. Meetings of stockholders may be held within or without the State of
Nevada, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the Nevada statutes, or the rules and
regulations promulgated thereunder) outside the State of Nevada at such place or
places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
11. To the fullest extent permitted by the laws of the State of Nevada, as
the same exist or may hereinafter be amended, no director or officer of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director or officer;
provided, however, that nothing contained herein shall eliminate or limit the
liability of a director or officer of the Corporation to the extent provided by
applicable laws (i) for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law or (ii) for authorizing the payment of
dividends in violation of Nevada Revised Statutes Section 78.300. The limitation
of liability provided herein shall continue after a director or officer has
ceased to occupy such position as to acts or omissions occurring during such
director's or officer's term or terms of office. No repeal, amendment or
modification of this Article, whether direct or indirect, shall eliminate or
reduce its effect with respect to any act or omission of a director or officer
of the Corporation occurring prior to such repeal, amendment or modification.
12. The Corporation shall indemnify, defend and hold harmless any person
who incurs expenses, claims, damages or liability by reason of the fact that he
or she is, or was, an officer, Director, employee or agent of the Corporation,
to the fullest extent allowed pursuant to Nevada law.
13. Pursuant to Nevada Revised Statutes Section 78.378, the Corporation
elects not to be governed by the provisions of Nevada Revised Statutes Sections
78.378 to 78.3793, inclusive, as the same may be amended from time to time; and
further, pursuant to Nevada Revised Statutes Section 78.434, the Corporation
elects not to be governed by the provisions of Nevada Revised Statutes Sections
78.411 to 78.444, inclusive, as the same may be amended from time to time.
14. Any Business Combination (as hereinafter defined) with an Interested
Stockholder (as hereinafter defined) shall be subject to the following
requirements:
(a) In addition to any affirmative vote required by law or these
Articles of Incorporation or the Bylaws of the Corporation, and except as
otherwise expressly provided in paragraph (b) of this Article 14, a Business
Combination involving an Interested Stockholder or any Affiliate or Associate
(as hereinafter defined) of any Interested Stockholder or any person who
thereafter would be an Affiliate or Associate of such Interested Stockholder
shall require the affirmative vote of not less than sixty-six and two-thirds
percent (66 2/3%) of all the then outstanding shares of Voting Stock, voting
together as a single class, excluding Voting Stock beneficially owned by such
Interested Stockholder. Such affirmative vote shall be required
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notwithstanding the fact that no vote may be required, or that a lesser
percentage or separate class vote may be specified, by law or in any agreement
with any national securities exchange or otherwise.
(b) The provisions of paragraph (a) of this Article 14 shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law or by
any other provision of these Articles of Incorporation or the Bylaws of the
Corporation, or any agreement with any national securities exchange, if the
Business Combination shall have been approved, either specifically or as a
transaction which is within an approved category of transactions, by a majority
(whether such approval is made prior to or subsequent to the acquisition of, or
announcement of or public disclosure of the intention to acquire, beneficial
ownership of the Voting Stock that caused the Interested Stockholder to become
an Interested Stockholder) of the Continuing Directors (as hereinafter defined).
(c) For the purposes of this Article 14:
1. The term "Business Combination" shall mean:
A. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested Stockholder or (ii)
any other Corporation (whether or not itself an Interested Stockholder) which is
or after such merger or consolidation would be an Affiliate or Associate of an
Interested Stockholder; or
B. any sale, lease, exchange, mortgage, pledge, transfer
or other disposition or security arrangement, investment, loan, advance,
guarantee, agreement to purchase, agreement to pay, extension of credit, joint
venture participation or other arrangement (in one transaction or a series of
transactions) with or for the benefit of any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder involving any assets or
securities or commitments of the Corporation, any Subsidiary or any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder which,
together with all other such arrangements (including all contemplated future
events) has an aggregate Fair Market Value and/or involves aggregate commitments
of $10,000,000 or more or constitutes more than ten percent (10%) of the book
value of the total assets (in the case of transactions involving assets or
commitments other than Capital Stock) or ten percent (10%) of the stockholders'
equity (in the case of transactions in Capital Stock) of the entity in question
(the "Substantial Part"), as reflected in the most recent fiscal year end
consolidated balance sheet of such entity existing at the time the stockholders
of the Corporation would be required to approve or authorize the Business
Combination involving the assets, securities, obligations and/or commitments
constituting any Substantial Part; or
C. the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation or for any amendment to these
Articles of Incorporation or the
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Bylaws proposed by or on behalf of an Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; or
D. any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or otherwise involving an Interested
Stockholder) that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of Capital Stock, or any securities
convertible into Capital Stock or into equity securities of any Subsidiary, that
is beneficially owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; or
E. any agreement, contract or other arrangement
providing for any one or more of the actions specified in the foregoing clauses
A to D.
2. The term "Capital Stock" shall mean all capital stock of
the Corporation authorized to be issued from time to time under Article 4 of
these Articles of Incorporation.
3. The term "person" shall mean any individual, firm,
Corporation or other entity and shall include any group comprised of any person
and any other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or indirectly,
for the purpose of acquiring, holding, voting or disposing of Capital Stock.
4. The term "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary and other than any profit-sharing,
employee stock ownership or other employee benefit plan of the Corporation or
any Subsidiary or any trustee of, or fiduciary with respect to, any such plan
when acting in such capacity) who (a) is or has announced or publicly disclosed
a plan or intention to become the beneficial owner of Voting Stock representing
ten percent (10%) or more of the votes entitled to be cast by the holders of all
the then outstanding shares of Voting Stock; or (b) is an Affiliate or Associate
of the Corporation and at any time within the two-year period immediately prior
to the date in question, was the beneficial owner of Voting Stock representing
ten percent (10%) or more of the votes entitled to be cast by the holders of all
the then outstanding shares of Voting Stock.
5. A person shall be a "beneficial owner" of any Capital Stock
(a) which such person or any of its Affiliates or Associates owns, directly or
indirectly; (b) which such person or any of its Affiliates or Associates has,
directly or indirectly, (i) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (ii) the right to
vote pursuant to any agreement, arrangement or understanding; or (c) which is
beneficially owned, directly or indirectly, by any other person with which such
person or any of its Affiliates or Associates has
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any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Capital Stock. For the purposes of
determining whether a person is an Interested Stockholder pursuant to Paragraph
4 of this Section (c), the number of shares of Capital Stock deemed to be
outstanding shall include shares deemed beneficially owned by such person
through application of this Paragraph 5, but shall not include any other shares
of Capital Stock that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
6. The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 under the Act as in
effect on the date that these Articles of Incorporation are accepted for filing
by the Nevada Secretary of State (the term "registrant" in said Rule 12b-2
meaning in this case, the Corporation).
7. The term "Subsidiary" means any company of which a majority
of any class of equity security is beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 4 of this Section (c), the term "Subsidiary"
shall mean only a company of which a majority of each class of equity security
is beneficially owned by the Corporation.
8. The term "Continuing Director" means (i) any member of the
Board of Directors on the date of the filing of these Articles of Incorporation
with the Nevada Secretary of State, and (ii) any member of the Board of
Directors who thereafter becomes a member of the Board of Directors while such
person is a member of the Board of Directors, who is not an Affiliate or
Associate or representative of the Interested Stockholder and was a member of
the Board of Directors prior to the time that the Interested Stockholder became
an Interested Stockholder, and (iii) a successor of a Continuing Director while
such successor is a member of the Board of Directors, who is not an Affiliate or
Associate or representative of the Interested Stockholder and is recommended or
elected to succeed the Continuing Director by a majority of Continuing
Directors.
9. The term "Fair Market Value" means (a) in the case of cash,
the amount of such cash; (b) in the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date in question of a
share of such stock on the principal United States securities exchange
registered under the Act on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing bid quotation with respect to a
share of such stock during the 30-day period immediately preceding the date in
question on the Nasdaq Small Cap Market or any similar system then in use, or if
no such quotations are available, the fair market value on the date in question
of a share of such stock as determined by a majority of the Continuing Directors
in good faith; and (c) in the case of property other than cash or stock, the
fair market value of such property on the date in question as determined in good
faith by a majority of the Continuing Directors.
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10. The term "Voting Stock" means stock of any class or series
entitled to vote generally in the election of directors.
(d) A majority of the Continuing Directors shall have the power and
duty to determine for the purposes of this Article 14 on the basis of
information known to them after reasonable inquiry, (1) whether a person is an
Interested Stockholder, (2) the number of shares of Capital Stock or other
securities beneficially owned by any person, (3) whether a person is an
Affiliate or Associate, (4) whether the proposed action is with, or proposed by,
or on behalf of, an interested Stockholder or an Affiliate or Associate of an
Interested Stockholder, (5) whether the assets that are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $10,000,000 or more and (6)
whether the assets or securities that are the subject of any Business
Combination constitute a Substantial Part. Any such determination made in good
faith shall be binding and conclusive on all parties.
(e) Nothing contained in this Article 14 shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
(f) For the purposes of this Article 14, a Business Combination or
any proposal to amend, repeal or adopt any provision of these Articles of
Incorporation inconsistent with this Article 14 (collectively, the "Proposed
Action") is presumed to have been proposed by, or on behalf of, an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder or a
person who thereafter would become such if (1) after the Interested Stockholder
became such, the Proposed Action is proposed following the election of any
director of the Corporation who, with respect to such Interested Stockholder,
would not qualify to serve as a Continuing Director or (2) such Interested
Stockholder, Affiliate, Associate or person votes for or consents to the
adoption of any such Proposed Action, unless as to such Interested Stockholder,
Affiliate, Associate or person, a majority of the Continuing Directors makes a
good faith determination that such Proposed Action is not proposed by or on
behalf of such Interested Stockholder, Affiliate, Associate or person, based on
information known to them after reasonable inquiry.
15. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation or in the Bylaws of
the Corporation, in the manner now or hereafter previously prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation; provided, however, that notwithstanding anything to the
contrary in these Articles of Incorporation to the contrary, the affirmative
vote of sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of
stock of this Corporation entitled to vote shall be required to amend, alter,
change or repeal, or adopt any provision inconsistent with, these Articles.
Notwithstanding the foregoing, only the affirmative vote of a majority of the
outstanding shares of stock of this Corporation entitled to vote and represented
at a meeting at which a quorum is constituted shall be required to amend, alter,
change or repeal, or adopt
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any provision inconsistent with, these Articles which has been recommended by a
majority of the Continuing Directors for adoption by the stockholders.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a Corporation pursuant to the General Corporation Law
of the State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set our hands this ________ day of November, 1996.
_________________________________
_________________________________
_________________________________
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STATE OF ___________________ )
) ss.
County of __________________ )
On this __________ day of November, 1996, before me, a Notary Public,
personally appeared _____________________________, ___________________________
and ________________________ who acknowledged that they executed the above
instrument.
______________________________________________
Notary Public
(Notary Seal)
My commission expires:
_______________________
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EXHIBIT 3.2
BYLAWS
OF
PIRANHA INTERACTIVE PUBLISHING, INC.
ARTICLE I
OFFICES
1. Principal Office.
The principal office shall be in the City of Reno, County of Washoe,
State of Nevada.
2. Other Offices.
The Corporation may also have offices at such other places both within
and without the State of Nevada as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
1. Annual Meeting.
The annual meeting of the stockholders shall be held on such date and
at such time and place each year as the Board of Directors (the "Board") shall
determine, for the purpose of electing Directors and for the transaction of such
other business as may properly come before the meeting. If the election of
Directors is not held on the day designated by the Board for any annual meeting
of the stockholders, or any adjournment thereof, the Board shall cause the
election to be held at a special meeting of the stockholders as soon thereafter
as convenient.
2. Special Meetings.
Special meetings of the stockholders may be called for any purpose or
purposes at any time by a majority of the Board of Directors, Chairman of the
Board or the President. No special meeting may be called at the request of a
stockholder. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice thereof.
3. Place of Meetings.
Annual and special meetings of the stockholders may be held at such
time and place within or without the State of Nevada as shall be stated in the
notice of the meeting, or in a duly executed waiver of notice thereof.
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4. Notice of Meeting.
Written notice stating 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, shall be delivered to each stockholder of record entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting. Notice may be delivered either personally or by first
class, certified or registered mail, postage prepaid, and signed by an officer
of the Corporation at the direction of the person or persons calling the
meeting. If mailed, notice shall be deemed to be delivered when mailed to the
stockholders at his or hers or her address as it appears on the stock transfer
books of the Corporation. Delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership shall constitute
delivery of such notice to such corporation, association or partnership. In the
event of the transfer of stock after delivery or mailing of the notice of and
prior to the holding of the meeting it shall not be necessary to deliver or mail
notice of the meeting to the transferee. Notice need not be given of an
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken, provided that such adjournment is for less than
thirty (30) days and further provided that a new record date is not fixed for
the adjourned meeting, in either of which events, written notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at such meeting. At any adjourned meeting, any business may be transacted which
might have been transacted at the meeting as originally noticed. A written
waiver of notice, whether given before or after the meeting to which it relates,
shall be equivalent to the giving of notice of such meeting to the stockholder
or stockholders signing such waiver. Attendance of a stockholder at a meeting
shall constitute a waiver of notice of such meeting, except when the stockholder
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
5. Fixing Date for Determination of Stockholders Record.
In order that the Corporation may determine the stockholders entitled
to notice of and to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
if permitted by these By-laws or the Articles of Incorporation, or to receive
payment of any dividend or other distribution or allotment of any rights, or to
exercise any rights in respect of any other change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of Directors may
fix in advance a record date, which shall not be more than sixty (60) nor less
than ten (10) days prior to the date of such meeting or such action, as the case
may be. If the Board of Directors has not fixed a record date for determining
the stockholders entitled to notice of and to vote at a meeting of stockholders,
the record date shall be at close of business on the day next preceding the day
on which notice is given, or if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. If the Board of
Directors has not fixed a record date for determining the stockholders entitled
to express consent to corporate action in writing without a meeting, if
permitted by these By-laws or the Articles of Incorporation, when no prior
action by the Board of Directors is necessary, the record date shall be the day
on which the first written consent is expressed by any stockholder. If the Board
of Directors has not fixed a record date for determining stockholders for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating thereto. A
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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.
6. Record of Stockholders.
The Secretary or other officer having charge of the stock transfer
books of the Corporation shall make, or cause to be made, at least ten (10) days
before every meeting of stockholders, a complete record of the stockholders
entitled to vote at a meeting of stockholders or any adjournment thereof,
arranged in alphabetical order, with the address of 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 (10) 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.
7. Quorum and Manner of Acting.
At any meeting of the stockholders, the presence, in person or by
proxy, of the holders of a majority of the outstanding stock entitled to vote
shall constitute a quorum for the transaction of business except as otherwise
provided by the Nevada General Corporation Law or by the Articles of
Incorporation. All shares represented and entitled to vote on any single subject
matter which may be brought before the meeting shall be counted for quorum
purposes. Only those shares entitled to vote on a particular subject matter
shall be counted for the purpose of voting on that subject matter. Business may
be conducted once a quorum is present and may continue to be conducted until
adjournment sine die, notwithstanding the withdrawal or temporary absence of
stockholders leaving less than a quorum. Except as otherwise provided in the
Nevada General Corporation Law, the Articles of Incorporation or these Bylaws,
the affirmative vote of the holders of a majority of the shares of stock then
represented at the meeting and entitled to vote thereat shall be the act of the
stockholders; provided, however, that if the shares of stock so represented are
less than the number required to constitute a quorum, the affirmative vote must
be such as would constitute a majority if a quorum were present, except that the
affirmative vote of the holders of a majority of the shares of stock then
present is sufficient in all cases to adjourn a meeting.
8. Voting of Shares of Stock.
Each stockholder shall be entitled to one vote or corresponding
fraction thereof for each share of stock or fraction thereof standing in his,
her or its name on the books of the Corporation on the record date. A
stockholder may vote either in person or by valid proxy, as defined in Section
12 of this Article II, executed in writing by the stockholder or by his, her or
its duly authorized attorney in fact. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled
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to vote nor counted for quorum purposes; provided, however, that the foregoing
shall not limit the right of any corporation to vote stock, including but not
limited to its own stock, when held by it in a fiduciary capacity. Shares of
stock standing in the name of another corporation may be voted by such officer,
agent or proxy as the bylaws of such other corporation may prescribe or, in the
absence of such provision, as the Board of Directors of such other corporation
may determine. Unless demanded by a stockholder present in person or by proxy at
any meeting of the stockholders and entitled to vote thereat, or unless so
directed by the chairman of the meeting, the vote thereat on any question need
not be by ballot. If such demand or direction is made, a vote by ballot shall be
taken, and each ballot shall be signed by the stockholder voting, or by his or
hers or her proxy, and shall state the number of shares voted.
9. Organization.
At each meeting of the stockholders, the Chairman of the Board, or, if
he or she is absent therefrom, the President, or, if he or she is absent
therefrom, another officer of the Corporation chosen as chairman of such meeting
by the President, or if such person is absent therefrom, another officer of the
Corporation chosen as the Chairman of such meeting by stockholders holding a
majority of the shares present in person or by proxy and entitled to vote
thereat, or, if all the officers of the Corporation are absent therefrom, a
stockholder of record so chosen, shall act as chairman of the meeting and
preside thereat. The Secretary, or, if he or she is absent from the meeting or
is required pursuant to the provisions of this Section 9 to act as chairman of
such meeting, the person (who shall be an Assistant Secretary, if any and if
present) whom the chairman of the meeting shall appoint shall act as secretary
of the meeting and keep the minutes thereof.
10. Order of Business.
The order of business at each meeting of the stockholders shall be
determined by the chairman of such meeting, but the order of business may be
changed by the vote of stockholders holding a majority of the shares present in
person or by proxy at such meeting and entitled to vote thereat.
11. Voting.
At all meetings of stockholders, each stockholder entitled to vote
thereat shall have the right to vote, in person or by proxy, and shall have, for
each share of stock registered in his, her or its name, the number of votes
provided by the Articles of Incorporation or these Bylaws in respect of stock of
such class. Stockholders shall not have cumulative voting rights with respect to
the election of Directors.
12. Voting by Proxy.
At any meeting of the stockholders, any stockholder may be represented
and vote by a proxy or proxies appointed by an instrument in writing. In the
event that any such instrument in writing shall designate two (2) or more
persons to act as proxies, a majority of such persons present at the meeting,
or, if only one shall be present, then that one shall have and may
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exercise all of the powers conferred by such written instrument upon all of the
persons so designated unless the instrument shall otherwise provide. No such
proxy shall be valid after the expiration of six (6) months from the date of its
execution, unless coupled with an interest, or unless the person executing it
specifies therein the length of time for which it is to continue in force, which
in no case shall exceed seven (7) years from the date of its execution. Subject
to the above, any proxy duly executed is not revoked and continues in full force
and effect until an instrument revoking it or a duly executed proxy bearing a
later date is filed with the Secretary of the Corporation.
13. Action By Stockholders Without a Meeting.
At any such time as the Corporation shall have a class of equity
securities registered under the Securities Exchange Act of 1934, as amended, no
action required or permitted to be taken at a meeting of the stockholders shall
be taken without a meeting by a consent in writing.
14. Nomination of Directors. Only persons who are nominated in accordance with
the following procedures shall be eligible for election as directors. Nomination
for election to the Board of Directors of the Corporation at a meeting of
stockholders may be made by the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of directors at such meeting who
complies with the notice procedures set forth in this Section 14. Such
nominations, other than those made by or on behalf of the Board of Directors,
shall be made by notice in writing delivered or mailed by first class United
States mail, postage prepaid, to the Secretary of the Corporation, and received
not less than thirty (30) days nor more than sixty (60) days prior to such
meeting; provided, however, that if less than forty-five (45) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, such nomination shall have been mailed or delivered to the
Secretary not later than the close of business on the 10th day following the
date on which the notice of the meeting was mailed or public disclosure was
made, whichever occurs first. Such notice shall set forth (a) as to each
proposed nominee (i) the name, age, business address and, if known, residence
address of each such nominee, (ii) the principal occupation or employment of
each such nominee, (iii) the number of shares of stock of the Corporation which
are beneficially owned by each such nominee, and (iv) any other information
concerning the nominee that must be disclosed in proxy solicitations pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to be named as a nominee and to serve as a
director if elected); (b) as to the stockholder giving the notice (i) the name
and address, as they appear on the Corporation's books, of such stockholder, and
(ii) the class and number or shares of the Corporation which are beneficially
owned by such stockholder; and (c) as to the beneficial owner, if any, on whose
behalf the nomination is made, (i) the name and address of such person and (ii)
the class and number of shares of the Corporation which are beneficially owned
by such person.
The Chairman presiding at a meeting of stockholders may, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
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Nothing in the foregoing provision shall obligate the Corporation or
the Board of Directors to include in any proxy statement or other stockholder
communication distributed on behalf of the Corporation or the Board of Directors
information with respect to any nominee for directors submitted by a
stockholder.
ARTICLE III
BOARD OF DIRECTORS
1. General Powers.
The business and affairs of the Corporation shall be managed by the
Board of Directors.
2. Number, Term of Office and Qualifications.
Subject to the requirements of the Nevada General Corporation Law or
the Articles of Incorporation, the Board of Directors may from time to time
determine the number of Directors. Until the Board of Directors shall otherwise
determine, the number of Directors shall be that number comprising the initial
Board of Directors as set forth in the Articles of Incorporation. Each director
shall hold office until his or hers or her successor is duly elected or until
his or hers or her earlier death or resignation or removal in the manner
hereinafter provided. Directors need not be stockholders.
3. Place of Meeting.
The Board of Directors may hold its meetings, either within or without
the State of Nevada, at such place or places as it may from time to time by
resolution determine or as shall be designated in any notices or waivers of
notice thereof. Any such meeting, whether regular or special, may be held by
telephone conference or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting in such manner shall constitute presence in person at such meeting. Each
person participating in a telephonic meeting shall sign the minutes thereof,
which may be signed in counterparts.
4. Annual Meetings.
As soon as practicable after each annual election of Directors, the
Board of Directors shall meet for the purpose of organization and the
transaction of other business at the place where regular meetings of the Board
of Directors are held, and no notice of such meeting shall be necessary in order
to legally hold the meeting, provided that a quorum is present. If such meeting
is not held as provided above, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for a special
meeting of the Board of Directors, or in the event of waiver of notice as
specified in the written waiver of notice.
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5. Regular Meetings.
Regular meetings of the Board of Directors may be held without notice
at such times as the Board of Directors shall from time to time by resolution
determine.
6. Special Meetings; Notice.
Special meetings of the Board of Directors shall be held, either within
or without the State of Nevada, whenever called by the Chairman of the Board or
a majority of the Directors at the time in office. Notice shall be given, in the
manner hereinafter provided, of each such special meeting, which notice shall
state the time and place of such meeting, but need not state the purposes
thereof. Except as otherwise provided in Section 9 of this Article III, notice
of each such meeting shall be mailed to each Director, addressed to him or her
or her at his or hers or her residence or usual place of business, at least five
(5) days before the day on which such meeting is to be held, or shall be sent
addressed to him or her at such place by facsimile, cable, wireless or other
form of recorded communication or delivered personally or by telephone not later
than the day before the day on which such meeting is to be held. A written
waiver of notice, whether given before or after the meeting to which it relates,
shall be equivalent to the giving of notice of such meeting to the Director or
Directors signing such waiver. Attendance of a Director at a special meeting of
the Board of Directors shall constitute a waiver of notice of such meeting,
except when he or she attends the meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened.
7. Quorum and Manner of Acting.
A majority of the whole Board of Directors shall be present in person
at any meeting of the Board of Directors in order to constitute a quorum for the
transaction of business at such meeting, and except as otherwise specified in
the Articles of Incorporation or these Bylaws, and except also as otherwise
expressly provided by the Nevada General Corporation Law, the vote of a majority
of the Directors present at any such meeting at which a quorum is present shall
be the act of the Board of Directors; provided, however, that in the event an
equal number of votes are cast for and against any proposed act of the Board,
the vote of the Chairman of the Board shall determine the outcome of such vote.
In the absence of a quorum from any such meeting, a majority of the Directors
present thereat may adjourn such meeting from time to time to another time or
place, without notice other than announcement at the meeting, until a quorum
shall be present thereat. The Directors shall act only as a Board of Directors
and the individual Directors shall have no power as such.
8. Organization.
At each meeting of the Board of Directors, the Chairman of the Board,
or, if he or she is absent therefrom, the President, or if he or she is absent
therefrom, a Director chosen by a majority of the Directors present thereat,
shall act as chairman of such meeting and preside thereat. The Secretary, or if
he or she is absent, the person (who shall be an Assistant Secretary, if any and
if present) whom the chairman of such meeting shall appoint, shall act as
Secretary of such meeting and keep the minutes thereof.
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9. Action by Directors Without a Meeting.
Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, is signed by
all Directors and such consent is filed with the minutes of the proceedings of
the Board of Directors.
10. Resignations.
Any Director may resign at any time by giving written notice of his or
hers or her resignation to the Corporation. Any such resignation shall take
effect at the time specified therein, or, if the time when it shall become
effective is not specified therein, it shall take effect immediately upon its
receipt by the Chairman of the Board, the President or the Secretary; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
11. Removal of Directors.
Directors may be removed only for cause, as provided from time to time
by the Nevada General Corporation Law as then in effect, or by affirmative vote
of stockholders representing at least sixty-six and two thirds percent (66 2/3%)
of the outstanding stock entitled to vote thereon.
12. Vacancies.
Vacancies and newly created directorships resulting from any increase
in the authorized number of Directors elected by all of the stockholders having
the right to vote as a single class may be filled by a vote of a majority of the
Directors then in office, although less than a quorum, or chosen by a sole
remaining Director. If at any time, by reason of death or resignation or other
cause, the Corporation has no Directors in office, then any officer or
stockholder or an executor, administrator, trustee or guardian of a stockholder,
may call a special meeting of stockholders for the purpose of filling vacancies
in the Board of Directors. If one or more Directors shall resign from the Board
of Directors, effective at a future date, a majority of the Directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office as provided in this section in the filling of other vacancies.
13. Compensation.
Unless otherwise expressly provided by resolution adopted by the Board
of Directors, no Director shall receive any compensation for his or hers or her
services as a Director. The Board of Directors may at any time and from time to
time by resolution provide that the Directors shall be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
Director. In addition, the Board of Directors may at any time and from time to
time by resolution provide that Directors shall be paid their actual expenses,
if any, of attendance at each
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meeting of the Board of Directors. Nothing in this section shall be construed as
precluding any Director from serving the Corporation in any other capacity and
receiving compensation therefor, but the Board of Directors may by resolution
provide that any Director receiving compensation for his or hers or her services
to the Corporation in any other capacity shall not receive additional
compensation for his or hers or her services as a Director.
ARTICLE IV
OFFICERS
1. Number.
The Corporation shall have the following officers: a Chairman of the
Board (who shall be a Director), a President, a Vice President, a Secretary and
a Treasurer. At the discretion of the Board of Directors, the Corporation may
also have additional Vice Presidents, one or more Assistant Vice Presidents, one
or more Assistant Secretaries and one or more Assistant Treasurers. Any two (2)
or more offices may be held by the same person.
2. Election and Term of Office.
The officers of the Corporation shall be elected annually by the Board
of Directors. Each such officer shall hold office until his or hers or her
successor is duly elected or until his or hers or her earlier death or
resignation or removal in the manner hereinafter provided.
3. Agents.
In addition to the officers mentioned in Section 1 of this Article IV,
the Board of Directors may appoint such agents as the Board of Directors may
deem necessary or advisable, each of which agents shall have such authority and
perform such duties as are provided in these Bylaws or as the Board of Directors
may from time to time determine. The Board of Directors may delegate to any
officer or to any committee the power to appoint or remove any such agents.
4. Removal.
Any officer may be removed, with or without cause, at any time by
resolution adopted by a majority of the whole Board of Directors.
5. Resignations.
Any officer may resign at any time by giving written notice of his or
hers or her resignation to the Board of Directors, the Chairman of the Board,
the President or the Secretary. Any such resignation shall take effect at the
times specified therein, or, if the time when it shall become effective is not
specified therein, it shall take effect immediately upon its receipt by the
Board of Directors, the Chairman of the Board, the President or the Secretary;
and, unless
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otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
6. Vacancies.
A vacancy in any office due to death, resignation, removal,
disqualification or any other cause may be filled for the unexpired portion of
the term thereof by the Board of Directors.
7. Chairman of the Board.
The Chairman of the Board shall be the chief executive officer of the
Corporation and shall have, subject to the control of the Board of Directors,
general and active supervision and direction over the business and affairs of
the Corporation and over its several officers. The Chairman of the Board shall:
(a) preside at all meetings of the stockholders and at all meetings of the Board
of Directors; (b) make a report of the state of the business of the Corporation
at each annual meeting of the stockholders; (c) see that all orders and
resolutions of the Board of Directors are carried into effect; (d) sign, with
the Secretary or an Assistant Secretary, certificates for stock of the
Corporation; (e) have the right to sign, execute and deliver in the name of the
Corporation all deeds, mortgages, bonds, contracts or other instruments
authorized by the Board of Directors, except in cases where the signing,
execution or delivery thereof is expressly delegated by the Board of Directors
or by these Bylaws to some other officer or agent of the Corporation or where
any of them are required by law otherwise to be signed, executed or delivered;
and (f) have the right to cause the corporate seal, if any, to be affixed to any
instrument which requires it. In general, the Chairman of the Board shall
perform all duties incident to the office of the Chairman of the Board and such
other duties as from time to time may be assigned to him or her by the Board of
Directors.
8. President.
The President shall have, subject to the control of the Board of
Directors and the Chairman of the Board, general and active supervision and
direction over the business and affairs of the Corporation and over its several
officers. At the request of the Chairman of the Board, or in case of his or hers
or her absence or inability to act, the President shall perform the duties of
the Chairman of the Board and, when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the Chairman of the Board. he or she
may sign, with the Secretary or an Assistant Secretary, certificates for stock
of the Corporation. He or she may sign, execute and deliver in the name of the
Corporation all deeds, mortgages, bonds, contracts or other instruments
authorized by the Board of Directors, except in cases where the signing,
execution or delivery thereof is expressly delegated by the Board of Directors
or by these Bylaws to some other officer or agent of the Corporation or where
any of them are required by law otherwise to be signed, executed or delivered,
and he may cause the corporate seal, if any, to be affixed to any instrument
which requires it. In general, the President shall perform all duties incident
to the office of the President and such other duties as from time to time may be
assigned to him or her by the Board of Directors or the Chairman of the Board.
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9. Vice President.
The Vice President and any additional Vice Presidents shall have such
powers and perform such duties as the Chairman of the Board, the President or
the Board of Directors may from time to time prescribe and shall perform such
other duties as may be prescribed by these Bylaws. At the request of the
President, or in case of his or hers or her absence or inability to act, the
Vice President shall perform 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.
10. Secretary.
The Secretary shall: (a) record all the proceedings of the meetings of
the stockholders, the Board of Directors and the Executive Committee, if any, in
one or more books kept for that purpose; (b) see that all notices are duly given
in accordance with the provisions of these Bylaws or as required by law; (c) be
the custodian of all contracts, deeds, documents, all other indicia of title to
properties owned by the Corporation and of its other corporate records (except
accounting records) and of the corporate seal, if any, and affix such seal to
all documents the execution of which on behalf of the Corporation under its seal
is duly authorized; (d) sign, with the Chairman of the Board, the President, the
Executive Vice President or a Vice President, certificates for stock of the
Corporation; (e) have charge, directly or through the transfer clerk or transfer
clerks, transfer agent or transfer agents and registrar or registrars appointed
as provided in Section 3 of Article VII of these Bylaws, of the issue, transfer
and registration of certificates for stock of the Corporation and of the records
thereof, such records to be kept in such manner as to show at any time the
amount of the stock of the Corporation issued and outstanding, the manner in
which and the time when such stock was paid for, the names, alphabetically
arranged, and the addresses of the holders of record thereof, the number of
shares held by each, and the time when each became a holder of record; (f) upon
request, exhibit or cause to be exhibited at all reasonable times to any
Director such records of the issue, transfer and registration of the
certificates for stock of the Corporation; (g) see that the books, reports,
statements, certificates and all other documents and records required by law are
properly kept and filed; and (h) see that the duties prescribed by Section 6 of
Article II of these Bylaws are performed. In general, the Secretary shall
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him or her by the Chairman of the Board,
the President or the Board of Directors.
11. Treasurer.
If required by the Board of Directors, the Treasurer shall give a bond
for the faithful discharge of his or hers or her duties in such sum and with
such surety or sureties as the Board of Directors shall determine. The Treasurer
shall: (a) have charge and custody of, and be responsible for, all funds,
securities, notes and valuable effects of the Corporation; (b) receive and give
receipt for monies due and payable to the Corporation from any sources
whatsoever; (c) deposit all such monies to the credit of the Corporation or
otherwise as the Board of Directors, the Chairman of the Board or the President
shall direct in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Article VI of these Bylaws; (d)
cause such funds to be disbursed by checks or drafts on the authorized
depositories
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of the Corporation signed as provided in Article VI of these Bylaws; (e) be
responsible for the accuracy of the amounts of, and cause to be preserved proper
vouchers for, all monies so disbursed; (f) have the right to require from time
to time reports or statements giving such information as he or she may desire
with respect to any and all financial transactions of the Corporation from the
officers or agents transacting the same; (g) render to the Chairman of the
Board, the President or the Board of Directors, whenever they, respectively,
shall request him or her so to do, an account of the financial condition of the
Corporation and of all his or hers or her transactions as Treasurer; and (h)
upon request, exhibit or cause to be exhibited at all reasonable times the cash
books and other records to the Chairman of the Board, the President or any of
the Directors of the Corporation. In general, the Treasurer shall perform all
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him or her by the Chairman of the Board, the President
or the Board of Directors.
12. Assistant Officers.
Any persons elected as assistant officers shall assist in the
performance of the duties of the designated office and such other duties as
shall be assigned to them by any Vice President, the Secretary or the Treasurer,
as the case may be, or by the Board of Directors, the Chairman of the Board, or
the President.
13. Compensation.
The salaries of all officers and agents of the Corporation shall be
fixed by the Board of Directors.
14. Combination of Offices.
Any two of the offices hereinabove enumerated may be held by one and
the same person, if such person is so elected or appointed, except the offices
of President and Secretary.
ARTICLE V
COMMITTEES
1. Executive Committee; How Constituted and Powers.
The Board of Directors, by resolution adopted by a majority of the
whole Board of Directors, may designate one or more of the Directors then in
office, who shall include the Chairman of the Board, to constitute an Executive
Committee, which shall have and may exercise between meetings of the Board of
Directors all the delegable powers of the Board of Directors to the extent not
expressly prohibited by the Nevada General Corporation Law or by resolution of
the Board of Directors. The Board of Directors may designate one or more
Directors as alternate members of the Committee who may replace any absent or
disqualified member at any meeting of the Committee. Each member of the
Executive Committee shall continue to be a member thereof only during the
pleasure of a majority of the whole Board of Directors.
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2. Executive Committee; Organization.
The Chairman of the Board shall act as chairman at all meetings of the
Executive Committee and the Secretary shall act as secretary thereof. In case of
the absence from any meeting of the Chairman of the Board or the Secretary, the
Committee may appoint a chairman or secretary, as the case may be, of the
meeting.
3. Executive Committee; Meetings.
Regular meetings of the Executive Committee may be held without notice
on such days and at such places as shall be fixed by resolution adopted by a
majority of the Committee and communicated to all its members. Special meetings
of the Committee shall be held whenever called by the Chairman of the Board or a
majority of the members thereof then in office. Notice of each special meeting
of the Committee shall be given in the manner provided in Section 6 of Article
III of these Bylaws for special meetings of the Board of Directors. Notice of
any such meeting of the Executive Committee, however, need not be given to any
member of the Committee if waived by him or her in writing or by facsimile,
cable, wireless or other form of recorded communication either before or after
the meeting, or if he or she is present at such meeting, except when he or she
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Subject to the
provisions of this Article V, the Committee, by resolution adopted by a majority
of the whole Committee, shall fix its own rules of procedure and it shall keep a
record of its proceedings and report them to the Board of Directors at the next
regular meeting thereof after such proceedings have been taken. All such
proceedings shall be subject to revision or alteration by the Board of
Directors; provided, however, that third parties shall not be prejudiced by any
such revision or alteration.
4. Executive Committee; Quorum and Manner of Acting.
A majority of the Executive Committee shall constitute a quorum for the
transaction of business, and, except as specified in Section 3 of this Article
V, the act of a majority of those present at a meeting thereof at which a quorum
is present shall be the act of the Committee. The members of the Committee shall
act only as a committee, and the individual members shall have no power as such.
5. Other Committees.
The Board of Directors, by resolution adopted by a majority of the
whole Board, may constitute other committees other than the Executive Committee,
which shall in each case consist of one or more of the Directors and, at the
discretion of the Board of Directors, such officers who are not Directors. The
Board of Directors may designate one or more Directors or officers who are not
Directors as alternate members of any committee other than the Executive
Committee who may replace any absent or disqualified member at any meeting of
the committee. Each such committee shall have and may exercise such powers as
the Board of Directors may determine and specify in the respective resolutions
appointing them; provided, however, that (a) unless all of the members of any
committee shall be Directors, such committee shall not have
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authority to exercise any of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and (b) if any
committee shall have the power to determine the amounts of the respective fixed
salaries of the officers of the Corporation or any of them, such committee shall
consist of not less than three (3) members and none of its members shall have
any vote in the determination of the amount that shall be paid to him or her as
a fixed salary. A majority of all the members of any such committee may fix its
rules of procedure, determine its action and fix the time and place of its
meetings and specify what notice thereof, if any, shall be given, unless the
Board of Directors shall otherwise by resolution provide.
6. Committee Minutes.
The Executive Committee and any other committee shall keep regular
minutes of their proceedings and report the same to the Board of Directors when
required.
7. Action by Committees Without a Meeting.
Any action required or permitted to be taken at a meeting of the
Executive Committee or any other committee of the Board of Directors may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by all members of the
committee and such consent is filed with the minutes of the proceedings of the
committee.
8. Resignations.
Any member of the Executive Committee or any other committee may resign
therefrom at any time by giving written notice of his or hers or her resignation
to the Chairman of the Board, the President or the Secretary. Any such
resignation shall take effect at the time specified therein, or if the time when
it shall become effective is not specified therein, it shall take effect
immediately upon its receipt by the Chairman of the Board or the Secretary; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
9. Vacancies.
Any vacancy in the Executive Committee or any other committee shall be
filled by the vote of a majority of the whole Board of Directors.
10. Compensation.
Unless otherwise expressly provided by resolution adopted by the Board
of Directors, no member of the Executive Committee or any other committee shall
receive any compensation for his or hers or her services as a committee member.
The Board of Directors may at any time and from time to time by resolution
provide that committee members shall be paid a fixed sum for attendance at each
committee meeting or a stated salary as a committee member. In addition, the
Board of Directors may at any time and from time to time by resolution provide
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that such committee members shall be paid their actual expenses, if any, of
attendance at each committee meeting. Nothing in this section shall be construed
as precluding any committee member from serving the Corporation in any other
capacity and receiving compensation therefor, but the Board of Directors may by
resolution provide that any committee member receiving compensation for his or
hers or her services to the Corporation in any other capacity shall not receive
additional compensation for his or hers or her services as a committee member.
11. Dissolution of Committees; Removal of Committee Members.
The Board of Directors, by resolution adopted by a majority of the
whole Board, may, with or without cause, dissolve the Executive Committee or any
other committee, and, with or without cause, remove any member thereof.
ARTICLE VI
MISCELLANEOUS
1. Execution of Contracts.
Except as otherwise required by law or by these Bylaws, any contract or
other instrument may be executed and delivered in the name of the Corporation
and on its behalf by the Chairman of the Board, the President, or any Vice
President. In addition, the Board of Directors may authorize any other officer
of officers or agent or agents to execute and deliver any contract or other
instrument in the name of the Corporation and on its behalf, and such authority
may be general or confined to specific instances as the Board of Directors may
by resolution determine.
2. Attestation.
Any Vice President, the Secretary, or any Assistant Secretary may
attest the execution of any instrument or document by the Chairman of the Board,
the President, or any other duly authorized officer or agent of the Corporation
and may affix the corporate seal, if any, in witness thereof, but neither such
attestation nor the affixing of a corporate seal shall be requisite to the
validity of any such document or instrument.
3. Checks, Drafts.
All checks, drafts, orders for the payment of money, bills of lading,
warehouse receipts, obligations, bills of exchange and insurance certificates
shall be signed or endorsed (except endorsements for collection for the account
of the Corporation or for deposit to its credit, which shall be governed by the
provisions of Section 4 of this Article VI) by such officer or officers or agent
or agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
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4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation or otherwise as the Board of
Directors, the Chairman of the Board, or the President shall direct in general
or special accounts at such banks, trust companies, savings and loan
associations, or other depositories as the Board of Directors may select or as
may be selected by any officer or officers or agent or agents of the Corporation
to whom power in that respect has been delegated by the Board of Directors. For
the purpose of deposit and for the purpose of collection for the account of the
Corporation, checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation may be endorsed, assigned and delivered
by any officer or agent of the Corporation. The Board of Directors may make such
special rules and regulations with respect to such accounts, not inconsistent
with the provisions of these Bylaws, as it may deem expedient.
5. Proxies in Respect of Stock or Other Securities of Other Corporations.
Unless otherwise provided by resolution adopted by the Board of
Directors, the Chairman of the Board, the President, or any Vice President may
exercise in the name and on behalf of the Corporation the powers and rights
which the Corporation may have as the holder of stock or other securities in any
other corporation, including without limitation the right to vote or consent
with respect to such stock or other securities.
6. Fiscal Year.
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors, and may thereafter be changed from time to time by action of
the board of Directors. Initially, the fiscal year shall begin on January 1 and
end on December 31.
ARTICLE VII
STOCK AND WARRANTS
1. Certificates.
Every holder of stock or warrant to purchase stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman of the Board, the President, or a Vice President and
by the Secretary or an Assistant Secretary. The signatures of such officers upon
such certificate may be facsimiles if the certificate is manually signed by a
transfer agent or registered by a registrar, other than the Corporation itself
or one of its employees. If any officer who has signed or whose facsimile
signature has been placed upon a certificate has ceased for any reason to be
such officer prior to issuance of the certificate, the certificate may be issued
with the same effect as if that person were such officer at the date of issue.
All certificates for stock or warrants of the Corporation shall, respectively,
be consecutively numbered, shall state the number of shares or warrants
represented thereby and shall otherwise be in such form as shall be determined
by the Board of Directors, subject to such requirements as are imposed by the
Nevada General Corporation Law. The names and addresses
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of the persons to whom the shares or warrants represented by certificates are
issued shall be entered on the stock or warrant transfer books of the
Corporation, together with the number of shares or warrants and the date of
issue, and in the case of cancellation, the date of cancellation. Certificates
surrendered to the Corporation for transfer shall be canceled, and no new
certificate shall be issued in exchange for such shares or warrants until the
original certificate has been canceled; except that in the case of a lost,
stolen, destroyed or mutilated certificate, a new certificate may be issued
therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
2. Transfer of Stock and Warrants.
Transfers of shares of stock or warrants to purchase stock of the
Corporation shall be made only on the stock or warrant transfer books of the
Corporation by the holder of record thereof or by his or hers or her legal
representative or attorney in fact, who shall furnish proper evidence of
authority to transfer to the Secretary, or a transfer clerk or a transfer agent,
and upon surrender of the certificate or certificates for such shares properly
endorsed and payment of all taxes thereon. The person in whose name shares of
stock or warrants stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.
3. Regulations.
The Board of Directors may make such rules and regulations as it may
deem expedient, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for stock of the Corporation. The
Board of Directors may appoint, or authorize any officer or officers or any
committee to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.
4. Lost Certificates.
The Board of Directors may direct a new stock or warrant certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of the fact by the person claiming the
certificate of stock or warrant to be lost 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 or destroyed certificate or certificates, or his or hers
legal representative, to advertise the same in such manner as it shall require
and/or 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 or destroyed.
5. Registered Stockholders.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and hold
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liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share, or warrants issued by the Company, or shares, or
warrants, on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Nevada.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares of stock in the manner
and upon the terms and conditions provided in the Nevada General Corporation
Law.
ARTICLE IX
SEAL
A corporate seal shall not be requisite to the validity of any
instrument executed by or on behalf of the Corporation. Nevertheless, if in any
instance a corporate seal is used, the same shall be in such form as designated
by the Board of Directors and shall bear the full name of the Corporation and
the year and state of incorporation, or words and figures of similar import.
ARTICLE X
INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. General.
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,
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 or her in connection with the 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 or hers
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, does 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 that, with respect to
any criminal action or proceeding, he had reasonable cause to believe that his
or hers conduct was unlawful.
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2. Derivative Actions.
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 amounts paid in
settlement and attorneys' fees) actually and reasonably incurred by him or her
in connection with the defense or settlement of the 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 indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged by a court of competent jurisdiction after exhaustion of all
appeals therefrom to be liable to the Corporation or for amounts paid in
settlement to the Corporation unless and only to the extent that the court in
which such action or suit was brought or other court of competent jurisdiction
shall determine upon application that, in view of all the circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
3. Indemnification in Certain Cases.
To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article X, 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 or her in connection therewith.
4. Procedure.
Any indemnification under Sections 1 and 2 of this Article X (unless
ordered by a court or advanced pursuant to Section 5 of this Article X) 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. Such determination shall be made (a) 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 (b) if such a quorum is
not obtainable, or, even if obtainable, when a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
5. Advances for Expenses.
Expenses incurred by a director, officer, employee, or agent of the
Corporation in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation as they are incurred and in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay the amount if
it shall be ultimately determined by a court of competent jurisdiction that he
is not entitled to be indemnified by the Corporation as authorized in this
Article X.
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<PAGE> 20
6. Rights Not-Exclusive.
The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to the other Sections of this Article X shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his or hers official capacity or an action in another capacity while holding
such office, except that indemnification, unless ordered by a court pursuant to
Section 2 of this Article X or for advancement of expenses made pursuant to
Section 5 of this Article X, may not be made to or on behalf of any director or
officer if a final adjudication establishes that his or hers acts or omissions
involved intentional misconduct, fraud or a knowing violation of the law and
were material to the cause of action.
7. Insurance.
The Corporation shall have power 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 or
her and liability and expenses incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability under the
provisions of this Article X.
8. Definition of Corporation.
For the purposes of this Article X, references to "the Corporation"
include, in addition to the resulting corporation, all constituent corporations
(including any constituent of a constituent) absorbed in consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees and 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, trust or other enterprise, shall be entitled to all rights and
benefits set forth in the provisions of this Article X with respect to the
resulting or surviving corporation.
9. Other Definitions.
For purposes of this Article X, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
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 Article
X.
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<PAGE> 21
10. Continuation of Rights.
The indemnification and advancement of expenses provided by, or granted
pursuant to this Article X 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. No amendment to or repeal of
this Article X shall apply to or have any effect on, the rights of any director,
officer, employee or agent under this Article X which rights come into existence
by virtue of acts or omissions of such director, officer, employee or agent
occurring prior to such amendment or repeal.
ARTICLE XI
AMENDMENTS
These Bylaws may be repealed, altered or amended by the affirmative
vote of the holders of a majority of the stock issued and outstanding and
entitled to vote at any special meeting of stockholders called for such purpose
or at an annual meeting of stockholders or by resolution duly adopted by the
affirmative vote of not less than a majority of the Directors in office at any
annual or regular meeting of the Board of Directors or at any special meeting of
the Board of Directors if notice of the proposed repeal, alteration or amendment
be contained in the notice of such special meeting; provided, however, that an
affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the stock
issued and outstanding and entitled to vote thereon is required to repeal, alter
or amend Section 14 of Article II, Section 11 of Article III or Article X.
I, THE UNDERSIGNED, being the Secretary of Piranha Interactive
Publishing, Inc., DO HEREBY CERTIFY the foregoing to be the Bylaws of the
Corporation, as adopted by the Board of Directors on this 22nd day of November,
1996.
----------------------------
J. Wade Stallings, II
Secretary
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<PAGE> 1
EXHIBIT 4.4
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii)
RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY
APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE
ISSUED IN EXCHANGE FOR THIS NOTE.
PIRANHA INTERACTIVE PUBLISHING, INC.
No. $______
PROMISSORY NOTE
Piranha Interactive Publishing, Inc., a Nevada corporation
(the "Company"), for value received, hereby promises to pay to ______ or
registered assigns (the "Payee") on the earlier of the closing date of the
public offering of securities by the Company contemplated in the Confidential
Term Sheet dated November 13, 1996 or November 27, 1997 (the "Maturity Date") at
the offices of the Company, 1839 West Drake, Suite B, Tempe, Arizona 85283, the
principal amount of _______________________ ($________), including interest at
the rate of ten percent (10%) per annum accrued through the Maturity Date, in
such coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts.
This Note is issued pursuant to a Subscription Agreement dated
as of November 13, 1996, between the Company and the Payee (the "Subscription
Agreement"), a copy of which agreement is available for inspection at the
Company's principal office. Notwithstanding any provision to the contrary
contained herein, this Note is subject and entitled to certain terms,
conditions, covenants and agreements contained in the Subscription Agreement.
Any transferee or transferees of the Note, by their acceptance hereof, assume
the obligations of the Payee in the Subscription Agreement with respect to the
conditions and procedures for transfer of the Note. Reference to the
Subscription Agreement shall in no way impair the absolute and unconditional
obligation of the Company to pay both principal and interest hereon as provided
herein.
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<PAGE> 2
1. Prepayment
A. The principal amount of this Note may be prepaid by the
Company, in whole or in part, without penalty, at any time.
2. Covenants of Company
A. The Company covenants and agrees that, so long as
this Note shall be outstanding, it will:
(i) Promptly pay and discharge all lawful taxes,
assessments, and governmental charges or levies imposed upon the Company or upon
its income and profits, or upon any of its property, before the same shall
become in default, as well as all lawful claims for labor, materials and
supplies which, if unpaid, might become a lien or charge upon such properties or
any part thereof; provided, however, that the Company shall not be required to
pay and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof shall be contested in good faith by appropriate proceedings and
the Company shall set aside on its books adequate reserves with respect to any
such tax, assessment, charge, levy or claim so contested;
(ii) Do or cause to be done all things reasonably necessary
to preserve and keep in full force and effect its corporate existence, rights
and franchises and comply with all laws applicable to the Company, except where
the failure to comply would not have a material adverse effect on the Company;
(iii) At all times reasonably maintain, preserve, protect
and keep its property used or useful in the conduct of its business in good
repair, working order and condition, and from time to time make all needful and
proper repairs, renewals, replacements, betterments and improvements thereto as
shall be reasonably required in the conduct of its business;
(iv) To the extent necessary for the operation of its
business, keep adequately insured by all financially sound reputable insurers,
all property of a character usually insured by similar corporations and carry
such other insurance as is usually carried by similar corporations; and
(v) At all times keep true and correct books, records and
accounts.
(vi) Except for the incurrence of any indebtedness
(including without limitation, the incurrence of any guarantee or contingent
payment obligation with respect thereto) secured by a lien, mortgage or
guarantee on the property (whether real or personal) or
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<PAGE> 3
equipment of the Company and any refinancings or replacements thereto or trade
debt incurred in the ordinary course of business, not incur any indebtedness
whatsoever which indebtedness does not expressly provide that it is wholly
subordinated in right of payment to the indebtedness evidenced by this Note and
any identical Notes issued pursuant to the Term Sheet.
3. Events of Default
A. This Note shall become and be due and payable upon
written demand made by the holder hereof if one or more of the following events,
herein called events of default, shall happen and be continuing:
(i) Default in the payment of the principal and
accrued interest on any of the Notes issued pursuant to the Term Sheet when and
as the same shall become due and payable, whether by acceleration or otherwise;
(ii) Default in the due observance or performance of
any material covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to the terms hereof and such default shall
continue uncured for thirty (30) days after written notice thereof, specifying
such default, shall have been given to the Company by the holder of the Note;
(iii) Default in the payment of any outstanding
indebtedness in excess of $25,000 principal amount or in the due observance or
performance of any material covenant, condition or agreement on the part of the
Company with respect to any outstanding indebtedness with the result that such
outstanding indebtedness shall become due and payable prior to the due date
otherwise specified therefor and such default shall continue uncured or such
acceleration shall not be rescinded or annulled within thirty (30) days after
written notice thereof to the Company from the holder of this Note;
(iv) Application for, or consent to, the appointment
of a receiver, trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to
pay its debts as they mature;
(vi) General assignment by the Company for the benefit
of creditors;
(vii) Filing by the Company of a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization, or an arrangement
with creditors;
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<PAGE> 4
(viii) Entering against the Company of a court order
approving a petition filed against it under the Federal bankruptcy laws, which
order shall not have been vacated or set aside or otherwise terminated within
sixty (60) days;
(ix) The sale by the Company of substantially all of
its assets; or
(x) The merger by the Company with or into another
corporation, other than for purposes of changing domicile, where the Company is
not the surviving corporation; or
(xi) A material breach of the Company's
representations contained in the Subscription Agreement.
B. The Company agrees that notice of the occurrence of
any event of default will be promptly given to the holder at his or her
registered address by certified mail.
C. Subject to the provisions of 4(B) hereof, in case any
one or more of the events of default specified above shall happen and be
continuing, the holder of this Note may proceed to protect and enforce his
rights by suit in the specific performance of any covenant or agreement
contained in this Note or in aid of the exercise of any power granted in this
Note or may proceed to enforce the payment of this Note or to enforce any other
legal or equitable rights as such holder.
4. Amendments and Waivers
A. Subject to the provisions of 4(C) and (D) hereof, the
covenants set forth in 2(A) hereof may be waived by the written consent of the
holders of a majority of the outstanding principal amount of the Notes issued
pursuant to the Term Sheet.
B. Subject to the provisions of 4(C) and (D) hereof, the
events of default set forth in clauses (i), (ii), (iii) and (xi) of 3(A) hereof
may be waived by the written consent of the holders of a majority of the
outstanding principal amount of the Notes issued pursuant to the Term Sheet.
C. The Company may amend or supplement this Note with
the written consent of the holders of a majority in the outstanding principal
amount of the Notes issued pursuant to the Term Sheet; provided, however, that
without the consent of each Noteholder, no amendment, supplement or waiver may:
1. reduce the principal amount of Notes
whose holders must consent to any amendment, supplement or
waiver;
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<PAGE> 5
2. reduce the rate of interest or principal
of the Note;
3. extend the maturity date of the Note or
the time for payment of interest by more than one year from
the respective date(s) set forth herein.
D. After any waiver, amendment or supplement under
this section becomes effective, the Company shall mail to the holders of the
Notes a notice briefly describing such waiver, amendment or supplement.
5. Miscellaneous
A. The Company may consider and treat the person in
whose name this Note shall be registered as the absolute owner thereof for all
purposes whatsoever (whether or not this Note shall be overdue) and the Company
shall not be affected by any notice to the contrary. The registered owner of
this Note shall have the right to transfer it by assignment (subject to the
limitations on transfer contained in the Subscription Agreement) and the
transferee thereof shall, upon his registration as owner of this Note, become
vested with all the powers and rights of the transferor. Registration of any new
owner shall take place upon presentation of this Note to the Company at its
offices, 1839 West Drake, Suite B, Tempe, Arizona 85283, together with a duly
authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his address, and
to submit appropriate evidence regarding the transfer so that this Note may be
registered in the name of the transferee. This Note is transferable only on the
books of the Company by the holder hereof, in person or by attorney, on the
surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders or transferees of the Note not
registered at the time of sending the communication.
B. Payments of interest shall be made as specified
above to the registered owner of this Note. Payment of principal and interest
shall be made to the registered owner of this Note upon presentation of this
Note upon or after maturity.
C. This Note shall be construed and enforced in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed in its name by its President.
PIRANHA INTERACTIVE PUBLISHING, INC.
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By:
-----------------------------
Timothy M. Brannan, President
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<PAGE> 1
EXHIBIT 4.5
Option to Purchase
________Units
PIRANHA INTERACTIVE PUBLISHING, INC.
Unit Purchase Option
Dated: , 1997
THIS CERTIFIES THAT D.H. Blair Investment Banking Corp., (herein
sometimes called the "Holder") is entitled to purchase from Piranha Interactive
Publishing, Inc. a Nevada corporation (hereinafter called the "Company"), at the
prices and during the periods as hereinafter specified, up to one hundred twenty
thousand (120,000) Units ("Units"), each Unit consisting of one share of the
Company's Common Stock, $.001 par value, as now constituted ("Common Stock"),
one Class A warrant ("Class A Warrants") and one Class B warrant ("Class B
Warrants"). Each Class A Warrant is exercisable to purchase one share of Common
Stock and one Class B Warrant at an exercise price of $6.50 from , 199- to
, 200-, and each Class B Warrant is exercisable to purchase one share of
Common Stock at an exercise price of $8.75 until , 200-. The Class A Warrants
and Class B Warrants are herein collectively referred to as the "Warrants."
The Units have been registered under a Registration Statement on
Form SB-2, (File No. 33-_______ ) declared effective by the Securities and
Exchange Commission on _______, 1997 (the "Registration Statement". This Option,
together with options of like tenor, constituting in the aggregate options (the
"Options") to purchase 120,000 Units, subject to adjustment in accordance with
Section 8 of this Option (the "Option Units"), was originally issued pursuant to
an underwriting agreement between the Company and D.H. Blair Investment Banking
Corp., as underwriter (the "Underwriter") in connection with a public offering
(the "Offering") of 1,200,000 Units (the "Public Units") through the
Underwriter, in consideration of $_______ received for the Options.
Except as specifically otherwise provided herein, the Common
Stock and the Warrants issued pursuant to the option herein granted (the
"Option") shall bear the same terms and conditions as described under the
caption "Description of Securities" in the Registration Statement, and the
Warrants shall be governed by the terms of the Warrant Agreement dated as of
_______, 1997 executed in connection with such public offering (the "Warrant
Agreement"), and except that (i) the holder shall have registration rights under
the Securities Act of 1933, as amended (the "Act"), for the Option, the Common
Stock and the Warrants included in the Option Units, and the shares of Common
Stock underlying the Warrants, as more fully described in Section 6 of this
Option and (ii) the Warrants issuable upon exercise of the Option will be
subject to redemption by the Company pursuant to the Warrant Agreement at any
time after the Option
<PAGE> 2
has been exercised and the Warrants underlying the Option Units are outstanding.
Any such redemption shall be on the same terms and conditions as the Warrants
included in the Public Units (the "Public Warrants"). The Company will list the
Common Stock underlying this Option and, at the Holder's request the Warrants,
on the Nasdaq National Market, the Nasdaq Small Cap Market or such other
exchange or market as the Common Stock or Public Warrants may then be listed or
quoted. In the event of any extension of the expiration date or reduction of the
exercise price of the Public Warrants, the same changes to the Warrants included
in the Option Units shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at
the prices, subject to adjustment in accordance with Section 8 of this Option
("the "Exercise Price"), and during the periods as follows:
(a) During the period from _______ to _______,
inclusive, the Holder shall have no right to purchase any
Option Units hereunder, except that in the event of any
merger, consolidation or sale of all or substantially all
the capital stock or assets of the Company or in the case
of any statutory exchange of securities with another
corporation (including any exchange effected in connection
with a merger of another corporation into the Company)
subsequent to _______, the Holder shall have the right to
exercise this Option and the Warrants included herein at
such time and receive the kind and amount of shares of
stock and other securities and property (including cash)
which a holder of the number of shares of Common Stock
underlying this Option and the Warrants included in this
Option would have owned or been entitled to receive had
this Option been exercised immediately prior thereto.
(b) Between _______, and _______,200_ inclusive,
the Holder shall have the option to purchase Option Units
hereunder at a price of $____ per Unit. For purposes of
the adjustments under Section 8 hereof, the Per Share
Exercise Price shall be deemed to be $_______, subject to
further adjustment as provided in such Section 8.
(c) After _________, 200_ the Holder shall have no
right to purchase any Units hereunder.
2. (a) The rights represented by this Option may be exercised at
any time within the period above specified, in whole or in part, by (i) the
surrender of this Option (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company (or such other office
or agency of the Company as it may designate by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company); and (ii)
payment to the Company of the exercise price then in effect for the number of
Option Units
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<PAGE> 3
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any. This Option shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date this Option is surrendered and payment is made in
accordance with the foregoing provisions of this Section 2, and the person or
persons in whose name or names the certificates for shares of Common Stock and
Warrants shall be issuable upon such exercise shall become the holder or holders
of record of such Common Stock and Warrants at that time and date. The
certificates for the Common Stock and Warrants so purchased shall be delivered
to the Holder as soon as practicable but not later than ten (10) days after the
rights represented by this Option shall have been so exercised.
(b) At any time during the period above specified, during
which this Option may be exercised, the Holder may, at its option, exchange this
Option, in whole or in part (an "Option Exchange"), into the number of Option
Units determined in accordance with this Section (b), by surrendering this
Option at the principal office of the Company or at the office of its stock
transfer agent, accompanied by a notice stating such Holder's intent to effect
such exchange, the number of Option Units into which this Option is to be
exchanged and the date on which the Holder requests that such Option Exchange
occur (the "Notice of Exchange"). The Option Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares of Common Stock and Warrants issuable upon such Option Exchange and, if
applicable, a new Option of like tenor evidencing the balance of the Option
Units remaining subject to this Option, shall be issued as of the Exchange Date
and delivered to the Holder within seven (7) days following the Exchange Date.
In connection with any Option Exchange, this Option shall represent the right to
subscribe for and acquire the number of Option Units (rounded to the next
highest integer) equal to (x) the number of Option Units specified by the Holder
in its Notice of Exchange up to the maximum number of Option Units subject to
this option (the "Total Number") less (y) the number of Option Units equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the Fair Market Value. "Fair Market Value" shall
mean first, if there is a trading market as indicated in Subsection (i) below
for the Units, such Fair Market Value of the Units and if there is no such
trading market in the Units, then Fair Market Value shall have the meaning
indicated in Subsections (ii) through (v) below for the aggregate value of all
shares of Common Stock and Warrants which comprise a Unit:
(i) If the Units are listed on a national securities
exchange or listed or admitted to unlisted trading privileges on
such exchange or listed for trading on the Nasdaq National Market
or the Nasdaq Small Cap Market, the Fair Market Value shall be
the average of the last reported sale prices or the average of
the means of the last reported bid and asked prices,
respectively, of the Units on such exchange or market for the
twenty (20) business days ending on the last business day prior
to the Exchange Date; or
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<PAGE> 4
(ii) If the Common Stock or Warrants are listed on a
national securities exchange or admitted to unlisted trading
privileges on such exchange or listed for trading on the Nasdaq
National Market or the Nasdaq Small Cap Market, the Fair Market
Value shall be the average of the last reported sale prices or
the average of the means of the last reported bid and asked
prices, respectively, of Common Stock or Warrants, respectively,
on such exchange or market for the twenty (20) business days
ending on the last business day prior to the Exchange Date; or
(iii) If the Common Stock or Warrants are not so listed or
admitted to unlisted trading privileges, the Fair Market Value
shall be the average of the means of the last reported bid and
asked prices of the Common Stock or Warrants, respectively, for
the twenty (20) business days ending on the last business day
prior to the Exchange Date; or
(iv) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be an amount, not less than
book value thereof as at the end of the most recent fiscal year
of the Company ending prior to the Exchange Date, determined in
such reasonable manner as may be prescribed by the Board of
Directors of the Company; or
(v) If the Warrants are not so listed or admitted to
unlisted trading privileges, and bid and asked prices are not so
reported for Warrants, then Fair Market Value for the Warrants
shall be an amount equal to the difference between (i) the Fair
Market Value of the shares of Common Stock and Warrants which may
be received upon the exercise of the Warrants, as determined
herein, and (ii) the Warrant Exercise Price.
3. Neither this Option nor the underlying securities shall be
transferred, sold, assigned, or hypothecated for a period of one year commencing
on the date of issuance of this Option except that they may be transferred to
successors of the Holder, and may be assigned in whole or in part to any person
who is an officer of the Holder, any member participating in the selling group
relating to the Offering or any officer of such selling group member. Any such
assignment shall be effected by the Holder (i) executing the form of assignment
at the end hereof and (ii) surrendering this Option for cancellation at the
office or agency of the Company referred to in Section 2 hereof, accompanied by
a certificate (signed by an officer of the Holder if the Holder is a
corporation), stating that each transferee is a permitted transferee under this
Section 3 hereof; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) a new Option or Options of like
tenor and representing in the aggregate rights to purchase the same number of
Option Units as are purchasable hereunder.
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<PAGE> 5
4. The Company covenants and agrees that all shares of Common
Stock which may be issued as part of the Option Units purchased hereunder and
the Common Stock which may be issued upon exercise of the Warrants will, upon
issuance, be duly and validly issued, fully paid and nonassessable and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that during the periods within which this Option may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
this Option and that it will have authorized and reserved a sufficient number of
shares of Common Stock for issuance upon exercise of the Warrants included in
the Option Units.
5. This Option shall not entitle the Holder to any voting rights
or any other rights, or subject to the Holder to any liabilities, as a
stockholder of the Company.
6. (a) The Company shall advise the Holder or its transferee,
whether the Holder holds the Option or has exercised the Option and holds Option
Units or any of the securities underlying the Option Units, by written notice at
least four weeks prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act covering any securities of the Company, for its
own account or for the account of others, and will for a period of seven years
from the effective date of the Registration Statement, upon the request of the
Holder, include in any such post-effective amendment or registration statement,
such information as may be required to permit a public offering of the Option,
all or any of the Option Units, the Common Stock or Warrants included in the
Option Units or the Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities"); provided, however, the right of any Holder to include
its Registrable Securities in any such post effective amendment or registration
statement may be waived by the written consent of D.H. Blair Investment Banking
Corp., D.H. Blair & Co. Inc. or J. Morton Davis.
(b) If any Demand Holder ("Demand Holder" as defined below)
shall give notice to the Company at any time to the effect that such holder
desires to register under the Act this Option, the Option Units or any of the
underlying securities contained in the Option Units under such circumstances
that a public distribution (within the meaning of the Act) of any such
securities will be involved then the Company will promptly, but no later than
two weeks after receipt of such notice, file a post-effective amendment to the
current Registration Statement or a new registration statement pursuant to the
Act or such other form as the holder requests pursuant to the Act, to the end
that the Option, the Option Units and/or any of the securities underlying the
Option Units may be publicly sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such registration
to become and remain effective (including the taking of such steps as are
necessary to obtain the removal of any stop order); provided, that such holder
shall furnish the Company with appropriate information in connection therewith
as the Company may reasonably request in writing. The Demand Holder may, at its
option, request the filing of a post-effective amendment to the current
Registration
-5-
<PAGE> 6
Statement or a new registration statement under the Act on one occasion during
the four year period beginning one year from the effective date of the
Registration Statement. The Holder may, at its option request the registration
of the Option and/or any of the securities underlying the Option in a
registration statement made by the Company as contemplated by Section 6(a) or in
connection with a request made pursuant to this Section 6(b) prior to
acquisition of the Option Units issuable upon exercise of the Option and even
though the Holder has not given notice of exercise of the Option. The Demand
Holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the Option,
the Option Units as a unit, or separately as to the Common Stock and/or Warrants
included in the Option Units and/or the Common Stock issuable upon the exercise
of the Warrants, and such registration rights may be exercised by the Demand
Holder prior to or subsequent to the exercise of the Option.
Within ten days after receiving any such notice pursuant to this
Section 6(b), the Company shall give notice to the other holders of the Options,
advising that the Company is proceeding with such post-effective amendment or
registration statement and offering to include therein the securities underlying
the Options of the other holders, provided that they shall furnish the Company
with such appropriate information (relating to the intentions of such holders)
in connection therewith as the Company shall reasonably request in writing. In
the event the registration statement is not filed within the period specified
herein, and in the event the registration statement is not declared effective
under the Act prior to , 200 , then at the holders' request, the
Company shall purchase the Options from the holder for a per option price equal
to the difference between (i) the Fair Market Value of the Common Stock on the
date of notice multiplied by the number of shares of Common Stock issuable upon
exercise of the Option and the underlying Warrants and (ii) the average per
share purchase price of the Option and each share of Common Stock underlying the
Option. All costs and expenses of the first such post-effective amendment or new
registration statement under this paragraph 6(b) shall be borne by the Company,
except that the holders shall bear the fees of their own counsel and any
underwriting discounts or commissions applicable to any of the securities sold
by them. If the Company determines to include securities to be sold by it in any
registration statement originally requested pursuant to this Section 6(b), such
registration shall instead be deemed to have been a registration under Section
6(a) and not under this Section 6(b).
The Company will maintain such registration statement or
post-effective amendment current under the Act for a period of at least six
months (and for up to an additional three months if requested by the Holder)
from the effective date thereof.
(c) The term "Demand Holder" as used in this Section 6
shall mean the holder of at least 50% of the Common Stock and the Warrants
underlying the Options (considered in the aggregate) and shall include any owner
or combination of owners of such securities, which ownership shall be calculated
by determining the number of shares of Common
-6-
<PAGE> 7
Stock held by such owner or owners as well as the number of shares then issuable
upon exercise of the Warrants.
(d) Whenever pursuant to Section 6 a registration
statement relating to any Registrable Securities is filed under the Act, amended
or supplemented, the Company shall (i) supply prospectuses and such other
documents as the Holder may request in order to facilitate the public sale or
other disposition of the Registrable Securities, (ii) use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as such Holder designates, (iii) furnish indemnification in the manner provided
in Section 7 hereof, (iv) notify each Holder of Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and, at the request of any such Holder, prepare and furnish to such
Holder a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not included an
untrue statement of a material fact or omit to state material fact required to
be stated therein or necessary to make the statements therein not misleading and
(v) do any and all other acts and things which may be necessary or desirable to
enable such Holders to consummate the public sale or other disposition of the
Registrable Securities, The Holder shall furnish appropriate information in
connection therewith and indemnification as set forth in Section 7.
(e) The Company shall not permit the inclusion of any
securities other than the Registrable Securities to be included in any
registration statement filed pursuant to Section 6(b) hereof without the prior
written consent of the Demand Holder.
(f) The Company shall furnish to each Holder participating
in the offering and to each underwriter, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (or, if such
registration includes an underwritten public offering, an opinion dated the date
of the closing under the underwriting agreement), and (ii) if such registration
includes an underwritten public offering, a "cold comfort" letter dated the
effective date of such registration statement and dated the date of the closing
under the underwriting agreement signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
-7-
<PAGE> 8
(g) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonable
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to non-confidential books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
as any such Holder shall reasonably request.
7. (a) Whenever pursuant to Section 6 a registration statement
relating to the Registrable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse the Distributing
Holder and each such controlling person and underwriter for any legal or other
expenses reasonably incurred by the Distributing Holder or such controlling
person or underwriter in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder specifically for use in the
preparation thereof.
(b) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each Distributing
Holder will agree, severally but not jointly, to indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue or alleged
-8-
<PAGE> 9
untrue statement of any material fact contained in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder specifically for use in the preparation
thereof; except that the maximum amount which may be recovered from the
Distributing Holder pursuant to this Section 7 or otherwise shall be limited to
the amount of net proceeds received by the Distributing Holder from the sale of
the Registrable Securities.
(c) Promptly after receipt by an indemnified party under
this Section 7 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7.
(d) In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
(8) In addition to the provisions of Section 1(a) of this Option,
the Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Options shall be subject to adjustment from
time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price
in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it
shall equal the price determined by multiplying the Exercise
Price by a fraction, the
-9-
<PAGE> 10
denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment
shall be made successively whenever any event listed above shall
occur.
(b) Whenever the Exercise Price payable upon exercise of
each Option is adjusted pursuant to Subsection (a) above, (i) the
number of shares of Common Stock included in an Option Unit shall
simultaneously be adjusted by multiplying the number of shares of
Common Stock included in Option Unit immediately prior to such
adjustment by the Exercise Price in effect immediately prior to
such adjustment and dividing the product so obtained by the
Exercise Price, as adjusted and (ii) the number of shares of
Common Stock or other securities issuable upon exercise of the
Warrants included in the Option Units and the exercise price of
such Warrants shall be adjusted in accordance with the applicable
terms of the Warrant Agreement.
(c) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of
at least five cents ($0.05) in such price; provided, however,
that any adjustments which by reason of this Subsection (c) are
not required to be made shall be carried forward and taken into
account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 8 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as
the case may be. Anything in this Section 8 to the contrary
notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition
to those required by this Section 8, as it shall determine, in
its sole discretion, to be advisable in order that any dividend
or distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter made
by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants issuable upon
exercise of this Option).
(d) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly but no later than 10 days
after any request for such an adjustment by the Holder, cause a
notice setting forth the adjusted Exercise Price and adjusted
number of Option Units issuable upon exercise of each Option and,
if requested, information describing the transactions giving rise
to such adjustments, to be mailed to the Holders, at the address
set forth herein, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a
firm of independent certified public accountants selected by the
Board of Directors (who may be the regular accountants employed
by the
-10-
<PAGE> 11
Company) to make any computation required by this Section
8, and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(e) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder of
this Option thereafter shall become entitled to receive any
shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of this
Option shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in
Subsections (a) to (d), inclusive above.
(f) In case any event shall occur as to which the other
provisions of this Section 8 or Section 1(a) hereof are not
strictly applicable but as to which the failure to make any
adjustment would not fairly protect the purchase rights
represented by this Option in accordance with the essential
intent and principles hereof then, in each such case, the Holders
of Options representing the right to purchase a majority of the
Option Units may appoint a firm of independent public accountants
reasonably acceptable to the Company, which shall give their
opinion as to the adjustment, if any, on a basis consistent with
the essential intent and principles established herein, necessary
to preserve the purchase rights represented by the Options. Upon
receipt of such opinion, the Company will promptly mail a copy
thereof to the Holder of this Option and shall make the
adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
9. This Agreement shall be governed by and in accordance with the
laws of the State of New York, without giving effect to the principles of
conflicts of law thereof.
IN WITNESS WHEREOF, the Company has caused this Option to be
signed by its duly authorized officers under its corporate seal, and this Option
to be dated ____________.
Piranha Interactive Publishing, Inc.
By: ____________________________
Timothy M. Brannan, President
(Corporate Seal)
Attest:
________________________________________
J. Wade Stallings, II, Vice President
<PAGE> 12
PURCHASE FORM
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder, Units of Piranha Interactive Publishing, Inc.,
each Unit consisting of one share of $.001 Par Value Common Stock, one Class A
Warrant to purchase one share of Common Stock and one Class B Warrant, and one
Class B Warrant, and herewith makes payment of $_________ thereof.
Dated: _________, 19__. Instructions for Registration of Stock and Warrants
________________________________________
Print Name
________________________________________
Address
________________________________________
Signature
<PAGE> 13
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing
Option, hereby elects to exchange its Option for _________ Units of Piranha
Interactive Publishing, Inc., consisting of one share of $.001 Par Value Common
Stock, one Class A Warrant to purchase one share of Common Stock and one Class B
Warrant, pursuant to the Option Exchange provisions of the Option.
Dated: _____________, 19__.
__________________________________________
Print Name
__________________________________________
Address
__________________________________________
Signature
<PAGE> 14
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto the right to purchase Units represented by the foregoing Option
to the extent of Units , and appoints _____________ attorney to transfer such
rights on the books of _____________, with full power of substitution in the
premises.
Dated: _______________, 19__
[Underwriter]
By: _____________________________________
__________________________________________
Address
In the presence of:
<PAGE> 1
EXHIBIT 4.6
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
UNTIL (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS.
No. Warrants
VOID AFTER November 27, 2000
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
PIRANHA INTERACTIVE PUBLISHING, INC.
This certifies that FOR VALUE RECEIVED ________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Common Stock, $.001 par value ("Common Stock")
of Piranha Interactive Publishing, Inc., a Nevada corporation (the "Company") at
any time commencing November 27, 1999 and prior to the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of American Stock Transfer & Trust Company, as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of an
amount equal to $3.00 for each Warrant (the "Purchase Price") in lawful money of
the United States of America in cash or by official bank or certified check made
payable to Piranha Interactive Publishing, Inc. The Company may, at its
election, reduce the Purchase Price.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated November 27,
1996 by and among the Company, the Warrant Agent and D.H. Blair Investment
Banking Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
<PAGE> 2
Each Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional shares of Common Stock will be issued.
In the case of the exercise of less than all the Warrants represented hereby,
the Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time)
on November 27, 2000. If such date shall in the State of New York be a holiday
or a day on which the banks are authorized to close, then the Expiration Date
shall mean 5:00 P.M. (New York time) the next following day which in the State
of New York is not a holiday or a day on which banks are authorized to close.
The Company may, at its election, extend the Expiration Date.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the
Company may deem and treat the Registered Holder as the absolute owner hereof
and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the
contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price
upon certain conditions as specified in the Warrant Agreement upon the exercise
of this Warrant.
This Warrant will automatically convert into a like number of new
warrants under certain circumstances in the event the Company completes an
initial public offering of its securities having the terms and conditions
specified in the Warrant Agreement.
-2-
<PAGE> 3
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
PIRANHA INTERACTIVE PUBLISHING, INC.
Dated: November 27, 1996
By _____________________________
Timothy M. Brannan, President
By ________________________
[seal]
J. Wade Stallings, II, Secretary
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By ________________________________
-3-
<PAGE> 4
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and be delivered to
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. If not solicited by an NASD member, please write "unsolicited" in
the space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by D.H.
Blair Investment Banking Corp.
______________________________________
(Name of NASD Member if other
than D.H. Blair Investment
Banking Corp.)
-4-
<PAGE> 5
Dated: ______________________
X_____________________________
__________________
__________________
Address
______________________
Taxpayer Identification Number
__________________________
Signature Guaranteed
____________________
-5-
<PAGE> 6
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
_________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________________________ _______________________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated: ____________________
X___________________________
Signature Guaranteed
____________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
-6-
<PAGE> 1
EXHIBIT 4.7
VOTING TRUST AGREEMENT
DATE: November 13, 1996
PARTIES: Timothy M. Brannan ("Trustee"); and
The owners and holders of Common Stock of Piranha Interactive
Publishing, Inc., who are listed and whose signatures appear
on Exhibit A attached hereto, (collectively "Shareholders").
RECITALS:
(A) The Shareholders own and hold an aggregate of
825,000 shares of Common Stock, $.001 par value, of PIRANHA
INTERACTIVE PUBLISHING, INC., a Nevada corporation (the
"Company"), as set forth in Exhibit A attached hereto. The
Shareholders believe it to be in their respective best
interests that all of such shares be voted by the Trustee for
the period commencing with the date first set forth above and
terminating five (5) years thereafter, as more particularly
hereinafter set forth.
(B) The Shareholders believe that such objective can
best be accomplished by giving to the Trustee, as agent and
attorney-in-fact for each Shareholder, such irrevocable powers
as are set forth under the terms and conditions of this Voting
Trust Agreement ("Agreement").
AGREEMENTS:
The parties hereto mutually agree as follows:
1. Transfer of Shares to Trustee.
(a) The Shareholders hereby assign and transfer to
Trustee 825,000 shares of Common Stock, $.001 par value
("Shares") of the Company, which Shareholders own, such shares
to be held in escrow pursuant to an Escrow Agreement between
American Stock Transfer & Trust Company ("Escrow Agent") and
the Shareholders (the "Escrow Agreement"). The ownership of
the Shares by the Shareholders is set forth on Exhibit A
attached hereto. The Shareholders, respectively, have properly
endorsed or shall properly endorse to the Trustee, the stock
certificates for such 825,000 Shares; the Trustee has
deposited or shall deposit the stock certificates representing
such 825,000 Shares with the Escrow Agent pursuant to the
Escrow Agreement; and the Shareholders, respectively, have
received or shall receive in exchange for such 825,000 shares,
Voting Trust Certificates substantially in the form attached
hereto as Exhibit B, all 825,000 of which Shares shall be
governed by this Voting Trust Agreement. The 825,000 Shares
represented by the stock certificates so deposited by the
<PAGE> 2
Shareholders ("Shares Deposited") shall be transferred upon
the books of the Company to the name of the Trustee and the
Trustee is hereby authorized and empowered to cause such
transfers to be made. During the term of this Agreement, the
Trustee shall possess the legal title to the Shares Deposited.
The Trustee shall be entitled to exercise all rights of every
kind and nature, arising under the Shares Deposited,
including, but not limited to, the right to vote in person or
by proxy and execute consents with respect to any or all of
the Shares Deposited on all matters which may properly be
voted on by stockholders of the Company, including, but not
limited to, dissolution, liquidation, merger, or consolidation
of the Company or the sale of all, or substantially all, of
its assets.
(b) The Trustee may vote in favor of the election of
himself as a director and an officer of the Company and of,
and in favor of, the ratification and approval of the acts of
himself as a director and an officer in the general conduct of
the business affairs of the Company.
2. Dividends.
The holders of Voting Trust Certificates issued by the Trustee
shall be entitled to receive payments of all dividends, other than (i)
dividends consisting of voting stock or (ii) distributions of or
conversions into additional voting shares of capital stock of the
Company, with respect to the Shares Deposited. Upon the declaration of
any dividend, other than (i) dividends consisting of voting stock or
(ii) distributions of or conversions into additional voting shares of
capital stock of the Company by the Company with respect to the Shares
Deposited, the Trustee shall distribute or cause all such dividends to
be distributed by the Company to the Shareholders of the Shares
Deposited pursuant to this Agreement. Any dividends consisting of (i)
voting stock or (ii) distributions of or conversions into additional
voting shares of capital stock of the Company shall be subject to the
terms of this Agreement on the same basis as the respective Shares on
which such dividends were declared.
3. Term.
The term of this Agreement shall commence on the date first
above set forth and continue until and include the earlier of:
(a) 5:00 p.m., Phoenix, Arizona time, on November 13,
2001; or
(b) the date on which the Trustee shall cease to be
employed by the Company, resign as Trustee hereunder or die;
or
(c) upon the unanimous written consent of the holders
of no less than all of the Shares Deposited and subject to
this Agreement, other than those owned by the Trustee; or
2
<PAGE> 3
(d) upon the effective date of any (i) sale of all or
substantially all of the assets of the Company or (ii) merger
or consolidation involving the Company, as a result of which
the Company is not the surviving entity.
Subject to the Escrow Agreement, at the end of the term as set
forth in subparagraphs 4(a), (b), (c) or (d) above, the Trustee shall deliver
the Certificates for the Shares Deposited to the respective Shareholders as
their respective sole property.
4. Restrictions on Transfer.
(a) Anything contained in this Agreement to the
contrary notwithstanding, for the period from the date of this
Agreement until the Effective Date of a Registration Statement
to be filed by the Company under the Securities Act of 1933,
as amended, relating to the registration and sale of Units,
each Unit consisting of a share of the Company's Common Stock
and a Class A and a Class B Warrant, by D. H. Blair Investment
Banking Corp. (the "Underwriter"), and for the further period
commencing with such Effective Date and ending thirteen (13)
months thereafter (the "lock-up" period for such Common Stock
required by the Underwriter) the Shareholder may not withdraw
any Shares Deposited from the Trust. Upon the expiration of
such thirteen (13) month period, any Shareholder, on ten (10)
days' prior written notice to the Trustee, accompanied by the
Voting Trust Certificate therefor, may withdraw from the
Shares Deposited any or all of the shares of Common Stock of
the Company represented by such Voting Trust Certificate,
provided that such Shares Deposited are not then subject to
the Escrow Agreement or, if subject to the Escrow Agreement,
are released in accordance therewith and which the Shareholder
intends and is permitted to sell in accordance with the
Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. The Depositor shall notify
the Trustee of any such sale and the Trustee shall in a timely
manner deliver a certificate for the Shares sold to the
Depositor free of the legend required by the terms of this
Agreement. Any such released stock may not be voted by the
Shareholder but only by the transferee of such stock from the
Shareholder. Any released shares which are not sold or
otherwise transferred beyond the control of the Shareholder
within thirty (30) days of the release shall be deemed
redeposited by the Shareholder with the Trustee. The Trustee
shall return the certificate(s) representing all Shares
withdrawn in accordance herewith and provide a new Voting
Trust Certificate for all Shares Deposited which remain
deposited following such withdrawal.
(b) All certificates representing the Shares subject
to this Agreement shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE TERMS OF A VOTING TRUST
AGREEMENT, DATED AS OF NOVEMBER 13, 1996, A
COPY
3
<PAGE> 4
OF WHICH IS ON FILE AND MAY BE INSPECTED AT
THE OFFICES OF THE COMPANY.
5. Dissolution of the Company.
In the event of dissolution or liquidation of the Company
during the term of this Agreement, in such manner as to entitle the
holders of shares of any class of its stock to liquidation dividends in
respect thereof, the Trustee shall cause all such liquidation dividends
to be distributed by the Company pro rata to the holders of Voting
Trust Certificates for the Shares Deposited hereunder.
6. Merger of the Company.
In the event of a merger or consolidation involving the
Company, the termination date hereof shall be accelerated to the
effective date of such merger or consolidation and the securities or
other proceeds of any such merger or consolidation payable to the
Shareholder shall be distributed pro rata to the holders of the Voting
Trust Certificates in accordance with the number of Shares Deposited
hereunder.
7. Compensation of Trustee.
The Trustee shall not be entitled to any compensation for
acting as Trustee.
8. Liability of Trustee.
The Trustee shall be liable only for his own willful
misfeasance and his own bad faith and shall not be answerable for any
misfeasance or non-feasance of any attorney, auditor, appraiser,
accountant, agent, or employee, if selected by him with reasonable
care. The Trustee is hereby authorized and empowered to construe this
Agreement and his construction made in good faith shall be binding upon
the Shareholders and other parties interested.
9. Resignation of Trustee.
The Trustee may at any time resign by mailing to the Company
at its principal office in Tempe, Arizona, his written resignation to
take effect ten (10) days thereafter or upon the prior written
acceptance thereof by the Company or some later date specified in such
notice. Upon such resignation and as a condition thereof, the Trustee
and the Company shall instruct the Escrow Agent to deliver the
certificates for all shares then held in escrow to the Transfer Agent
with instructions that such shares are to be reissued in the
appropriate names of the owners thereof in the number of shares owned
by each such person and thereupon delivered to the Escrow Agent to be
held pursuant to the Escrow Agreement.
4
<PAGE> 5
10. Deposits of Additional Shares.
From time to time after execution hereof, the Trustee may
receive deposits of any additional certificates representing fully paid
and non-assessable shares of common or other general voting stock of
the Company upon the terms and under the conditions of this Agreement
and, in respect of all such deposits so received, the Trustee shall
issue and deliver Voting Trust Certificates in the form specified
herein in accordance with the provisions of this Agreement. Any (i)
dividends consisting of voting stock or (ii) distributions of or
conversions into additional voting shares with respect to the Shares
Deposited shall be issued in the name of the Trustee as additional
deposits hereunder and the Trustee shall issue additional Voting Trust
Certificates therefor.
11. Acts of Trustee.
(a) The Trustee may act by a written instrument,
without a meeting, signed by the Trustee.
(b) The Trustee may vote or may act in person or by
proxy. The Trustee may vote by proxy at any meeting of
shareholders of the Company if he so elects.
12. Trustee's Relation with the Company.
The Trustee may act as, and receive compensation as, a
director, an officer, an agent of the Company, or a member of any
committee of the Company, or of any controlled, subsidiary, or
affiliated entity of the Company, or be otherwise associated therewith.
Additionally, the Trustee or any firm of which he may be a member, or
any corporation or association of which he may be a stockholder,
director, or officer, or any such firm, corporation or association in
which he may be otherwise directly or indirectly interested, may, to
the extent permitted by law and without liability in any way or under
any circumstances by reason thereof, contract with the Company or with
any controlled, affiliated, or subsidiary entity, or be or become
pecuniarily interested in any matter or transaction to which the
Company, or any controlled, affiliated, or subsidiary entity of the
Company, may in any way be concerned, as fully as though he were not a
Trustee.
13. No Security for Performance.
Trustee shall not be required to give any bond or security for
the discharge of his duties.
14. Counterparts.
This Agreement may be executed in any number of copies and all
such counterparts taken together shall be deemed to constitute one and
the same Agreement.
5
<PAGE> 6
15. Notices. All notices hereunder shall be in writing and
delivered personally or sent by registered or certified mail, postage
prepaid.
If to Shareholder: at his address shown on the
books and records of the Company
If to the Trustee: c/o the address of the Company
If to the Company: 1839 West Drake
Suite B
Tempe, Arizona 85283
Either party may change the address to which notices are to be sent to
it by giving ten (10) days written notice of such change of address to the other
parties in the manner above provided for giving notice. If delivered in person,
then such notice shall be effective immediately; if mailed, then seventy-two
(72) hours after deposit, postage prepaid.
16. Shareholder's Grant.
By their respective signatures on Exhibit A, each of the
Shareholders expressly grant to the Trustee all of the rights set forth
herein, subject to the terms of this Agreement.
17. Trustee's Acceptance.
The Trustee, by signing this Agreement or a counterpart
thereof, accepts the trust herein created.
Executed the day and year first above written.
AGREED AND ACCEPTED:
TRUSTEE
/s/ Timothy M. Brannan
- ---------------------------------
Timothy M. Brannan
PIRANHA INTERACTIVE PUBLISHING, INC.
By: /s/ J. Wade Stallings II
-----------------------------
Name: J. Wade Stallings II
Title: Secretary
6
<PAGE> 7
EXHIBIT A
Dated: November 13, 1996
/s/ Keith P. Higginson
- ---------------------------
Keith P. Higginson
/s/ J. Wade Stallings II
- ---------------------------
J. Wade Stallings II
/s/ Douglas M. Brannan
- ---------------------------
Douglas M. Brannan
/s/ Wyndi D. Ballard
- ---------------------------
Wyndi D. Ballard
/s/ George W. Gregg
- ---------------------------
George W. Gregg
/s/ Karen A. Timmons
- ---------------------------
Karen A. Timmons
/s/ Milton Cohen
- --------------------------
Milton Cohen
7
<PAGE> 8
EXHIBIT B
VOTING TRUST CERTIFICATE
Certificate No. ___ Number of Shares _____
PIRANHA INTERACTIVE PUBLISHING, INC.,
a Nevada corporation
This certifies that ("Depositor") is entitled to all of the benefits
arising from the deposit with the Trustee, under the Voting Trust Agreement
hereinafter mentioned, of certificate(s) for shares of the capital stock of
PIRANHA INTERACTIVE PUBLISHING, INC., a Nevada corporation (the "Company"),
as provided in the Voting Trust Agreement, dated as of November ___, 1996,
between Timothy M. Brannan, as Trustee, the Company, Depositor and the
holders of Common Stock of the Company who are listed on Exhibit A thereto
(together with the Depositor, the "Shareholders") (the "Voting Trust
Agreement"), and subject to the terms and conditions thereof. All such
shares are further subject to an Escrow Agreement between the Shareholders
of the Company and American Stock Transfer & Trust Company, as Escrow
Agent, (the "Escrow Agreement"). The registered holder or his or her
permitted assign(s), is entitled to receive payment equal to the amount of
cash dividends, if any, and non-voting shares of capital stock of the
Company received by the Trustee upon the number of shares of capital stock
of the Company in respect of which this Certificate is issued. Dividends
received by the Trustee in common or other shares of capital stock of the
Company having general voting powers, including, but not limited to, shares
released from the Escrow Agreement, shall be represented by Voting Trust
Certificates, in form similar hereto. Until the Trustee has delivered the
stock held under such Voting Trust Agreement to the holders of the Voting
Trust Certificates, as specified in such Voting Trust Agreement, the
Trustee shall possess and shall be entitled to exercise all rights and
powers of an absolute owner of such shares, including the right to vote
thereon for every purpose, and to execute consents in respect thereof for
every purpose, it being expressly stipulated that no voting right passes to
the owner hereof under this Certificate or any agreement, expressed or
implied.
This Certificate is issued, received, and held hereunder, and the
rights of the owner hereof are subject to, the terms of the Voting Trust
Agreement, copies of which, and every agreement amending or supplementing
the same, are on file in the principal office of the Company in Tempe,
Arizona, and all of which shall be open to the inspection of any
stockholder of the Company, or any permitted beneficiary of the trust under
such agreement, daily, upon reasonable notice during normal business hours.
All of the provisions of which Voting Trust Agreement the holder of this
Certificate, by acceptance hereof, assents.
8
<PAGE> 9
If any dividend or distribution in cash or stock of the Company not
having general voting powers is received by the Trustee, the Trustee shall
distribute the same to the registered holder of the Voting Trust
Certificate on the date of such distribution, or the registered Certificate
holder at the close of business on the date fixed by the Trustee for taking
a record to determine the Certificate holder is entitled to such
distribution. Such distribution shall be made to the Certificate holders
ratably in accordance with the number of shares represented by Shares
Deposited as set forth in their respective Voting Trust Certificates. Any
(i) dividends consisting of voting stock or (ii) distributions of or
conversions into additional voting shares with respect to the Shares
Deposited shall be issued in the name of the Trustee as additional deposits
under the Voting Trust Agreement and the Trustee shall issue additional
Voting Trust Certificates therefor.
Stock certificates issued in the name of the Depositor or his or her
designee and representing the number of shares of capital stock then
represented by this Certificate shall be due and deliverable hereunder upon
the termination of such Voting Trust Agreement as provided therein.
The Voting Trust Agreement shall continue in full force and effect
until five (5) years from the date thereof, unless terminated prior
thereto, as provided therein.
For the period from the date hereof and until the Effective Date of a
Registration Statement under the Securities Act of 1933, as amended, to be
filed by the Company for the sale of Units, each Unit consisting of a share
of the Company's Common Stock and a Class A and a Class B Warrant, by D.H.
Blair Investment Banking Corp. (the "Underwriter"), and for the further
period commencing with such Effective Date and ending thirteen (13) months
thereafter (the "lock-up" period for such Common Stock required by the
Underwriter), the Depositor may not withdraw any Shares Deposited from the
Voting Trust. Upon the expiration of such thirteen (13) month period, the
Depositor, on ten (10) days' prior written notice to the Trustee,
accompanied by the Voting Trust Certificate therefor, may withdraw from the
Shares Deposited such shares of stock of the Company as have been released
from the Escrow Agreement and which the Depositor intends and is permitted
to sell under the Securities Act of 1933. Any such released stock may not
be voted by the Depositor but only by the purchaser of such stock from the
Depositor. Any released stock which is not sold or otherwise transferred
beyond the control of the Depositor within thirty (30) days of the release
shall be redeposited by the Depositor with the Trustee. The Voting Trustee
shall return to Depositor, certificates of stock for the stock withdrawn
and a new Voting Trust Certificate for such Shares Deposited as may remain
deposited following any such withdrawal. The Depositor may, subject to the
restrictions set forth in this paragraph, similarly withdraw from the
Shares Deposited any stock following release of such stock from the terms
and conditions of the Escrow Agreement.
9
<PAGE> 10
IN WITNESS WHEREOF, the Trustee has executed this Certificate this 13th
day of November, 1996.
TRUSTEE
/s/ Timothy M. Brannan
---------------------------
Timothy M. Brannan
10
<PAGE> 1
EXHIBIT 4.8
IRREVOCABLE PROXY AGREEMENT
DATE: November 13, 1996
PARTIES: Timothy M. Brannan ("Proxy Holder"); and the owners and
holders of Common Stock of Piranha Interactive Publishing,
Inc., who are listed and whose signatures appear on Exhibit A
attached hereto (collectively, "Shareholders").
RECITALS:
The Shareholders presently own and hold an aggregate
of 375,000 shares of Common Stock, $.001 par value, of PIRANHA
INTERACTIVE PUBLISHING, INC., a Nevada corporation (the
"Company"), as set forth on Exhibit A attached hereto. The
Shareholders believe it to be in their respective best
interests that all such shares be voted by the Proxy Holder
for the period commencing with the date first set forth above
and terminating five (5) years thereafter, as more
particularly hereinafter set forth in this Irrevocable Proxy
Agreement ("Agreement"). All of the 375,000 shares are further
subject to the 13-month Lockup Agreements between the
respective Shareholders thereof and D.H. Blair Investment
Banking Corp. (the "Lockup Agreements").
AGREEMENTS:
1. Appointment of Proxy Holder and Grant of Proxy.
(a) Each Shareholder, respectively, hereby appoints
the Proxy Holder to act as the proxy of such respective
Shareholder, and grants the Proxy Holder the power to vote
cumulatively or otherwise, any and all shares of the Common
Stock of the Company set opposite the Shareholder's respective
name and signature on Exhibit A hereto, and any additional
shares of Common Stock acquired subsequent to the date hereof
(collectively, the "Shares") at any annual or special meeting
of stockholders of the Company, or any adjournment or
adjournments thereof at which the Shares would be entitled to
vote.
(b) This Proxy is coupled with an interest and is
irrevocable, except as specifically hereinafter set forth.
(c) The Proxy Holder may vote the shares subject to
this Agreement in favor of the election of himself as a
director of the Company and of, and in favor of, the
ratification and approval of the acts of himself as a director
and an officer in the general conduct of the business affairs
of the Company.
<PAGE> 2
2. Term.
The term of this Agreement shall commence on the date first
above set forth and continue to and including the earlier of:
(a) 5:00 p.m., Phoenix, Arizona time on November 13,
2001; or
(b) The date on which the Proxy Holder shall cease to
be employed by the Company or resigns as Proxy Holder
hereunder, or dies; or
(c) Upon the unanimous written consent of all of the
holders of shares subject to this Agreement; or
(d) Upon the effective date of any (i) sale of all or
substantially all of the assets of the Company or (ii) merger
or consolidation involving the Company, as a result of which
the Company is not the surviving entity.
At the expiration or termination of the Term hereof as set
forth in (a), (b), (c) or (d) above, the Shares to which this Agreement
applies shall no longer be subject thereto and the Proxy Holder shall
notify the Company to instruct its Transfer Agent to issue new
certificates for such Shares without the legend set forth in paragraph
6 below, in exchange for and upon presentment and cancellation of the
certificates representing the Shares bearing such legend.
3. Compensation of Proxy Holder.
The Proxy Holder shall not be entitled to any compensation for
acting as Proxy Holder hereunder.
4. Liability of Proxy Holder.
The Proxy Holder shall not be liable for any act or omission
by him under this Agreement. The Proxy Holder shall be entitled to
interpret the terms of this Agreement and his construction made in good
faith shall be binding on the Shareholders and other interested
parties.
5. Resignation of Proxy Holder and Return of
Certificates.
The Proxy Holder may resign by mailing to the Company at its
principal office in Tempe, Arizona, his written resignation to take
effect ten (10) days thereafter and by providing notice of such
resignation to each of the Shareholders in accordance with Section 13
hereof. The Proxy Holder shall promptly surrender all certificates
representing the Shares upon his resignation.
2
<PAGE> 3
6. Legend on Stock Certificate.
Each certificate representing the Shares, and any replacement
thereof, subject to this Agreement, shall bear the following legend
until the termination of this Agreement:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF AN IRREVOCABLE PROXY
AGREEMENT DATED NOVEMBER 13, 1996 AMONG CERTAIN SHAREHOLDERS
OF THE COMPANY, A COPY OF WHICH IS ON FILE AND MAY BE
INSPECTED AT THE OFFICES OF THE COMPANY.
7. Additional Shares Acquired by Shareholders.
The Shareholders, respectively, as persons presently or in the
future entitled to receive shares of the Company's Common Stock which
have not yet been issued, or who shall subsequently purchase additional
shares of Common Stock from the Company or from third parties, hereby
severally agree to notify the Proxy Holder, Transfer Agent, and the
Company of any acquisition, direct or indirect, of additional Shares
and that such Shares shall be governed by the terms and conditions of
this Agreement.
8. Withdrawal of Shares.
Anything contained in this Agreement to the contrary
notwithstanding, for the period from the date of this Agreement until expiration
or termination of the Term hereof pursuant to paragraph 2 above, any
Shareholder, on ten (10) days' prior written notice to the Proxy Holder, may
withdraw from the Shares subject to this Agreement any Shares that the
Shareholder intends and is permitted to sell in accordance with the Lockup
Agreements and the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. Any such withdrawn Shares may not be voted
by the Shareholder but only by the transferee of such Shares from the
Shareholder. Any such Shares which are not sold or otherwise transferred beyond
the control of the Shareholder within thirty (30) days of such notice shall be
deemed again to be subject to this Agreement. Upon notice of such sale to the
Proxy Holder and the Company, a new certificate for the Shares sold without the
legend set forth in paragraph 6 shall be issued to the owner as promptly as
practicable in exchange for the certificate bearing such legend.
9. Acts of Proxy Holder.
The Proxy Holder may vote in person, by proxy, or act by
written instrument without a meeting, signed by the Proxy Holder.
10. Proxy Holder's Relation with the Company.
The Proxy Holder may act as, and receive compensation as, a
director, an officer, an agent of the Company, or a member of any
committee of the Company, or of any
3
<PAGE> 4
controlled, subsidiary, or affiliated entity of the Company, or be
otherwise associated therewith. Additionally, the Proxy Holder or any
firm of which he may be a member, or any corporation or association of
which he may be a stockholder, director, or officer, or any such firm,
corporation or association in which he may be otherwise directly or
indirectly interested, may, to the extent permitted by law and without
liability in any way or under any circumstances by reason thereof,
contract with the Company or with any controlled, affiliated, or
subsidiary company, or be or become pecuniarily interested in any
matter or transaction to which the Company, or any controlled,
affiliated, or subsidiary entity of the Company, may in any way be
concerned, as fully as though he were not a Proxy Holder.
11. No Security for Performance.
The Proxy Holder shall not be required to give any bond or
security for the discharge of his duties.
12. Counterparts.
This Agreement may be executed in any number of copies and all
such counterparts taken together shall be deemed to constitute one and
the same Agreement.
13. Notices.
All notices and other communications hereunder shall be in
writing and delivered personally or, if mailed, sent by first class, registered
or certified mail, postage prepaid, as follows:
If to Shareholder: at his address shown on the
books and records of the Company
If to the Proxy Holder: c/o the address of the Company
If to the Transfer Agent: American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Either party may change the address to which notices are to be
sent to it by giving ten (10) days written notice of such change of address to
the other party in the manner above provided for giving notice. If delivered in
person, then such notice shall be effective immediately, if mailed, then
seventy-two (72) hours after deposit, postage prepaid.
14. Shareholder's Grant.
By their respective signatures set forth on Exhibit
A, each of the Shareholders hereby grants to the Proxy Holder an
irrevocable right, coupled with an interest to vote his or her Shares
in accordance with the terms of this Agreement.
4
<PAGE> 5
15. Proxy Holder's Acceptance.
The Proxy Holder, by signing this Agreement or a counterpart
thereof, accepts the proxy herein created.
Executed the day and year first above written.
AGREED:
PROXY HOLDER
/s/ Timothy M. Brannan
-----------------------
Timothy M. Brannan
5
<PAGE> 6
EXHIBIT A
Dated: November 13, 1996
/s/ Keith P. Higginson
- ---------------------------
Keith P. Higginson
/s/ J. Wade Stallings II
- ---------------------------
J. Wade Stallings II
/s/ Douglas M. Brannan
- ---------------------------
Douglas M. Brannan
/s/ Wyndi D. Ballard
- ---------------------------
Wyndi D. Ballard
/s/ George W. Gregg
- ---------------------------
George W. Gregg
/s/ Karen A. Timmons
- ---------------------------
Karen A. Timmons
/s/ Milton Cohen
- --------------------------
Milton Cohen
<PAGE> 1
EXHIBIT 10.1
November __, 1996
_______________________________
c/o Piranha Interactive Publishing, Inc.
1839 West Drake, Suite B
Tempe, Arizona 85283
Re: Employment Agreement
Dear______________:
Piranha Interactive Publishing, Inc., a Nevada corporation (the
"Corporation"), recognizes that your contribution to the growth and success of
the Corporation has been substantial and desires to assure the Corporation of
your continued employment. The Corporation understands that you desire to
continue to serve the Corporation on the terms set forth in this letter (the
"Agreement"). In consideration of the promises hereafter set forth, the
Corporation and you agree as follows:
1. Employment. The Corporation agrees to continue your
employment, and you agree to continue to serve the Corporation, subject to the
terms and conditions set forth herein.
2. Term of Agreement. This Agreement shall have a term of
three (3) years ("Term") commencing on the Effective Date (as defined in
Subsection 9(e)(3)) and expiring at 5:00 p.m. (Phoenix, Arizona time) on October
31, 1999; provided, however, that the provisions of Section 8 shall survive the
termination of this Agreement.
3. Position and Duties. During the term of this Agreement, you
shall serve as _______________________________________________________ of the
Corporation. In such capacity, you shall fulfill the duties and responsibilities
of such office(s) as they exist as of the date hereof. You agree to devote your
full time, skill and attention to the business of the Corporation during normal
business hours to the extent necessary to discharge the duties and
responsibilities assigned to you hereunder. If the Corporation believes you have
breached your responsibilities and/or duties under this Section 3, it must
deliver to you a written notice specifically identifying the manner in which the
Corporation believes that you have failed to
<PAGE> 2
__________________
November __, 1996
Page 2
________________________________________________________________________________
substantially perform your duties and/or carry out your responsibilities. The
Corporation shall grant you thirty (30) days from the date you receive such
notice to adequately cure such deficiency and continue to resume performance of
your responsibilities and/or duties.
4. Compensation.
a. Base Salary. Effective as of November 1, 1996 and
during the Term hereof, you shall receive a minimum base salary ("Base Salary")
of no less than the rate of $_______ per year. Your Base Salary shall be
reviewed at least annually by the Board of Directors (the "Board"), or by a
Compensation Committee of the Board, if one has been appointed by the Board (the
"Committee"), and shall be increased at the discretion of the Board; provided,
however, that at a minimum, your Base Salary shall be increased each year,
commencing on November 1, 1997, by an amount equal to the Base Salary multiplied
by the increase in the national Consumer Price Index as compared to the prior
twelve (12) month period. Any increase in your Base Salary or other compensation
shall in no way limit or reduce any other obligation of the Corporation
hereunder, and once established at an increased rate, your Base Salary shall not
thereafter be reduced. After withholding and other required deductions, your
Base Salary shall be paid in equal installments in accordance with the policies
of the Corporation as may be established from time to time. Any reference herein
to the Board shall, where appropriate, encompass the Committee, if one has been
appointed.
b. Bonuses. You shall be eligible to receive bonuses
from time to time in accordance with any bonus plan adopted by the Board, in
such amounts as shall be determined by the Board.
c. Expenses. During the term of your employment
hereunder, you shall be entitled to prompt reimbursement for all ordinary and
necessary business expenses incurred by you in furtherance of the Corporation's
business and in accordance with the policies and procedures of the Corporation,
as amended from time to time.
d. Benefits. You shall be entitled to receive a package
of benefits which includes all of the programs, plans and perquisites currently
provided to you by the Corporation as they may exist from time to time.
5. Termination. You shall be entitled to the benefits provided
in Subsection 6(d) hereof upon termination of your employment during the
remaining term of this Agreement, if any, unless such termination is (i) because
of your Disability (as hereafter defined), (ii) by the Corporation for Cause (as
hereafter defined) or (iii) by you other than for Good Reason (as hereafter
defined).
<PAGE> 3
___________________
November __, 1996
Page 3
________________________________________________________________________________
a. Disability. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six (6) consecutive months,
and within thirty (30) days after the Corporation gives you written notice of
termination you shall not have returned to the full-time performance of your
duties, the Corporation may terminate your employment for "Disability."
b. Cause. Termination by the Corporation of your
employment for "Cause" shall mean termination upon (i) your conviction of a
felony, or (ii) your failure to cure, or commence curing and diligently pursue
thereafter, a specified deficiency in the performance of your duties and/or
responsibilities within the thirty (30) day period described in Section 3
hereof.
c. Good Reason. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, any one or more of the following:
(1) the assignment to you of any duties which are
inconsistent with, or a material reduction of powers or functions associated
with, your position, duties, responsibilities and status with the Corporation, a
material change in your reporting responsibilities or in the conditions of your
employment, or improper intervention in your ability to perform the duties and
responsibilities that have been assigned to you under this Agreement, except in
connection with your termination of employment by the Corporation for Cause or
for Disability. If you resign your employment with the Corporation within one
hundred twenty (120) days after a Change of Control (as defined in Subsection
9(e)(2) below) for reasons specified in this Subsection 5(c)(1), it shall be
deemed to be a determination made in good faith and for Good Reason;
(2) a reduction by the Corporation in your Base
Salary as in effect on the date hereof or as the same shall be increased as
provided herein;
(3) the failure of the Corporation to cause any
successor to expressly assume and agree to perform this Agreement pursuant to
Subsection 9(a) hereof;
(4) any purported termination by the Corporation
of your employment that is not effected by a Notice of Termination (as defined
in Subsection 9(e)(4)) pursuant to Subsection 5(d) hereof and/or for grounds not
constituting Cause.
d. Notice of Termination. Any termination by the
Corporation for Cause or by you for Good Reason shall be communicated by Notice
of Termination to the other party hereto.
<PAGE> 4
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November __, 1996
Page 4
________________________________________________________________________________
e. Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination, where required, or in any other
case the date upon which you cease to perform services for the Corporation;
provided that if within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the basis for termination set forth therein,
the Date of Termination shall be the date finally determined to be the Date of
Termination, either by mutual written agreement of the parties or by a final
judgment, order or decree of a court of competent jurisdiction (which is not
appealable or the time for appeal therefrom having expired and no appeal having
been perfected).
6. Compensation Upon Termination or During Disability. Upon
termination of your employment or during a period of Disability you shall be
entitled to the applicable benefits set forth below:
a. During any period in which you fail to perform your
full-time duties with the Corporation as a result of incapacity due to
Disability, you shall (i) receive your Base Salary at the rate in effect at
commencement of any such period until the earlier of six (6) months from the
commencement of such period or your employment is terminated pursuant to
Subsection 5(a) hereof; and (ii) at the option of the Corporation, receive
either (A) a lump sum payment equal to one (1) year of your Base Salary in
effect on the date your employment is terminated plus an amount equal to the
average of all bonuses paid to you during the three (3) years preceding the date
your employment is terminated pursuant to Section 5(a) hereof (collectively, the
"Disability Amount"), or (B) payment of the Disability Amount in twelve (12)
equal monthly installments commencing one month from such termination date.
Thereafter, your benefits shall be determined in accordance with the
Corporation's retirement, insurance and other applicable programs and plans then
in effect. Anything in this Subsection 6(a) to the contrary notwithstanding, any
payments of Base Salary under this Agreement for any period during which you
receive payment under any short or long-term disability plans for which premiums
are paid by the Corporation shall be reduced by the amount of such disability
payments.
b. If your employment shall be terminated by the
Corporation for Cause or by you other than for Good Reason, the Corporation
shall pay you your full Base Salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given or on the Date of
Termination if no Notice of Termination is required hereunder, together with
accrued vacation pay, if any, and the Corporation shall have no further
obligation to you under this Agreement.
c. If your employment terminates by reason of your
death, your benefits shall be determined in accordance with the Corporation's
survivors' benefits, insurance
<PAGE> 5
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November __, 1996
Page 5
________________________________________________________________________________
and other applicable programs and plans then in effect and all benefits payable
under this Agreement shall cease.
d. If your employment is terminated (i) by the
Corporation other than for Cause or Disability or (ii) by you for Good Reason,
then you shall be entitled to the following benefits:
(1) the Corporation shall pay you your full Base
Salary together with any bonuses that have accrued but have not been paid
through the Date of Termination at the rate in effect at the time Notice of
Termination is given, or the Date of Termination where no Notice of Termination
is required;
(2) in lieu of any further salary payment to you
for periods subsequent to the Date of Termination through the remaining term of
this Agreement, the Corporation shall, at its option; either (i) pay you a lump
sum payment equal to the product of your annual Base Salary as in effect
immediately prior to the occurrence of the circumstances giving rise to your
termination, multiplied by _______ (___), together with an amount equal to the
average of all bonuses paid to you for the three (3) years of your employment by
the Corporation immediately preceding the year in which the Date of Termination
shall occur (the "Severance Amount"), or (ii) pay you the Severance Amount in
_____ (__) equal monthly installments commencing on the first day of the month
following the month in which the Date of Termination shall occur; and
(3) the Corporation shall maintain in full force
and effect for your continued benefit and the benefit of your eligible
dependents and beneficiaries, until the first to occur of (i) your attainment of
alternative employment or (ii) ____ (_) years from the Date of Termination, the
employee benefits under the Corporation's benefit plans that you or they were
eligible to receive immediately prior to the Date of Termination, subject to the
terms and conditions of such benefit plans; provided that your continued
participation or the participation of such eligible dependents or beneficiaries
is possible under the general terms and provisions of such benefit plans. In the
event that your participation or the participation of such eligible dependents
or beneficiaries in any such benefit plan is barred, the Corporation shall
arrange to provide you and such eligible dependents or beneficiaries with
benefits substantially similar to those to which you and such eligible
dependents or beneficiaries are entitled under such benefit plans for the period
stated above. At the end of the period of coverage, you shall have the option to
have assigned to you, at no cost and with no apportionment of prepaid premiums,
any assignable insurance policy owned by the Corporation and relating
specifically to you.
<PAGE> 6
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November __, 1996
Page 6
________________________________________________________________________________
(4) anything contained in this Agreement to the
contrary notwithstanding, if your employment is terminated by the Corporation by
reason of a Change of Control (as defined in Subsection 9(e)(2) below), you
shall be entitled to be paid the following:
(i) in accordance with Subsection 6(d)(1);
and
(ii) in lieu of any further salary payment
to you for the period subsequent to the Date of Termination through the
remaining term of this Agreement, the Corporation shall pay you a lump sum
payment equal to two (2) times your annual Base Salary in effect immediately
prior to such termination; and
(iii) the benefits provided in Subsection
6(d)(3) until the earlier of two (2) years from the Date of Termination or you
obtain alternate employment.
e. The payments provided for in Subsections 6(d)(1),
6(d)(2)(i) and 6(d)(4) shall be made by the Corporation to you not later than
the fifth (5th) business day following the "Date of Termination."
f. You shall not be required to mitigate the amount of
any payment provided for in this Section 6, including but not limited to,
seeking other employment, nor shall the amount of any payment provided for in
this Section 6 be reduced by any compensation earned by you as a result of
employment by another employer after the Date of Termination, or otherwise.
7. Personal Guarantees. Upon termination of your employment
hereunder, whether with or without Cause or Good Reason, or upon your death or
Disability, the Corporation shall indemnify you from all claims, costs and
expenses related to personal guarantees of any leases, loans, debts,
obligations, or similar instruments, which you have undertaken with respect to
the Corporation. In addition, the Corporation shall use its best efforts to
secure the release of all such personal guarantees.
<PAGE> 7
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November __, 1996
Page 7
________________________________________________________________________________
8. Covenant Not to Compete; Confidential Information.
a. Interest to be Protected.
(1) The parties acknowledge that during the term
of your employment as set forth in this Agreement, you will perform essential
services for the Company. In this regard, you will be exposed to, have access
to, and be required to work with, a considerable amount of the Company's
confidential and proprietary information, including but not limited to:
information concerning the Company's methods of operation, product development
plans and launch dates, financial information, strategic planning, operational
budget and strategies, payroll data, computer systems, marketing plans and
strategies, merger and acquisition strategies, and customer data base. The
parties expressly recognize that should you divulge this or other confidential
information to competitors of the Company, or to the parties outside the Company
generally, or use such information for the your personal behalf or to compete
with the Company in any manner whatsoever, it could seriously impair the good
will and diminish the value of the Company's business. As a result, you agree
hereafter not to divulge any Company proprietary and/or confidential information
to any competitors of the Company or to parties outside the Company generally or
to use such information for your personal benefit or to compete against the
Company in any manner whatsoever. You are also specifically restricted from
working for a period of ________ (___) years from the Date of Termination for
another computer software publisher.
(2) Ownership Interest in Competing Entity. Until
the earlier of the expiration of this Agreement or any Termination Date, you may
not directly or indirectly own stock or have other interest in any corporation
or other entity engaged in a business competitive directly or indirectly with
the business of the corporation as it may exist as of the Date of Termination of
your employment, provided however, that the foregoing prohibition shall not
apply to your ownership of not in excess of three percent (3%) of an equity or
indebtedness interest in any entity quoted on The Nasdaq Stock Market or listed
on any national stock exchange.
b. Employee's Obligations Regarding Confidential
Information. You have in the past and may in the future develop, obtain or learn
about confidential information which is the property of the Company or which the
Company is under obligation not to disclose. You agree to use your best efforts
and the utmost diligence to guard and protect said information, to treat such
information as confidential, and you agree that you will not, during or
<PAGE> 8
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November __, 1996
Page 8
________________________________________________________________________________
after the period of your performing services for the Company, use for your
personal benefit or the benefit of any third party, or divulge to any third
party any of said confidential information unless authorized to do so by the
Company in writing. You further agree that if this Agreement is terminated for
any reason, you will leave with the Company or return to the Company, all
documents, records and papers, originals and copies, and all matters of whatever
nature which bear or may bear the Company's confidential information or which is
in any way related, directly or indirectly, to the Company.
c. Definition of Confidential Information. For the
purposes of this Agreement, the term "confidential information" shall include
but not be limited to the following: product content; designs and development
plans; pricing policies; business plans; financial statements and financial
information, including accounts payable and receivable; proprietary knowledge
and ideas, including products in development but not yet released and product
launch dates; the contents of customers' and clients' files or portfolios;
computer software, including all rights under licenses and other contracts
relating thereto; source code and all documents relating thereto; all
intellectual property, including without limitation all trademarks, trademark
registrations and applications, service marks, copyrights, patents, trade
secrets, proprietary marketing information and know-how; books and records,
including lists of customers and the registered user data base; credit reports;
sales records; price lists; sales literature; advertising material; manuals;
processes; technology; designs, statistics data; manuals; techniques; or any
information of whatever nature which gives to the Company an opportunity to
obtain an advantage over its competitors who do not know or use, but it is
understood that said terms do not include knowledge, skills or information which
is common to your trade or profession. All confidential information shall remain
the property of the Company during and after your term of Employment with the
Company.
d. Return of Property Upon Termination. Upon termination
of employment, you agree to promptly return to the Company all customer records,
charge cards, all confidential information as defined in Subsection 6(c) above,
and all other documents, equipment and property pertaining to the business of
the Company. You further agree that you will not at any time use any information
acquired by you during the term of this Agreement in a manner contrary to the
interest of the Company, nor will you take any action which may directly or
indirectly induce any person to terminate his or her relationship with the
Company.
<PAGE> 9
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November __, 1996
Page 9
________________________________________________________________________________
e. Employee Manual. You acknowledge and understand that
any employee manual which may be created and issued to you by the Company
setting forth Company policies and procedures shall not constitute a contract
between the Company and you and shall not amend or supersede this Agreement.
Only documents specifically referencing this Agreement and specifically stating
that they constitute an amendment to this Agreement, signed by you and the
President of the Company, shall constitute an amendment to this Agreement.
f. Non-Solicitation of Other Employees. You further
agree that during the Term of the Agreement and for _____ (__) years following
the Date of Termination that you will not directly or indirectly solicit any
employee of the Company to leave the employment of the Company in order to
become associated in any manner with any entity with which you are then or may
thereafter be associated, or directly or indirectly arrange or facilitate the
employment of any employee of the Company by an entity engaged in a business
directly or indirectly competitive to that of the Company.
g. Injunctive Relief for Breach. In the event of a
breach or threatened breach by you of any provision or provisions of this
Section 8, the Company shall be entitled to apply to any court with competent
jurisdiction for an injunction, without the need to post a bond or other
security, restraining you from violation of such terms or provisions of this
Section 8. Nothing herein, however, shall be construed as prohibiting the
Company from pursuing any other remedies available to the Company for such
breach or threatened breach, including the recovery of damages from you.
9. Miscellaneous
a. Successors; Binding Agreement.
(1) The Corporation shall cause any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Corporation or of
any division or subsidiary thereof employing you, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent to which the
Corporation would be required to perform this Agreement had no such succession
taken place. Failure by the Corporation to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle you to compensation in the same amount and on the
same terms as you would be entitled hereunder had you terminated your employment
for Good Reason after a Change of Control,
<PAGE> 10
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November __, 1996
Page 10
________________________________________________________________________________
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination.
(2) This Agreement shall inure to the benefit of
and be enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder had you
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no designee, to your estate.
b. Indemnification.
(1) The Corporation is aware that upon the
occurrence of a Change of Control, the Board or a shareholder of the Corporation
may then cause or attempt to cause the Corporation to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the
Corporation to institute, or may take, or attempt to take, other actions to deny
you the benefits intended under this Agreement. In these circumstances, the
purposes of this Agreement would be frustrated. It is the intent of the
Corporation that you should not be required to incur the expenses associated
with the enforcement of your rights under this Agreement by litigation or other
legal action because the cost and expense thereof would substantially detract
from the benefits intended to be extended to you hereunder, nor should you be
bound to negotiate any settlement of your rights hereunder under threat of
incurring such expenses. Accordingly, if following a Change of Control it
appears to you that the Corporation has failed to comply with any of its
obligations under this Agreement or if the Corporation or any other person takes
any action to declare this Agreement void or unenforceable, or institutes any
litigation or other legal action designed to deny, diminish or to recover from
you the benefits intended to be provided to you hereunder, then, provided that
you have complied with all of your material obligations under this Agreement,
the Corporation shall indemnify you for all legal costs and fees (including
without limitation, attorneys' fees, retainers, court costs, charges for
transcripts, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage and delivery service
fees, and all other out-of-pocket expenses) incurred by you in defending or
asserting your rights under this Agreement after a Change of Control of the
Corporation. The Corporation hereby irrevocably authorizes you from time to time
to retain counsel of your choice at the expense of the Corporation to represent
you in connection with the initiation or defense of any litigation or other
legal action, whether by or against the Corporation or any director, officer,
shareholder or other person, in any jurisdiction. Notwithstanding any existing
or prior attorney-client relationship between the Corporation and
<PAGE> 11
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November __, 1996
Page 11
________________________________________________________________________________
such counsel, the Corporation irrevocably consents to your entering into an
attorney-client relationship with such counsel, and in that connection the
Corporation and you agree that a confidential relationship shall exist between
you and such counsel. The reasonable fees and expenses of counsel selected by
you pursuant hereto shall be paid or reimbursed to you by the Corporation on a
regular, periodic basis upon presentation by you of a statement or statements
prepared by such counsel in accordance with its customary practices.
(2) The Corporation further agrees to pay
pre-judgment interest on any money judgment obtained by you calculated at the
prime interest rate established by Bank of America National Trust and Savings
Association (or another comparable national financial institution if no prime
interest rate is available from Bank of America) in effect from time to time
from the date that payments to you should have been made under this Agreement
until the date that such payments are made; provided, however, that the
Corporation shall use the prime interest rate first published by Bank of America
National Trust and Savings Association (or another comparable national financial
institution if no prime interest rate is available from Bank of America) in a
calendar month to compute interest payable with respect to any period during
such calendar month.
c. Payment Obligations Absolute; Amendment. The
Corporation's obligation to pay you the amounts provided for hereunder shall be
absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Corporation may have against you or anyone else. All
amounts payable by the Corporation hereunder shall be paid without notice or
demand. Except as expressly provided herein, the Corporation waives all rights
which it may now have or may hereafter have conferred upon it, by statute or
otherwise, to amend, terminate, cancel or rescind this Agreement in whole or in
part. Each and every payment made hereunder by the Corporation shall be final
and the Corporation shall not seek to recover all or any part of any such
payment from you or from whomsoever may be entitled thereto, for any reason
whatsoever.
d. Notices. All notices hereunder shall be in writing
and delivered personally or sent by registered or certified mail, postage
prepaid:
If to the Corporation, to: Piranha Interactive Publishing, Inc.
1839 West Drake, Suite B
Tempe, Arizona 85283
Attn: J. Wade Stallings, II
<PAGE> 12
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November __, 1996
Page 12
________________________________________________________________________________
If to you, to: __________________________
__________________________
__________________________
Either party may change the address to which notices are to be sent to it by
giving ten (10) days written notice of such change of address to the other party
in the manner above provided for giving notice. If delivered in person, then
such notice shall be effective immediately; if mailed, then seventy-two (72)
hours after deposit, postage prepaid.
e. Definitions. For the purposes of this Agreement:
(1) The term "Corporation" shall mean the business
presently conducted by Piranha Interactive Publishing, Inc., whether as an
Arizona or a Nevada corporation. All references to Corporation or "Corporate"
policies, procedures, employees, benefits, criteria or standards shall include
all subsidiaries and businesses of the Corporation.
(2) The term "Change of Control" shall mean the
occurrence of any of the following events:
(a) an event required to be reported by the
Corporation by Item 1 of Form 8-K under Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, filed pursuant to Rule 13a-11 or
Rule 15d-11 thereunder or any comparable rule or regulation intended to
supersede such rules;
(b) all or substantially all of the assets
of the Corporation are sold, transferred, leased or exchanged to one or more
persons, or the Corporation consolidates or merges with another corporation
unless the Corporation or a subsidiary of the Corporation is the continuing or
surviving corporation (and the officers and directors of the surviving
corporation immediately following the event are materially the same as those of
the Corporation immediately prior thereto); or
(c) the business or subsidiary for which
your services are principally performed is sold or otherwise disposed of by the
Corporation.
(3) The term "Effective Date" shall mean November
1, 1996.
<PAGE> 13
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November __, 1996
Page 13
________________________________________________________________________________
(4) The term "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
f. Waiver; Modification. No provision of this Agreement
may be waived, modified, discharged or amended except by an instrument in
writing signed by you and such officer as may be specifically designated by the
Board. No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument by the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any other term or condition. The
failure of either party to insist, in any one or more instances, upon strict
performance of any of the terms or conditions of this Agreement shall not be
construed as a waiver or relinquishment of any right granted hereunder or the
future performance of any such term, covenant or condition, but the obligations
of either party with respect thereto shall continue in full force and effect.
g. Governing Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Arizona.
h. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
i. Severability. If any term or provision of this
Agreement or the application hereof to any person or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law. The parties shall negotiate
in good faith to modify the provisions found to be invalid or unenforceable to
preserve each party's anticipated benefits thereunder.
<PAGE> 14
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November __, 1996
Page 14
________________________________________________________________________________
j. Headings. The headings in this Agreement are inserted
for convenience of reference only and shall not be a part of or control or
affect the meaning of this Agreement.
k. Payroll and Withholding Taxes. All payments to be
made or benefits to be provided hereunder by the Corporation shall be subject to
reduction for any applicable payroll-related or withholding taxes.
l. Entire Agreement. This Agreement supersedes any and
all other oral or written agreements heretofore made relating to your Base
Salary, expense reimbursement, benefits and severance and constitutes the entire
agreement of the parties relating to the subject matter hereof, except for any
previously existing agreements to pay accrued but unpaid salary as compensation,
and accrued but unpaid expenses incurred, for services provided by you prior to
the date hereof; provided that, except as specifically provided herein, this
Agreement shall not supersede or limit in any way or affect any rights you may
have under any other of the Corporation's employee benefit plans, programs or
arrangements (including, without limitation, employee benefit plans within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974).
m. Assignment. This Agreement and the rights, interest
and benefits shall not be assigned, transferred, pledged or hypothecated in any
way and shall not be subject to execution, attachment or similar process. Any
attempt by you to assign, transfer, pledge or hypothecate or make any other
disposition of this Agreement or of such rights, interests and benefits contrary
to the foregoing provision or the levy of any attachment or similar process
thereupon, shall be null and void and without effect and shall relieve the
Corporation of any and all liability hereunder.
<PAGE> 15
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November __, 1996
Page 15
________________________________________________________________________________
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Corporation the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
PIRANHA INTERACTIVE PUBLISHING, INC.
By:_________________________________________
(Signature)
Name:_______________________________________
(Please Print)
Title:______________________________________
(Please Print)
Agreed and accepted this
_____ day of November, 1996.
By:_________________________________
(Signature)
_________________________________
(Please Print)
<PAGE> 1
EXHIBIT 10.2
PIRANHA INTERACTIVE PUBLISHING, INC.
1996 STOCK OPTION PLAN
-------------------------
1. Purposes of the Plan. The purposes of this Stock Option Plan are
to attract and retain the best available personnel for positions of substantial
responsibility to provide successful management of the Company's business, to
provide additional incentive to the Employees of the Company, and to promote the
success of the Company's business through the grant of options to purchase
shares of the Company's Common Stock.
Options granted hereunder may be either "Incentive Stock
Options," as defined in Section 422 of the Code, or "Non-Statutory Stock
Options," at the discretion of the Board and as reflected in the terms of the
written option agreement.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Company or
the Committee, if one has been appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
(c) "Common Stock" shall mean the common stock of the Company
described in the Company's Articles of Incorporation, as amended.
(d) "Company" shall mean Piranha Interactive Publishing, Inc., a
Nevada corporation, and shall include any parent or subsidiary
corporation of the Company as defined in Sections 424(e) and (f),
respectively, of the Code.
(e) "Committee" shall mean the Committee appointed by the Board
in accordance with paragraph (a) of Section 4 of the Plan, if one
is appointed.
(f) "Consultant" shall mean any person, including without
limitation independent contractors and software developers, who
perform services on behalf of the Company from time to time.
(g) "Director" shall mean a member of the Board.
(h) "Employee" shall mean any person, including officers and
Directors, employed by the Company. The payment of a director's fee
by the Company shall not be sufficient to constitute "employment"
by the Company.
(i) "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended and the rules and regulations promulgated
thereunder.
<PAGE> 2
(j) "Fair Market Value" shall mean, with respect to the date a
given Option is granted or exercised, the value of the Common Stock
determined by the Board in such manner as it may deem equitable for
Plan purposes but, in the case of an Incentive Stock Option, no
less than is required by applicable laws or regulations; provided,
however, that where there is a public market for the Common Stock,
the Fair Market Value per Share shall be the mean of the bid and
asked prices of the Common Stock on the date of grant, as reported
in the Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers
Automated Quotation System) or, in the event the Common Stock is
listed on the New York Stock Exchange or the American Stock
Exchange, the Fair Market Value per Share shall be the closing
price on such exchange on the date of grant of the Option, as
reported in the Wall Street Journal.
(k) "Incentive Stock Option" shall mean an Option which is
intended to qualify as an incentive stock option within the meaning
of Section 422 of the Code.
(l) "Non-Statutory Option" shall mean all Options which are not
Incentive Stock Options.
(m) "Option" shall mean a stock option granted under the Plan.
(n) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(o) "Optionee" shall mean an Employee, Director or Consultant of
the Company who has been granted one or more Options.
(p) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(q) "Plan" shall mean this Stock Option Plan.
(r) "Share" shall mean a share of the Common Stock, as adjusted
in accordance with Section 11 of the Plan.
(s) "Subsidiary" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the
Code.
(t) "Tax Date" shall mean the date an Optionee is required to pay
the Company an amount with respect to tax withholding obligations
in connection with the exercise of an Option.
3. Common Stock Subject to the Plan. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan shall be 200,000 Shares of Common Stock. The
Shares which may be optioned and
2
<PAGE> 3
sold under the Plan may be authorized, but unissued, or previously issued Shares
acquired or to be acquired by the Company and held in treasury.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares covered by
such Option shall, unless the Plan shall have been terminated, be available for
future grants of Options.
4. Administration of the Plan.
(a) Procedure.
(i) The Board shall administer the Plan; provided, however,
that the Board may appoint a Committee consisting solely of two (2) or more
"Non-Employee Directors" to administer the Plan on behalf of the Board, in
accordance with Rule 16b-3 of the Exchange Act.
(ii) Once appointed, the Committee shall continue to serve
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause), and appoint new members in substitution therefor or
fill vacancies however caused; provided, however, that at no time may any person
serve on the Committee if that person's membership would cause the Committee not
to satisfy the requirements of Rule 16b-3 of the Exchange Act.
Any reference herein to the Board shall, where appropriate,
encompass a Committee appointed to administer the Plan in accordance with this
Section 4.
(b) Powers of the Board. Subject to the provisions of the Plan,
the Board shall have the authority, in its discretion: (i) to grant Incentive
Stock Options, in accordance with Section 422 of the Code, and to grant
Non-Statutory Stock Options; (ii) to determine, upon review of relevant
information and in accordance with Section 2(i) of the Plan, the Fair Market
Value of the Common Stock; (iii) to determine the exercise price per Share of
Options to be granted, which exercise price shall be determined in accordance
with Section 8(a) of the Plan; (iv) to determine the Directors, Employees and
Consultants to whom, and the time or times at which, Options shall be granted
and the number of Shares to be represented by each Option; (v) to interpret the
Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the
Plan; (vii) to determine the terms and provisions of each Option granted (which
need not be identical) and, with the consent of the Optionee thereof, modify or
amend each Option; (viii) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option; (ix) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the grant
of an Option previously granted by the Board; (x) to accept or reject the
election made by an Optionee pursuant to Section 17 of the Plan; and (xi) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
3
<PAGE> 4
5. Eligibility.
(a) Consistent with the Plan's purposes, Options may be granted
only to Directors, Employees and Consultants of the Company as determined by the
Board. An Optionee who has been granted an Option may, if he or she is otherwise
eligible, be granted an additional Option or Options. Incentive Stock Options
may be granted only to those Employees who meet the requirements applicable
under Section 422 of the Code.
(b) With respect to Incentive Stock Options granted under the
Plan, the aggregate fair market value (determined at the time the Incentive
Stock Option is granted) of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by the Employee during any
calendar year (under all plans of the Company and its parent and subsidiary
corporations) shall not exceed One Hundred Thousand Dollars ($100,000).
The Plan shall not confer upon any Optionee any right with
respect to continuation of employment with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment at any time.
6. Board Approval and Effective Date. The Plan shall take effect on
December 13, 1996, the date on which the Board approved the Plan. No Option may
be granted after December 13, 2006 (ten (10) years from the effective date of
the Plan); provided, however, that the Plan and all outstanding Options shall
remain in effect until such Options have expired or until such Options are
canceled.
7. Term of Option. Unless otherwise provided in the Stock Option
Agreement, the term of each Option shall be ten (10) years from the date of
grant thereof. In no case shall the term of any Incentive Stock Option exceed
ten (10) years from the date of grant thereof. Notwithstanding the above, in the
case of an Incentive Stock Option granted to an Employee who, at the time the
Incentive Stock Option is granted, owns ten percent (10%) or more of the Common
Stock as such amount is calculated under Section 422(b)(6) of the Code ("Ten
Percent Shareholder"), the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the Stock Option Agreement.
8. Exercise Price and Payment.
(a) Exercise Price. The per Share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the Board,
but in the case of an Incentive Stock Option shall be no less than one hundred
percent (100%) of the Fair Market Value per share on the date of grant;
provided, further, that in the case of an Incentive Stock Option granted to an
Employee who, at the time of the grant of such Incentive Stock Option, is a Ten
Percent Shareholder, the per Share exercise price shall be no less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.
(b) Payment. The price of an exercised Option and any taxes
attributable to the delivery of Common Stock under the Plan, or portion thereof,
shall be paid:
4
<PAGE> 5
(i) In United States dollars in cash or by check, bank draft
or money order payable to the order of the Company; or
(ii) At the discretion of the Board, through the delivery of
shares of Common Stock, with an aggregate Fair Market Value, equal
to the option price; or
(iii) By a combination of (i) and (ii) above; or
(iv) In the manner provided in subsection (c) below.
The Board shall determine acceptable methods for tendering
Common Stock as payment upon exercise of an Option and may impose such
limitations and prohibitions on the use of Common Stock to exercise an Option as
it deems appropriate. With respect to Non-Statutory Options, at the election of
the Optionee pursuant to Section 17, the Company may satisfy its withholding
obligations by retaining such number of shares of Common Stock subject to the
exercised Option which have an aggregate Fair Market Value on the exercise date
equal to the Company's aggregate federal, state, local and foreign tax
withholding and FICA and FUTA obligations with respect to income generated by
the exercise of the Option by Optionee.
(c) Financial Assistance to Optionees. The Board may assist
Optionees in paying the exercise price of Options granted under this Plan in the
following manner:
(i) The extension of a loan to the Optionee by the Company;
or
(ii) A guaranty by the Company of a loan obtained by the
Optionee from a third party.
The terms of any loans, installment payments or guarantees,
including the interest rate and terms of repayment, and collateral requirements,
if any, shall be determined by the Board, in its sole discretion. Subject to
applicable margin requirements, any loans, installment payments or guarantees
authorized by the Board pursuant to the Plan may be granted without security,
but the maximum credit available shall not exceed the exercise price for the
Shares for which the Option is to be exercised, plus any federal and state
income tax liability incurred in connection with the exercise of the Option.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan. Unless otherwise determined by the Board at the time of grant, an Option
may be exercised in whole or in part. An Option may not be exercised for a
fraction of a Share.
5
<PAGE> 6
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Board, consist
of any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Status as an Employee. Unless otherwise
provided in a Stock Option Agreement relating to an Option that is not an
Incentive Stock Option, if an Employee's employment by the Company is
terminated, except if such termination is voluntary or occurs due to retirement
with the consent of the Board, death or disability, then the Option, to the
extent not exercised, shall cease on the date on which Employee's employment by
the Company is terminated. If an Employee's termination is voluntary or occurs
due to retirement with the consent of the Board, then the Employee may, but only
within thirty (30) days (or such other period of time not exceeding three (3)
months as is determined by the Board) after the date he or she ceases to be an
Employee of the Company, exercise his or her Option to the extent that he or she
was entitled to exercise it at the date of such termination. To the extent that
he or she was not entitled to exercise the Option at the date of such
termination, or if he or she does not exercise such Option (which he or she was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) Disability. Unless otherwise provided in an Option Agreement
relating to an Option that is not an Incentive Stock Option, notwithstanding the
provisions of Section 8(b) above, in the event an Employee is unable to continue
his or her employment with the Company as a result of his or her permanent and
total disability (as defined in Section 22(e)(3) of the Code), he or she may,
but only within three (3) months (or such other period of time not exceeding
twelve (12) months as it is determined by the Board) from the date of
termination, exercise his or her Option to the extent he or she was entitled to
exercise it at the date of such termination. To the extent that he or she was
not entitled to exercise the Option at the date of termination, or if he or she
does not exercise such Option (which he or she was entitled to exercise) within
the time specified herein, the Option shall terminate.
(d) Death of Optionee. Unless otherwise provided in an Option
Agreement relating to an Option, if Optionee dies during the term of the Option
and is at the time of his or her death an Employee of the Company who shall have
been in continuous status as an Employee since the date of grant of the Option,
the Option may be exercised, at any time within one (1) year following the date
of death (or such other period of time as is determined by the Board), by the
Optionee's estate or by a person who acquired the right to exercise the
6
<PAGE> 7
Option by bequest or inheritance, but only to the extent that Optionee was
entitled to exercise the Option on the date of death. To the extent that
Optionee was not entitled to exercise the Option on the date of death, or if the
Optionee's estate, or person who acquired the right to exercise the Option by
bequest or inheritance, does not exercise such Option (which he or she was
entitled to exercise) within the time specified herein, the Option shall
terminate.
10. Non-transferability of Options. An Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution, or pursuant to a
"qualified domestic relations order" under the Code and ERISA, and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
11. Adjustments upon Changes in Capitalization or Merger. Subject
to any required action by the shareholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof, shall be made
with respect to the number or price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. In
the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Option shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the Optionee shall have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable. If the Board makes an
Option fully exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice (but not later than the expiration of the term of the Option under
the Option Agreement), and the Option will terminate upon the expiration of such
period.
7
<PAGE> 8
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Board makes the determination
granting such Option. Notice of the determination shall be given to each
Employee to whom an Option is so granted within a reasonable time after the date
of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided, however, that the following revisions or amendments shall require
approval of the holders of a majority of the outstanding Shares of the Company
entitled to vote:
(i) Any increase in the number of Shares subject to the
Plan, other than in connection with an adjustment under Section 11
of the Plan;
(ii) Any change in the designation of the class of employees
eligible to be granted Options; or
(iii) If the Company has a class of equity security
registered under Section 12 of the Exchange Act at the time of such
revision or amendment, any material increase in the benefits
accruing to participants under the Plan.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, respectively, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
In the case of an Incentive Stock Option, any Optionee who
disposes of Shares of Common Stock acquired on the exercise of an Option by sale
or exchange (a) either within two (2) years after the date of the grant of the
Option under which the Common Stock was acquired or (b) within one (1) year
after the acquisition of such Shares of Common Stock shall notify the Company of
such disposition and of the amount realized upon such disposition.
8
<PAGE> 9
15. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written Stock
Option Agreements in such form as the Board shall approve.
17. Withholding Taxes. Subject to Section 4(b)(x) of the Plan and
prior to the Tax Date, the Optionee may make an irrevocable election to have the
Company withhold from those Shares that would otherwise be received upon the
exercise of any Non-Statutory Stock Option, a number of Shares having a Fair
Market Value equal to the minimum amount necessary to satisfy the Company's
federal, state, local and foreign tax withholding obligations and FICA and FUTA
obligations with respect to the exercise of such Option by the Optionee.
18. Miscellaneous Provisions.
(a) Plan Expense. Any expenses of administering this Plan shall
be borne by the Company.
(b) Use of Exercise Proceeds. The payment received from
Optionees from the exercise of Options shall be used for the general corporate
purposes of the Company.
(c) Construction of Plan. The validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined in accordance
with the laws of the State of Nevada and where applicable, in accordance with
the Code.
(d) Taxes. The Company shall be entitled if necessary or
desirable to pay or withhold the amount of any tax attributable to the delivery
of Common Stock under the Plan from other amounts payable to the Employee after
giving the person entitled to receive such Common Stock notice as far in advance
as practical, and the Company may defer making delivery of such Common Stock if
any such tax may be pending unless and until indemnified to its satisfaction.
(e) Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, the members of the
Board shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding to
which they or any of them may be party by reason of any action taken or failure
to act under or in connection with the Plan or any Option, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such
9
<PAGE> 10
action, suit or proceeding, except a judgment based upon a finding of bad faith;
provided that upon the institution of any such action, suit or proceeding a
Board member shall, in writing, give the Company notice thereof and an
opportunity, at its own expense, to handle and defend the same before such Board
member undertakes to handle and defend it on her or his or her own behalf.
(f) Gender. For purposes of this Plan, words used in the
masculine gender shall include the feminine and neuter, and the singular shall
include the plural and vice versa, as appropriate.
10
<PAGE> 1
EXHIBIT 10.3
SOFTWARE DISTRIBUTION AGREEMENT
BETWEEN
TECH DATA CORPORATION
AND
PIRANHA INTERACTIVE PUBLISHING, INC.
[Confidential portions of this exhibit have been deleted and filed separately
with the Securities and Exchange Commission]
<PAGE> 2
SOFTWARE DISTRIBUTION AGREEMENT
THIS AGREEMENT, DATED AS OF THIS 23RD DAY OF SEPTEMBER, 1996 (THE
"EFFECTIVE DATE"), IS BETWEEN TECH DATA CORPORATION, A FLORIDA CORPORATION
("TECH DATA"), WITH ITS PRINCIPAL CORPORATE ADDRESS AT 5350 TECH DATA DRIVE,
CLEARWATER, FLORIDA 34620 AND PIRANHA INTERACTIVE PUBLISHING, INC. AN ARIZONA
CORPORATION ("PIRANHA"), WITH ITS PRINCIPAL CORPORATE ADDRESS AT 1839 WEST
DRAKE, SUITE B, TEMPE, AZ 85283.
RECITALS
A. Tech Data desires to purchase certain Products from Piranha from time
to time and Piranha desires to sell certain Products to Tech Data in accordance
with the terms and provisions set forth in this Agreement.
B. Piranha desires to appoint Tech Data as its non-exclusive distributor
to market Products within the territory defined below and Tech Data accepts such
appointment on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the Recitals, the mutual covenants
contained in this Agreement and other good and valuable consideration, Tech Data
and Piranha hereby agree as follows:
ARTICLE I. DEFINITIONS, APPOINTMENT AND TERM OF AGREEMENT
1.1 Definitions. The following definitions shall apply to this Agreement.
(a) "Customers" of Tech Data shall include dealers, resellers, value
added resellers, mail order resellers and other entities that
acquire the Products from Tech Data for resale, specifically
excluding End Users.
(b) "DOA" shall mean Product, or any portion thereof, which fails to
operate properly on initial "burn in", boot, or use, as applicable.
(c) "Documentation" shall mean user manuals, training materials,
product descriptions and specifications, brochures, technical
manuals, license agreements, supporting materials and other printed
information relating to the Products, whether distributed in print,
electronic, or video format.
(d) "End Users" shall mean the final retail purchasers or licensees
who have acquired Products for their own use and not for resale,
remarketing or redistribution.
(e) "Non-Sellable Products" shall mean any Product that has been
returned to Tech Data by its Customers that has had the outside
shrink wrapping or other packaging seal broken or any components of
the original package are missing, damaged or modified.
(f) "Products" shall mean, individually or collectively, the sealed
software packages comprised of the computer programs encoded on
media together with manuals, materials and other contents of the
packages associated therewith, if any, as more fully described in
Schedule 5.1 attached hereto.
(g) "Services" means any warranty, maintenance, advertising,
marketing or technical support and any other services performed or
to be performed by Piranha.
Tech Data__ 2 Piranha__
<PAGE> 3
(h) "Territory" shall mean worldwide, subject only to Product
distribution restrictions, if any, set forth in Schedule 5.1.
1.2 Term of Agreement. The term of this Agreement shall commence on the
Effective Date and, unless terminated by either party as set forth in this
Agreement, shall remain in full force and effect for a term of one (1)
year, and will be automatically renewed for successive one (1) year terms
unless prior written notification of termination or non-renewal is
delivered by one of the parties in accordance with the notice provision of
this Agreement.
1.3 Appointment as Distributor. Piranha hereby grants to Tech Data the
non-exclusive right and license to distribute Products during the term of
this Agreement within the Territory, together with any updates or
enhancements to the Products and any new releases related to the Products.
This license includes the right to order, possess and distribute the
Products to Customers and to provide the Products to Customers for use on
demonstration units. Piranha and Tech Data acknowledge and agree that the
license to use the Product is solely between Piranha and the End User and
is governed by the terms of the Piranha's standard use license enclosed
with the Product. This Agreement does not grant Piranha or Tech Data an
exclusive right to purchase or sell Products and shall not prevent either
party from developing or acquiring other vendors or customers or competing
Products. Tech Data will use commercially reasonable efforts to promote
distribution of the Products. Piranha agrees that Tech Data may obtain
Products in accordance with this Agreement for the benefit of subsidiaries
of Tech Data. Wholly owned subsidiaries of Tech Data shall be entitled to
order Products directly from Piranha pursuant to this Agreement.
ARTICLE II. PURCHASE ORDERS
2.1 Issuance and Acceptance of Purchase Order.
(a) This Agreement shall not obligate Tech Data to purchase any
Products or services except as specifically set forth in a written
purchase order.
(b) Tech Data may issue to Piranha one or more purchase orders
identifying the Products Tech Data desires to purchase from Piranha.
The terms and provisions of this Agreement shall govern all purchase
orders except that purchase order may include other terms and
provisions which are consistent with the terms and provisions of
this Agreement, or which are mutually agreed to by Tech Data and
Piranha. Purchase orders will be placed by Tech Data by fax or
electronically transferred. On or after the date of shipment,
Piranha shall invoice Tech Data for the purchase of the Product.
(c) A purchase order shall be deemed accepted by Piranha unless
Piranha notifies Tech Data in writing within five (5) days after
receiving the purchase order that Piranha does not accept the
purchase order.
2.2 Purchase Order Alterations or Cancellations. Prior to shipment of
Products, Piranha shall accept alterations or cancellation to a
purchase order in order to: (i) change a location for delivery, (ii)
modify the quantity or type of Products to be delivered or (iii)
correct typographical or clerical errors.
2.3 Evaluation or Demonstration Purchase Orders. Piranha shall provide to
Tech Data a reasonable number of demonstration or evaluation products
at no charge.
Tech Data__ 3 Piranha__
<PAGE> 4
2.4 Product Shortages. If for any reason Piranha's production is not on
schedule, Piranha may allocate available inventory to Tech Data and make
shipments based upon a fair and reasonable percentage allocation among
Piranha's customers. Such allocations shall not impact the calculation of
performance rebates.
ARTICLE III. DELIVERY AND
ACCEPTANCE OF PRODUCTS
3.1 Acceptance of Products. Tech Data shall, after a reasonable time to
inspect each shipment, accept Product (the "Acceptance Date") if the
Products and all necessary documentation delivered to Tech Data are in
accordance with the purchase order. Such reasonable time shall not exceed
thirty (30) days. Any Products not ordered or not otherwise in accordance
with the purchase order, (e.g. mis-shipments, overshipments) may be
returned to Piranha at Piranha's expense (including without limitation
costs of regular/ground shipment or storage). Piranha shall refund to Tech
Data within ten (10) business days following notice thereof, all monies
paid in respect to such rejected Products. Tech Data shall not be required
to accept partial shipment unless Tech Data agrees prior to shipment.
3.2 Title and Risk of Loss. FOB Destination. Risk of loss or damage to
Products shall pass to Tech Data at the time that the Products are
delivered to Tech Data warehouse. Piranha and Tech Data agree that no
title or ownership of the proprietary rights to any software code is
transferred by virtue of this Agreement notwithstanding the use of terms
such as "purchase", "sale" or the like within this Agreement. Piranha
retains all ownership rights and title to any software code within the
Products.
3.3 Transportation of Products. Piranha shall deliver the Products clearly
marked on the Product package with serial number (if applicable), product
description and machine readable UPC bar code to Tech Data at the location
shown and on the delivery date set forth in the applicable purchase order
or as otherwise agreed upon by the parties. Charges for regular/ground
transportation of the Products from Piranha to Tech Data's warehouse or
other delivery site that the parties have agreed upon shall be paid by
Piranha. Piranha shall use only those common carriers preapproved by Tech
Data or listed in Tech Data's published routing instructions, unless prior
written approval of Tech Data is received.
ARTICLE IV. RETURNS
4.1 Inventory Adjustment. Piranha agrees to accept return of overstocked
Products as determined by Tech Data, in Tech Data's reasonable discretion.
Such Products may include any ordered under the initial order. Shipments
of Product being returned shall be new, unused and in sealed cartons.
Piranha shall credit Tech Data's account in the amount of the price paid
by Tech Data therefor less any price protection credits (the "Return
Credit").
4.2 Defective Products/Dead on Arrival (DOA). Tech Data shall have the right
to return to Piranha for credit any DOA Product that is returned to Tech
Data within sixty (60) days after the initial delivery date to the End
User and any Product that fails to perform in accordance with Piranha's
product warranty. Piranha shall bear all costs of regular/ground shipping
and risk of loss of DOA and in-warranty Products to Piranha's location and
back to Tech Data or Tech Data's Customer. If Piranha delivers defective
and DOA Product of more than [*] percent ([*]%) in any fiscal quarter of
Tech Data, Piranha shall issue an additional [*] percent ([*]%) discount
credit to Tech Data's account for all Products purchased during any such
quarter.
4.3 Obsolete or Outdated Product. Tech Data shall have the right to return for
full credit, without limitation as to the dollar amount, all Products that
become obsolete or Piranha discontinues, updates, revises or are removed
from Piranha's current price list, provided Tech Data returns
Tech Data__ 4 Piranha__
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 5
such Products within one hundred fifty (150) days after Tech Data receives
written notice from Piranha that such Products are obsolete, superseded by
a newer version, discontinued or are removed from Piranha's price list.
4.4 Miscellaneous Returns.
(a) Bad Box. Tech Data shall return for credit Products which have
boxes that are or become damaged. Piranha will supply to Tech Data,
at no charge, any and all material(s) which are missing in the
original Product package.
(b) Non-Sellable. Tech Data may return Non-Sellable Product to
Piranha for credit.
ARTICLE V. PAYMENT TO VENDOR
5.1 Charges, Prices and Fees for Products. Charges, prices, quantities and
discounts, if any, for Products shall be determined as set forth in
Schedule 5.1, or as otherwise mutually agreed upon by the parties in
writing, and may be confirmed at the time of order. In no event shall
charges exceed Piranha's then current established charges. Tech Data shall
not be bound by any of Piranha's suggested prices.
5.2 Payment. Except as otherwise set forth in this Agreement, any undisputed
sum due to Piranha pursuant to this Agreement shall be payable as follows:
[*]% prepay, 2%-10, net sixty (60) days after the invoice receipt. Piranha
shall invoice Tech Data no earlier than the applicable shipping date for
the Products covered by such invoice. Products which are shipped from
outside the United States shall not be invoiced to Tech Data prior to the
Products being placed on a common carrier within the United States for
final delivery to Tech Data. The due date for payment shall be extended
during any time the parties have a bona fide dispute concerning such
payment. Notwithstanding anything herein to the contrary, for the initial
order under this Agreement, or any initial order of a new Product, payment
shall be made by Tech Data upon resale of the Products.
[*]
5.3 Invoices. A "correct" invoice shall contain (i) Piranha's name and invoice
date, (ii) a reference to the purchase order or other authorizing
document, (iii) separate descriptions, unit prices and quantities of the
Products actually delivered, (iv) credits (if applicable), (v) shipping
charges (if applicable) (vi) name (where applicable), title, phone number
and complete mailing address as to where payment is to be sent, and (vii)
other substantiating documentation or information as may reasonably be
required by Tech Data from time to time.
5.4 Taxes. Tech Data shall be responsible for franchise taxes, sales or use
taxes or shall provide Piranha with an appropriate exemption certificate.
Piranha shall be responsible for all other taxes, assessments, permits and
fees, however designated, which are levied upon this Agreement or the
Products, except for taxes based upon Tech Data's income. Piranha shall be
responsible for any V.A.T. tax which may be imposed upon any sale of
Products to Tech Data; Tech Data shall be responsible for any V.A.T. tax
which may be imposed on any sale of Products by Tech Data to Tech Data's
Customers. No taxes of any type shall be added to invoices without the
prior written approval of Tech Data.
5.5 Fair Pricing and Terms. Piranha represents that the prices charged and the
terms offered to Tech Data are and will be at least as beneficial to Tech
Data as those charged or offered by Piranha to any of its other like
distributors in the territory. If Piranha offers price discounts, payment
discounts, promotional discounts or other special prices to its other like
distributors in
Tech Data__ 5 Piranha__
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 6
the territory, Tech Data shall also be entitled to participate and receive
notice of the same no later than other like distributors in the territory.
5.6 Price Adjustments.
(a) Price Increases. Piranha shall have the right to increase prices
from time to time, upon written notice to Tech Data not less than
sixty (60) days prior to the effective date of such increase. All
orders placed prior to the effective date of the increase, for
shipment within sixty (60) days after the effective date, shall be
invoiced by Piranha at the lower price.
(b) Price Decreases. Piranha shall have the right to decrease prices
from time to time, upon written notice to Tech Data not less than
thirty (30) days prior to the effective date of such decrease.
Piranha shall grant to Tech Data, its subsidiaries and Tech Data's
Customers a price credit for the full amount of any Piranha price
decrease on all Products on order, in transit and in their inventory
on the effective date of such price decrease. Tech Data shall,
within sixty (60) days after receiving written notice of the
effective date of the price decrease, provide a list of all Products
for which it claims a credit, and within 120 days, will provide a
list of all Products for which its Customers claim price protection
credits. Piranha shall have the right to a reasonable audit at
Piranha's expense.
5.7 Advertising.
(a) Cooperative Advertising. Piranha offers a [*] percent ([*]%)
co-op program as set forth in Schedule 5.7, and may offer additional
advertising credits, or other promotional programs or incentives to
Tech Data as it offers to its other distributors or customers. Tech
Data shall have the right, at Tech Data's option, to participate in
such programs. Attached as Schedule 5.7 is a copy of Piranha's co-op
policy.
(b) Advertising Support. Piranha shall provide at no charge to Tech
Data and the Customers of Tech Data, marketing support, and
advertising materials in connection with the resale of Products as
are currently offered or that may be offered by Piranha. Tech Data
reserves the right to charge Piranha for advertising, marketing and
training services which have been preapproved by the parties in
writing.
(c) Prior to receipt of the initial purchase order, Piranha shall
pay Tech Data for all launch funds expenditures that Piranha and
Tech Data have agreed to in writing related to the Products.
ARTICLE VI. WARRANTIES, INDEMNITIES
AND OTHER OBLIGATIONS OF VENDOR
6.1 Warranty. Piranha hereby represents and warrants that Piranha has all
right, title, ownership interest and/or marketing rights necessary to
provide the Products to Tech Data. Piranha further represents and warrants
that it has not entered into any agreements or commitments which are
inconsistent with or in conflict with the rights granted to Tech Data in
this Agreement; the Products are new and shall be free and clear of all
liens and encumbrances; Tech Data and its Customers and End Users shall be
entitled to use the Products without disturbance; the Products have been
listed with Underwriters' Laboratories or other nationally recognized
testing laboratory whenever such listing is required; the Products meet
all FCC requirements; the Products do and will conform to all codes, laws
or regulations; and the Products conform in all respects to the Product
warranties. Piranha agrees that Tech Data shall be entitled to pass
through to Customers of Tech Data and End Users of the Products all
Product warranties granted by Piranha in the enduser license agreement
provided with each product, as attached. Tech Data
Tech Data__ 6 Piranha__
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 7
shall have no authority to alter or extend any of the warranties of
Piranha expressly contained or referred to in this Agreement without prior
approval of Piranha. Piranha has made express warranties in this Agreement
and in the End User license agreement. EXCEPT AS SET FORTH HEREIN OR
THEREIN, PIRANHA DISCLAIMS ALL WARRANTIES WITH REGARD TO THE PRODUCTS,
INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE. THIS SECTION SHALL SURVIVE
TERMINATION OR EXPIRATION OF THIS AGREEMENT.
6.2 Proprietary Rights Indemnification. Piranha hereby represents and warrants
that the Products and the sale and use of the Products do not infringe
upon any copyright, patent, trade secret or other proprietary or
intellectual property right of any third party, and that there are no
suits or proceeding, pending or threatened alleging any such infringement.
Piranha shall indemnify and hold Tech Data, Tech Data's subsidiaries and
their respective, officers, directors, employees and agents harmless from
and against any and all actions, claims, losses, damages, liabilities,
awards, reasonable costs and expenses, which they or any of them incur or
become obligated to pay resulting from or arising out of any breach or
claimed breach of the foregoing warranty. Tech Data shall inform Piranha
of any such suit or proceeding filed against Tech Data and shall have the
right, but not the obligation, to participate in the defense of any such
suit or proceeding at Tech Data's expense. Piranha shall, at its option
and expense, either (i) procure for Tech Data, its Customers and End Users
the right to continue to use the Product as set forth in this Agreement,
or (ii) replace, to the extent Products are available, or modify the
Product to make its use non-infringing while being capable of performing
the same function without degradation of performance. Piranha shall have
no liability under this Section 6.2 for any infringement based on the use
of any Product, if the Product is used in a manner or with equipment for
which it was not reasonably intended. Piranha's obligations under this
Section 6.2 shall survive termination or expiration of this Agreement.
6.3 Indemnification.
(a) Vendor. Piranha shall be solely responsible for the design,
development, supply, production and performance of the Products.
Piranha agrees to indemnify and hold Tech Data, its subsidiaries and
their officers, directors and employees harmless from and against
any and all claims, damages, costs, expenses (including, but not
limited to, reasonable attorney's fees and costs) or liabilities
that may result, in whole or in part, from any warranty or product
liability claim, or any claim for infringement, or for claims for
violation of the warranties contained in Sections 6.1 and 6.2 of
this Agreement.
(b) Tech Data. Tech Data agrees to indemnify and hold Piranha, its
officers, directors and employees harmless from and against any and
all claims, damages, costs, expenses (including, but not limited to,
reasonable attorneys' fees and costs) or liabilities that may
result, in whole or in part, from Tech Data's gross negligence or
willful misconduct in the distribution of the Products pursuant to
this Agreement, or for representations or warranties made by Tech
Data related to the Products in excess of the warranties of Piranha.
6.4 Insurance.
(a) The parties shall be responsible for providing Workers'
Compensation insurance in the statutory amounts required by the
applicable state laws.
(b) Without in any way limiting Piranha's indemnification obligation
as set forth in this Agreement, Piranha shall maintain Commercial
General Liability and/or Comprehensive General Liability Insurance
in such amounts as is reasonable and standard for the industry.
Either policy form should contain the following coverages: Personal
and Advertising Injury, Broad Form Property Damage, Products and
Completed Operations, Contractual Liability, employees as Insured
and Fire Legal Liability.
Tech Data__ 7 Piranha__
<PAGE> 8
(c) Piranha will provide evidence of the existence of insurance
coverages referred to in this Section 6.4 by certificates of
insurance which should also provide for at least thirty (30) days
notice of cancellation, non-renewal or material change of coverage
to Tech Data. The certificates of insurance shall name Tech Data
Corporation as an additional insured for the limited purpose of
claims arising pursuant to this Agreement.
6.5 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PURSUANT TO THIS AGREEMENT FOR AMOUNTS REPRESENTING INDIRECT, SPECIAL,
INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES OF THE OTHER PARTY ARISING
FROM THE PERFORMANCE OR BREACH OF ANY TERMS OF THIS AGREEMENT.
6.6 ECCN/Export. Piranha agrees to provide Tech Data, upon signing this
Agreement and at any time thereafter that Piranha modifies or adds
Products distributed or to be distributed by Tech Data, with the Export
Control Classification Number (ECCN) for each of Piranha's Products, and
information as to whether or not any of such Products are classified under
the U.S. Munitions List.
6.7 Financial Statements.
Piranha and Tech Data agree that for the term of this Agreement, both
parties shall provide financial statements annually and semi annually as
follows:
a. Within one hundred and eighty (180) days after the end of each
party's fiscal year, audited financial statements for the fiscal
year prepared by an independent certified public accountant.
b. Within sixty (60) days after the end of each party's second
fiscal quarter, semi-annual unaudited financial statements, prepared
by an authorized representative.
Such financial statements shall include profit and loss statement, balance
sheets and such other accounting data as may be requested by either party
and be acknowledged by each party's authorized representative in writing
as true and correct.
6.8 Vendor Reports. Piranha shall, if requested, render monthly reports to
Tech Data setting forth the separate Products, dollars invoiced for each
Product, and total dollars invoiced to Tech Data for the month, and such
other information as Tech Data may reasonably request.
6.9 Tech Data Reports. Tech Data shall, if requested, render monthly sales out
reports on Tech Data's BBS system. Information provided will include:
month and year sales activity occurred, internal product number (assigned
by Tech Data), written description, state and zip-code of Customer's
location, unit cost (distributor's cost at quantity 1), quantity and
extended cost (cost times quantity). A monthly inventory report will be
provided on a paper format once a month.
6.10 Trademark Usage. Tech Data is hereby authorized to use trademarks and
trade names of Piranha and third parties licensing Piranha, if any, used
in connection with advertising, promoting or distributing the Products.
Tech Data recognizes Piranha or other third parties may have rights or
ownership of certain trademarks, trade names and patents associated with
the Products. Tech Data will act consistently with such rights, and Tech
Data shall comply with any reasonable, written guidelines when provided by
Piranha or third parties licensing Piranha related to such trademark or
trade name usage. Tech Data will notify Piranha of any infringement of
which Tech Data has actual knowledge. Tech Data shall discontinue use of
Piranha's trademarks or trade names upon termination or expiration of this
Agreement, except as may be necessary to sell or liquidate any final
inventories of Product.
ARTICLE VII. TERMINATION
Tech Data__ 8 Piranha__
<PAGE> 9
7.1 Termination.
(a) Termination With or Without Cause. Either party may terminate
this Agreement, without cause, upon giving the other party thirty
(30) days prior written notice. In the event that either party
materially or repeatedly defaults in the performance of any of its
duties or obligations set forth in this Agreement, and such default
is not substantially cured within thirty (30) days after written
notice is given to the defaulting party specifying the default, then
the party not in default may, by giving written notice thereof to
the defaulting party, terminate this Agreement or the applicable
purchase order relating to such default as of the date specified in
such notice of termination.
(b) Termination for Insolvency or Bankruptcy. Either party may
immediately terminate this Agreement and any purchase orders by
giving written notice to the other party in the event of (i) the
liquidation or insolvency of the other party, (ii) the appointment
of a receiver or similar officer for the other party, (iii) an
assignment by the other party for the benefit of all or
substantially all of its creditors, (iv) entry by the other party
into an agreement for the composition, extension, or readjustment of
all or substantially all of its obligations, or (v) the filing of a
petition in bankruptcy by or against a party under any bankruptcy or
debtors' law for its relief or reorganization which is not dismissed
within ninety (90) days.
7.2 Rights Upon Termination or Expiration.
(a) Termination or expiration of this Agreement shall not affect
Piranha's right to be paid for undisputed invoices for Products
already shipped and accepted by Tech Data or Tech Data's rights to
any credits or payments owed or accrued to the date of termination
or expiration. Tech Data's rights to credits upon termination or
expiration shall include credits against which Tech Data would, but
for termination or expiration, be required under this Agreement to
apply to future purchases.
(b) Piranha shall accept purchase orders from Tech Data for
additional Products which Tech Data has contractually obligated
itself, prior to termination to furnish to its Customers and does
not have in its inventory upon the termination or expiration of this
Agreement; provided Tech Data notifies Piranha of any and all such
transactions in writing within sixty (60) days following the
termination or expiration date.
(c) Upon termination or expiration of this Agreement, Tech Data
shall discontinue holding itself out as a distributor of the
Products.
7.3 Repurchase of Products Upon Termination or Expiration. Upon the effective
date of termination or expiration of this Agreement for any reason,
Piranha agrees to repurchase all Products in Tech Data's inventory or
which are returned to Tech Data within sixty (60) days following the
effective date of termination or expiration. Piranha will repurchase the
Products at the original purchase price, less any deductions for price
protection. The repurchase price shall not be reduced by any deductions or
offsets for early pay or prepay discounts. Such returns shall not reduce
or offset any co-op payments or obligations owed to Tech Data. Tech Data
shall submit to Piranha, within sixty-five (65) days after the termination
or expiration date, the quantity of Product that Tech Data will be
returning to Piranha for repurchase. Piranha will issue a Return Material
Authorization (RMA) to Tech Data for all such Products; provided, however,
that Piranha shall accept returned Products in accordance with this
Section absent an RMA if Piranha fails to issue said RMA within five (5)
business days of Tech Data's request. Piranha shall credit any outstanding
balances owed to Tech Data. If such credit exceeds amounts due from Tech
Data, Piranha shall remit in the form of a check to Tech Data the excess
within ten (10) business days of receipt of the Product. Customized
Products shall not be eligible for repurchase pursuant to this Section.
Tech Data__ 9 Piranha__
<PAGE> 10
7.4 Survival of Terms. Termination or expiration of this Agreement for any
reason shall not release either party from any liabilities or obligations
set forth in this Agreement which (i) the parties have expressly agreed
shall survive any such termination or expiration, or (ii) remain to be
performed or by their nature would be intended to be applicable following
any such termination or expiration. The termination or expiration of this
Agreement shall not affect either party's warranties, indemnifications,
obligations relating to returns, co-op advertising payments, payments,
credits or any other matters set forth in this Agreement that should
survive termination or expiration in order to carry out their intended
purpose, all of which shall survive the termination or expiration of this
Agreement.
ARTICLE VIII. MISCELLANEOUS
8.1 Binding Nature, Assignment, and Subcontracting. This Agreement shall be
binding on the parties and their respective successors and assigns.
Neither party shall have the power to assign this Agreement without the
prior written consent of the other party, which shall not be unreasonably
withheld.
8.2 Counterparts. This Agreement may be executed in several counterparts, all
of which taken together shall constitute one single agreement between the
parties.
8.3 Headings. The Article and Section headings used in this Agreement are for
reference and convenience only and shall not affect the interpretation of
this Agreement.
8.4 Relationship of Parties. Tech Data is performing pursuant to this
Agreement only as an independent contractor. Nothing set forth in this
Agreement shall be construed to create the relationship of principal and
agent between Tech Data and Piranha. Neither party shall act or represent
itself, directly or by implication, as an agent of the other party.
8.5 Confidentiality. Each party acknowledges that in the course of performance
of its obligations pursuant to this Agreement, it may obtain certain
information specifically marked as "confidential" and/or "proprietary".
Each party hereby agrees that all such information communicated to it by
the other party, its subsidiaries, or Customers, whether before or after
the Effective Date, shall be and was received in strict confidence, shall
be used only for purposes of this Agreement, and shall not be disclosed
without the prior written consent of the other party, except as may be
necessary by reason of legal, accounting or regulatory requirements beyond
either party's reasonable control. The provisions of this Section shall
survive the term or termination of this Agreement for any reason for a
period of one (1) year after termination or expiration.
8.6 Arbitration. Any disputes arising under this Agreement shall be submitted
to arbitration in accordance with such rules as the parties jointly agree.
If the parties are unable to agree on arbitration procedures, arbitration
shall be conducted in Pinellas County, Florida in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Any
such award shall be final and binding upon both parties.
8.7 Notices. Wherever one party is required or permitted to give notice to the
other pursuant to this Agreement, such notice shall be deemed given when
actually delivered by hand, by telecopier, via overnight courier or when
mailed by registered or certified mail, return receipt requested, postage
prepaid, and addressed as follows:
In the case of Vendor: In the Case of Tech Data:
Piranha Interactive Publishing, Inc. Tech Data Corporation
1839 West Drake 5350 Tech Data Drive
Suite B Clearwater, FL 34620
Tempe, AZ 85283 Attn: Tamra Muir
Tech Data__ 10 Piranha__
<PAGE> 11
Attn: Wade Stallings V.P. of Marketing Operations
V.P., General Counsel cc: Leigh Dunham
Contracts Administration
Either party may from time to time change its address for notification
purposes by giving the other party written notice of the new address and
the date upon which it will become effective.
8.8 Force Majeure. The term "Force Majeure" shall be defined to include fires
or other casualties or accidents, acts of God, severe weather conditions,
strikes or labor disputes, war or other violence, or any law, order,
proclamation, regulation, ordinance, demand or requirement of any
governmental agency.
(a) A party whose performance is prevented, restricted or interfered
with by reason of a Force Majeure condition shall be excused from
such performance to the extent of such Force Majeure condition so
long as such party provides the other party with prompt written
notice describing the Force Majeure condition and immediately
continues performance whenever and to the extent such causes are
removed.
(b) If, due to a Force Majeure condition, the scheduled time of
delivery or performance is or will be delayed for more than ninety
(90) days after the scheduled date, the party not relying upon the
Force Majeure condition may terminate, without liability to the
other party, any purchase order or portion thereof covering the
delayed Products.
8.9 Return Material Authorization Numbers. For Products eligible for return
under this Agreement, Piranha is required to issue a Return Material
Authorization Number ("RMA") to Tech Data within five (5) business days of
Tech Data's request; however, if the Return Material Authorization is not
received within five (5) business days, Piranha shall accept undisputed
returned Products absent a Return Material Authorization Number. All RMA
numbers shall expire sixty (60) days after date of issue.
8.10 Credits to Tech Data. In the event any provisions of this Agreement or any
other agreement between Tech Data and Piranha require that Piranha grant
credits to Tech Data's account, and such undisputed credits are not
received within thirty (30) days, then all such undisputed credits shall
become effective immediately upon notice to Piranha. In such event, Tech
Data shall be entitled to deduct any such undisputed credits from the next
monies owed to Piranha. In the event that undisputed credits exceed any
balances owed by Tech Data to Piranha, then Piranha shall, upon request
from Tech Data, issue a check payable to Tech Data within thirty (30) days
of such notice. Tech Data shall have the right to set off against any
amounts due to Piranha under this Agreement or any invoices issued by
Piranha related to this Agreement any and all amounts due to Tech Data
from Piranha, whether or not arising under this Agreement.
8.11 Severability. If, but only to the extent that, any provision of this
Agreement is declared or found to be illegal, unenforceable or void, then
both parties shall be relieved of all obligations arising under such
provision, it being the intent and agreement of the parties that this
Agreement shall be deemed amended by modifying such provision to the
extent necessary to make it legal and enforceable while preserving its
intent.
8.12 Waiver. A waiver by either of the parties of any covenants, provisions or
agreements to be performed by the other or any breach thereof shall not be
construed to be a waiver of any succeeding breach thereof or of any other
covenant, condition or agreement herein contained.
8.13 Remedies. All remedies set forth in this Agreement shall be cumulative and
in addition to and not in lieu of any other remedies available to either
party at law, in equity or otherwise, and may be enforced concurrently or
from time to time.
Tech Data__ 11 Piranha__
<PAGE> 12
8.14 Entire Agreement. This Agreement, including any Exhibits and documents
referred to in this Agreement or attached hereto, constitutes the entire
and exclusive statement of Agreement between the parties with respect to
its subject matter and there are no oral or written representations,
understandings or agreements relating to this Agreement which are not
fully expressed herein. The parties agree that the terms and provisions of
this Agreement shall prevail over any contrary or additional terms in any
purchase order (unless agreed to in writing by both parties), sales
acknowledgment, confirmation or any other document issued by either party
effecting the purchase and/or sale of Products.
8.15 Governing Law. This Agreement shall have Florida as its situs and shall be
governed by and construed in accordance with the laws of the State of
Florida, without reference to choice of laws.
8.16 Time of Performance. Time is hereby expressly made of the essence with
respect to each and every term and provision of this Agreement.
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
signed and delivered by its duly authorized officer or representative as of the
Effective Date.
PIRANHA INTERACTIVE TECH DATA CORPORATION
PUBLISHING, INC.
By: /s/ Timothy M. Brannan By: /s/ Peggy K. Caldwell
____________________________ ___________________________
Printed Name: Timothy M. Brannan Printed Name: PEGGY K. CALDWELL
Title: President Title: Senior Vice President
Sales and Marketing
Date: 8/22/96 Date: 9/23/96
Tech Data__ 12 Piranha__
<PAGE> 13
SCHEDULE 5.7
CO-OP GUIDELINES
To increase the effectiveness of advertising and sales promotions Tech Data has
developed the following advertising requirements:
HOW CO-OP IS EARNED:
- - Co-op dollars will be at least [*]% of the purchases made by Tech Data, net of
returns.
- - Co-op dollars will be accrued on a monthly basis.
HOW CO-OP IS SPENT:
- - Tech Data will obtain vendor's prior written approval for all co-op
expenditures.
- - Tech Data will be reimbursed for 100% of the cost for approved ads or
promotions that feature vendor products.
- - Co-op dollars will be used within the 12 months immediately following the
month in which they are earned.
HOW CO-OP IS CLAIMED:
- - Claims for co-op will be submitted to vendor within 60 days following the
event date.
- - Claims for co-op will be submitted with a copy of vendor prior approval and
proof of performance.
- - Payment must be remitted within 30 days of the claim date, or Tech Data
reserves the right to deduct from the next invoice.
CO-OP REPORTING:
- - Vendor will submit a monthly co-op statement outlining (i) co-op earned, (ii)
co-op used and (iii) co-op claims paid.
Accepted:
/s/ Timothy M. Brannan
_______________________________
Name: Timothy M. Brannan
Title: President
Date: 8/22/96
Tech Data__ 13 Piranha__
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT 10.4
COMPUTER SOFTWARE
DISTRIBUTION AGREEMENT
This Agreement is made and is effective as of the 8th day of January 1996, by
and between NAVARRE CORPORATION ("Navarre") of 7400 49th Avenue North, New Hope,
Minnesota, 55428 and PIRANHA INTERACTIVE PUBLISHING of 4802 E. Ray Road,
Phoenix, AZ 85044 ("Vendor").
The Parties have agreed as follows:
1. DEFINITIONS
1.1 The term "Product(s)" shall mean all computer software and hardware, and
related products manufactured or marketed by Vendor during the term of
this Agreement.
1.2 The term "Dealer(s)" shall mean any third party or entity to which Navarre
markets any Products for remarketing.
2. GRANT OF MARKETING RIGHTS
2.1 Vendor grants to Navarre and Navarre accepts from vendor the right to
purchase Products and to market and distribute Products to Dealers
anywhere. This grant is non-exclusive unless otherwise agreed to by the
parties.
3. TERM
3.1 The initial term of this Agreement shall be for a period of one (1) year,
unless sooner terminated as provided by this Agreement.
3.2 After the initial term, this Agreement shall be automatically renewed for
successive one (1) year periods, unless either party gives the other
written notice at least sixty (60) days prior to the expiration of the
then current contract period that it does not desire that the Agreement
continue. If such notice is given, the Agreement shall terminate at the
end of the then current term.
4. ORDERS AND SHIPMENT AND DELIVERY OF PRODUCTS
4.1 Navarre shall issue orders in writing (which includes facsimile
transmission) or verbally (which must be confirmed in writing).
4.2 Vendor shall deliver all Products ordered by Navarre within the time
agreed to, which shall not in any event be later than ten (10) business
days after receipt of Navarre's orders. In the event that any ordered
product is backordered, Vendor shall provide Navarre a delivery date for
the backordered Product and Navarre may cancel the order if the delivery
date is unacceptable.
<PAGE> 2
4.3 All Products shall be shipped by Vendor to Navarre regular/ground
freight paid, F.O.B. destination. Navarre's price shown in Schedule A,
includes freight to Navarre's facility. Navarre shall pay for shipping
the Product to Dealers.
4.4 Navarre may cancel all or part of any order prior to the date of shipment.
4.5 Navarre shall have the option to accept or reject any partial shipments.
4.6 A packing list showing Navarre's purchase order number, quantity ordered,
quantity shipped and a detailed identification of the Products must
accompany all shipments.
4.7 All Products shall bear a UPC part code (sell code) [UPC number and bar
code]. The UPC numbers and codes on Products shall conform to the Uniform
Code Council, National Office Products Association and Retail
Industry Standards.
4.8 Navarre has the right to charge back to Vendor costs incurred by Navarre
or its Dealers due to missing, defective or inaccurate UPC codes. In no
event shall such charges exceed two (2%) percent of Navarre's purchase
price for the carton(s) of Products with missing, defective or inaccurate
UPC codes.
5. PURCHASE PRICE
5.1 Vendor represents and warrants that the price, discounts, payment terms
and return provisions set forth with respect to any Product shall never be
less favorable to Navarre than those made available by Vendor to any other
U.S. purchasers of such Product. Vendor agrees that if such a sale occurs,
Vendor will sell the Product to Navarre at the same terms and reimburse
Navarre retroactively from the date of such sale for the difference.
5.2 The Navarre price and the current suggested retail list price for each
Product manufactured or marketed by Vendor is shown on Exhibit "A".
Navarre has the option to add any or all future products manufactured or
marketed by Vendor. The Navarre price and the suggested retail price for
any Product may only be increased by sixty (60) days advance written
notice given by Vendor to Navarre.
5.3 Any announced or published price decrease by Vendor for U.S. purchasers of
Product shall apply to Navarre orders shipped on or after the date the
price decrease was announced or published. In addition, Vendor shall
credit to Navarre's account an amount equal to the difference between the
old cost to Navarre for a Product and the new cost, times the total number
of units of the Product held in Navarre's inventory. A similar credit
shall be made available for all affected Product held by Navarre's Dealers
at the time of a price decrease.
<PAGE> 3
Vendor shall cooperate with Navarre to implement the credit for Dealer
stocks of Product affected by a price decrease.
6. PAYMENT
On or after the date of shipment, Vendor shall invoice Navarre for the purchase
of Product. All amounts specified in any net invoice shall be paid by Navarre
within sixty (60) days from the date of receipt of the Products. Payment made
within ten (10) days of receipt of Products are subject to a two (2%) percent
discount from the purchase price provided by this Agreement and payments made
withing thirty (30) days of receipt of Products are subject to a one (1%)
percent discount from the purchase price provided by this Agreement. Navarre
shall have the option to deduct from invoices due Vendor any credits or money
due Navarre from Vendor. In case there is a balance due Navarre, Vendor shall
issue a check to Navarre within ten (10) working days for the credit balance.
7. STOCK BALANCING, RETURNS, PRODUCT RECALLS AND CREDITS
7.1 Navarre may return for credit to Vendor any unit of a Product which is
defective in material or workmanship, is overstocked or has been outdated
by the release of a new version. Upon receipt of such Product, Vendor
shall credit Navarre's account with the amount actually paid for the
Product. All regular/ground transportation charges incurred with respect
to defective Products or recalled Product shall be paid by Vendor. Navarre
shall pay transportation charges for other Product returns.
7.2 Credits for products returns, advertising allowances or other credits
provided for by this Agreement will be handled by the issuance of charge
backs by Navarre, and the issuance of a credit memo by Vendor. Vendor must
give written approval for all returns, all co-op and MDF arrangements and
any other credits before Product may be shipped or charge backs may be
imposed by Navarre.
8. WARRANTIES, EXCLUSION OF CONSEQUENTIAL DAMAGES
Except as provided in Sections 7, 8 and 9 hereof, neither party shall, under any
circumstances, be liable to the other for consequential, incidental, indirect or
special damages arising out of or related to this Agreement or the transactions
contemplated herein, even if such party has been appraised of the likelihood of
such damages occurring.
9. INDEMNIFICATION
Vendor shall be solely responsible for the design, development, supply,
production and performance of the Products. Vendor agrees to indemnify and hold
Navarre harmless from and against any claim, loss, damage, expense or liability
(including reasonable legal fees and costs) that may result, in whole or in
part, from:
<PAGE> 4
A. Any infringement, or any claim of infringement of any patent, trademark,
copyright, trade secret or other proprietary right with respect to the
Products.
B. Any warranty or product liability claim with respect to the Products or
any breach by Vendor of this Agreement.
C. Vendor represents and warrants that it has and will maintain during the
term of this Agreement sufficient insurance coverage, to enable it to meet
its obligations under this section.
10. ADVERTISING
10.1 Navarre shall have the right to utilize Vendor's trade name and any
trademarks and service marks associated with the Products to identify the
origin of the Products in advertising and promotional materials. With
respect to Products made by a third party, Vendor shall ensure that
Navarre has the right to use the third party's trademarks and service
marks associated with the Products in Navarre's advertising and
promotional materials.
10.2 Vendor shall support Navarre and Navarre's Dealers with advertising,
marketing and promotional activities. As a part of these activities,
Vendor shall implement cooperative advertising and market development
programs that Navarre and its Dealers can participate in.
10.3 Cooperative advertising shall be available to Navarre and/or its Dealers
from Vendor under this Agreement.
10.4 Vendor shall make market development funds available to Navarre and its
Dealers under this Agreement.
10.5 Cooperative Advertising expenditures and MDF expenditures are subject to
prior written approval by Vendor for each instance. Claims for cooperative
advertising and market development expenditures will be made by charge
backs to the Vendor, and Vendor will issue a credit memo for these costs.
11. TERMINATION
11.1 Either party may terminate this Agreement not less than sixty (60) days
after written notice.
11.2 Upon expiration or termination of this Agreement, Navarre shall have the
right, for 90 days after the termination, to return to Vendor all or a
portion of the Products in Navarre's inventory. Vendor agrees to
repurchase any such returned Products which have not been damaged since
their delivery to Navarre at the prices paid for them by Navarre.
<PAGE> 5
11.3 Sections 8, 9 and 10.1 shall survive the expiration or termination of
this Agreement.
12. MISCELLANEOUS
12.1 This Agreement shall be governed by the laws of the state of Minnesota.
Any dispute arising out of this Agreement shall be brought and prosecuted
in a court within Hennepin County Minnesota. For this purpose, Vendor
appoints Kurt Brueckner, of Titus, Brueckner and Berry, 7373 N. Scottsdale
Road, Suite B-252, Scottsdale, Arizona, 85253, (602) 483-9600 as its agent
for service of process.
12.2 This Agreement shall not be assignable by either party.
12.3 This Agreement supersedes all prior oral or written proposals and
communications between the parties related to this Agreement, and shall
not be modified, rescinded, waived or otherwise changed except with the
written consent of the parties.
12.4 Each party confirms that no inducements, promises or representations, not
written herein, caused it to enter into this Agreement.
12.5 Navarre shall have the option to deduct from invoices due Vendor any
credits or money due Navarre from Vendor.
12.6 Neither party to this Agreement is the employee, agent or legal
representative of the other for any purpose whatsoever.
The parties, by the actions of their authorized representatives, have executed
this Agreement, including the attached Schedule A, as of the date first
mentioned above.
PIRANHA INTERACTIVE PUBLISHING NAVARRE CORPORATION
/s/ Timothy M. Brannan /s/ Charles Cheney
______________________________ _________________________________
By Timothy M. Brannan By Charles Cheney
______President_______________ ______CFO________________________
Title Title
_____1/17/96__________________ _____1/17/96_____________________
Date Date
<PAGE> 6
EXHIBIT "A"
to DISTRIBUTION AGREEMENT OF JANUARY 8, 1996
Between NAVARRE CORPORATION and PIRANHA INTERACTIVE PUBLISHING
<TABLE>
<CAPTION>
Suggested Retail Navarre
Product Name UPC Number Price Price*
<S> <C> <C> <C>
1. Piranha Pk 1 723540001015 $ [*] $ [*]
------------ ------------ ------ ------
Piranha Pk
2. Academic Edge 723540001039 $ [*] $ [*]
------------- ------------ ------ ------
3. Majestic-MAC 723540001053 $ [*] $ [*]
------------ ------------ ------ ------
4. Majestic-WIN 723540001046 $ [*] $ [*]
------------ ------------ ------ ------
5. Wonderland 723540001022 $ [*] $ [*]
---------- ------------ ------ ------
6. $ $
---------- ------------ ------ ------
</TABLE>
ADDITIONAL DISCOUNTS
Navarre will be given a [*]% discount, issued as a credit, for the performance
of Value Added Services for retail accounts for which Navarre provides at
least two of the following services: 1) Advertising co-op assistance.
Maintain and administer co-op fund accrual amounts; 2) E.D.I. Maintain
active electronic data interchange functions; 3) Mix-Assistance. Manage
full product mix selection and make all mix decisions for retail accounts;
4) Pre-Ticketing. Provide and affix retailers' price tags; and 5)
Planogramming. Design and development of store planograms.
Navarre will be given a [*]% discount, issued as a credit for sales to those
retail accounts to which Navarre provides a full racking service. Racking
services means monthly, in-store personnel providing physical inventory
management.
*Show volume discounts and minimum order quantities here.
Please Sign this Page
/s/ Timothy M. Brannan______________ /s/ Charles Cheney_____________
____________________________________ _______________________________
PIRANHA INTERACTIVE PUBLISHING NAVARRE CORPORATION
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT 10.5
INGRAM MICRO START-UP AGREEMENT
THIS INGRAM MICRO START-UP AGREEMENT ("Agreement"), dated this 11th day of
March, 1996, is made by and between INGRAM MICRO, INC. ("Ingram"), a California
corporation, with its principal place of business at 1600 E. St. Andrew Place,
Santa Ana, California 92705 and PIRANHA INTERACTIVE PUBLISHING, INC., a Arizona
corporation, with its principal place of business at 4802 E. Ray Road, Suite
23-245, Phoenix, Arizona 85044 ("Vendor").
RECITALS:
WHEREAS, Ingram is engaged in the sale and distribution of microcomputer
products; and
WHEREAS, Vendor is engaged in the manufacture, production and supply of
microcomputer products, ("Merchandise"); and
WHEREAS, Ingram desires to purchase Merchandise from Vendor for sale and
distribution to Ingram's resellers on a worldwide basis pursuant to the terms
and conditions of this Agreement;
NOW, THEREFORE, in consideration of the terms and conditions set forth herein,
the parties agree as follows:
1. Order Fulfillment. Vendor warrants its fulfillment of all Ingram's orders (so
long as not rejected) promptly and completely. Vendor shall endeavor to make
such fulfillment in accordance with its historic fulfillment of such orders.
In no event shall an order filled in over twenty (20) days be prompt, nor
shall an order with less than 80% fill be considered complete.
2. Delivery of Merchandise. Vendor shall deliver all Merchandise as designated
in Ingram's Purchase Orders ("P.O.") unless Vendor rejects the P.O. within
ten (10) days of P.O. date. Merchandise will be shipped regular/ground F.O.B.
Ingram's warehouse unless otherwise indicated on such P.O. and pre-approved
by Vendor. Vendor shall bear all shipping costs and risk of loss or damage to
Merchandise in transit. Risk of loss to Merchandise will pass to Ingram upon
receipt thereof; Ingram will maintain insurance coverage adequate to cover
the normal cost of Merchandise.
[*]
4. Product Marking. Vendor shall clearly mark on the packaging of each unit of
Product the Product's name and computer compatibility. Such packaging shall
also bear a machine-readable bar code identifier scannable in standard ABCD
format which identifies the Product and its serial number and fully complies
with all conditions regarding standard product labeling set forth in Ingram
Micro's Guide To Bar Code: The Product Label, as
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 2
amended from time to time. Ingram shall charge a one dollar ($1.00)
chargeback to Vendor for each unit of Product not in compliance with this
Product marking section.
5. Returns of Merchandise.
a. Ingram may return any Merchandise, including Merchandise returned by
Ingram customers, for credit against open invoices. Unsold Merchandise
shall be inclusive of Merchandise returned by Ingram customers. Such
returns shall be limited to once per month, and shall be made with advance
notice to Vendor as to estimated arrival date. Upon advance notice of
returns, Vendor shall provide Return Authorization within seven (7) days
of notice. Ingram shall bear expense and risk of loss of return shipment.
Vendor shall issue payment to Ingram for such returned Merchandise if no
balance is then outstanding. Vendor shall pay regular/ground return
shipping for detective and outdated merchandise. Ingram shall pay
regular/ground shipping for stock balance/rotation returns.
b. Upon Vendor notice of expiration of this Agreement to sell any
Merchandise, Ingram shall use best efforts to return all affected
Merchandise within one hundred eighty (180) days of such notice.
c. Vendor shall issue an immediate credit for purchase price plus all
regular/ground return freight charges for defective Merchandise, and
Merchandise returned as defective by Ingram customers. Upon Vendor recall
of Merchandise due to defects, revisions, or upgrades, Ingram shall
provide reasonable assistance, at Vendor's expense, in such recall.
d. Ingram's right to return Merchandise shall survive the term and
termination of this Agreement. Should Ingram have a balance due upon
reconciliation of the account for Merchandise returns, freight
chargebacks, advertising credits, or other upon end of term or
termination, Vendor shall issue payment therefor within thirty (30) days
of such term or termination. Ingram shall use best efforts to return all
unsold Merchandise within one hundred eighty (180) days of termination of
the Agreement.
6. Sales and Selling Price. Ingram's selling prices to its resellers shall be at
Ingram's sole discretion and control. Vendor shall have the right to change
the list price of any Product upon giving thirty (30) days' prior written
notice to Ingram. In the event that Vendor shall raise the list price of a
Product, all orders for such Product placed prior to the effective date of
the price increase shall be invoiced at the lower price.
7. Price Protection. In the event that Vendor reduces the price of any Product
or offers the Product at a lower price, including raising the discount
offered for U.S. based Distributors/Resellers, Vendor shall promptly credit
Ingram for the difference between the invoice price charged to Ingram and the
reduced price for each unit of Product held in inventory by Ingram on the
date the reduced price is first offered. Vendor will also credit Ingram for
the difference between the invoice price charged to Ingram and the reduced
price for each unit of Product held in inventory by Ingram's customers on the
date the reduced price is first offered by Vendor if Ingram's customers
request a credit resulting from
<PAGE> 3
Vendor's price reduction. Should any of Ingram's customer's request a price
adjustment as outlined in this Section , Ingram shall provide for an
independent third party audit of that customer's inventory upon Vendor's
reasonable request and at Vendor's expense. Ingram will use commercially
reasonable efforts to provide inventory reporting of its customer's
inventory.
8. Records. Vendor shall furnish documentation with each shipment to and return
of Merchandise from Ingram. Ingram shall keep accurate records of all
Merchandise sales and returns, and monthly inventory reports shall accompany
Ingram payment. Ingram shall reconcile its account with Vendor upon end of
term or termination of the Agreement. Vendor shall respond to any Ingram
request for reconciliation within thirty (30) days.
9. Term. The initial term of this Agreement shall be one (1) year. Thereafter,
the Agreement shall automatically renew for additional one (1) year periods.
10. Termination. Either party may terminate the Agreement, with or without
cause, with ninety (90) days advance written notice. At the end of term or
termination of this Agreement, Ingram may return Merchandise in lieu of
payment on account for one hundred eighty (180) days. At the end of the one
hundred eighty (180) days, Ingram may keep Merchandise and pay Vendor
therefor. Prices and payment schedule for such Merchandise shall be as
mutually agreed at that time. If Vendor and Ingram are unable to agree upon
such prices and payment schedule within ten (10) days following the
expiration of said one hundred eighty (180) day period, Ingram will return
all Merchandise for credit, or if there is a balance owed to Ingram, Vendor
shall pay Ingram within thirty (30) days.
11. Payment. Vendor shall issue invoices concurrently with Product shipments to
Ingram. [*] Ingram will provide weekly sales reports by its
Electronic Bulletin Board.
12. Bulletin Board System (BBS). Ingram will provide weekly sales reports by its
electronic BBS. The standard reports will include sales by zip code, state,
product/quantity sold and the detailed Vendor Buying Report. Vendor shall
allow Ingram a [*] percent ([*]%) functional discount off total invoice
amount to offset the cost of Ingram's BBS.
13. Marketing/Advertising. Vendor and Ingram agree to conduct joint marketing
and advertising for the Merchandise as mutually agreed by the parties in
writing. Both parties agree to cooperate in the planning and funding of such
advertising. Ingram's marketing and advertising costs incurred in accordance
with such agreement shall be pre-approved by Ingram's buyer and prepaid by
Vendor via check to Ingram. Vendor shall make no marketing, advertising, or
promotional commitments to Reseller or other third parties which otherwise
obligate Ingram without the written approval by Ingram in advance of the
planned event.
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 4
14.Warranties. The Merchandise is warranted only to the end-user as set forth
in the license agreement contained in the Merchandise packaging. NO OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE MADE BY VENDOR
WITH RESPECT TO THE MERCHANDISE. Ingram shall not extend any additional
warranties to any resellers or end-users of the Merchandise. In no event will
Vendor be liable for any lost profits or any other incidental or
consequential damages, even if Vendor has been advised of the possibility of
such damages.
15.Indemnity. Vendor shall defend, indemnify, and hold harmless Ingram from and
against any claims, demands, liabilities, or expenses (including reasonably
attorney's fees and costs) for any injury or damage, including, but not
limited to, any personal or bodily injury or property damage, arising out of
or resulting in any way from any defect in Merchandise. This duty to
indemnify shall be in addition to Vendor's warranty obligations.
Vendor shall defend, indemnify and hold Ingram harmless from and against all
damages and costs incurred by Ingram due to claims of infringement of any
patents, copyrights, trademarks, trade secrets, or other proprietary rights
in the manufacture or marketing of Merchandise; provided that, Ingram
promptly notifies Vendor of the infringement claim. Upon claim of
infringement, Vendor may, at its expense and option, either procure the right
to continue using any part of Merchandise, replace same with non infringing
Merchandise, or modify Merchandise to make it non-infringing; should Vendor
be unable or unwilling to replace, modify, or procure right to continued use
of Merchandise within ninety (90) days of claim notification, Ingram may
return Merchandise for a full credit or cash refund, at Ingram's option.
16.Competitive Price. Vendor agrees to offer its most competitive prices to
Ingram. If Vendor offers a lower price, including, but not limited to, sales
price, volume discount, dating, advertising, freight cost, or back haul
allowance to any other U.S. based Distributor/Reseller, then Vendor will
immediately offer that lower price to Ingram, and shall apply such lower
price to all Ingram orders not yet shipped. In addition, Vendor will issue a
credit to reflect the difference in price for all affected inventory in
Ingram's or its resellers inventory on the date of the price decrease.
17.Notices. All notices or other communications made hereunder shall be in
writing and sent by U.S. certified or registered first-class mail prepaid,
and receipt thereof shall be deemed to be two (2) days from date postmarked.
18.Entire Agreement/Law. This Agreement contains all understandings and
agreements between the parties and may not be modified or supplemented except
in writing signed by both parties. The parties agree that the Agreement shall
be governed by the law of the State of California, excepting that body of
law concerning conflicts of law.
<PAGE> 5
The signer represents that he/she has read this Agreement, agrees, and is an
authorized representative of their respective party.
INGRAM MICRO, INC. PIRANHA INTERACTIVE PUBLISHING, INC.
By: /s/ Sanat K. Dutta By: /s/ Wade Stallings
____________________________ ___________________________
Name: Sanat K. Dutta Name: Wade Stallings
Title: Executive Vice President Title: Vice President
Date: _____3/13/96_____________ Date: _____3/13/96____________
<PAGE> 1
EXHIBIT 10.6
Facsimile Numbers:
Administration: 217 384-8239
Marketing: 217 384-8494
American Software & Hardware Distributors, Inc. Purchasing: 217 384-8494
WORLDWIDE DISTRIBUTORS Sales: 217 384-2055
- --------------------------------------------------------------------------------
VENDOR AGREEMENT
VENDOR COMPANY NAME: Piranha Interactive Publishing
COMPANY ADDRESS: 1839 W. Drake, Ste B. Tempe, AZ 85283
No. Street City State Zip
VENDOR COMPANY FAX#: (602) 460-0042
PURCHASING TERMS
Terms of Purchase
- - Subject to credit approval, all payment terms are 2% 10, net 60 days. AS&HD
is entitled to deduct [*] for any COD or prepayment shipments.
- - AS&HD has the right to offset all credits authorized by this agreement
against any outstanding invoices. These may include but are not limited
to: returned merchandise credits, market development funds, co-op
advertising, and price protection credits. All credits authorized by this
agreement will be honored by vendor, and AS&HD agrees to submit written
documentation of these credits to vendor.
- - The Vendor shall establish a line of credit of $[ * ] subject to credit
approval, for AS&HD. If at any time, AS&HD purchases amount in excess of
the credit limit the current credit limit will be reviewed at that time.
Terms of Shipping
- - All product is to be shipped regular/ground transportation, FOB
Destination.
- - Vendor agrees to make every reasonable effort to ship in accordance with
the AS&HD standard routing guide dated April 10, 1995.
- - Vendor agrees to fax invoice and routing information at time of shipment
to assist AS&HD in pre-receiving.
- --------------------------------------------------------------------------------
217-384-2050
502 East Anthony Drive - P.O. Box 696 - Urbana, Illinois 61801
800-225-7941
[*] Confidential Portion deleted and filed separately with the
Securities and Exchange Commission
<PAGE> 2
- - All orders for product must be made in writing. The terms of this
agreement shall supersede any contradictory or inconsistent terms on any
purchase order.
Terms of Warranty
- - AS&HD reserves the right to return undamaged product (as well as defective
returns with or without original packaging) within the 180 day period
after receipt of product by AS&HD, or within 180 days of termination of
business with the Vendor, for a full and complete credit at landed cost,
including DFI. All stock balancing will be shipped FOB Destination, and
defective returns will ship FOB Shipping Point.
- - All product may be returned for credit against outstanding invoices. If
there are no outstanding invoices to offset, AS&HD will receive a refund
check at the most recent invoice cost AS&HD has paid for the product.
AS&HD must make a written request for an RMA number for each return.
Vendor will issue RMA numbers on a timely basis.
- - No restock fees are to be assessed on any product return.
- - A RMA will be issued for product up to [ * ] from the date of sale to
accounts included in the National Account Division.
Terms of Co-Op and MDF
- - The Vendor agrees to the accrual of a Co-Op fund equal in dollars to [ * ]
of AS&HD's total orders to be used at the discretion of AS&HD for
advertising and promotion of the vendor's products. Programs considered
as Co-Op are the American Report Newsletter, On-hold Advertising,
Faxback, Training Sessions, and Dealer Mailings. The Vendor agrees that
without this Co-Op funding, AS&HD cannot effectively sell through the
vendor's product.
- - The Vendor also agrees that from time to time there will be the need to
use Market Development Funds (MDF) above and beyond the accrued Co-op
funds. These MDF funds are used by AS&HD to do specific promotional
programs that are intended to generate sales of the Vendor's product(s).
All trade shows (including AS&HD's own), conventions, and other off-site
programs and promotions fall under the heading of MDF. AS&HD will notify
the Vendor either by phone, fax, or letter of the requested MDF funds and
the details of the program. The Vendor also agrees that any MDF program
organized by AS&HD is done in the interest of generating sales for the
Vendor. MDF funds will be considered on a case by case basis and require
vendors prior written approval in each instance.
The Vendor agrees to participate in AS&HD's National Release Program. Each
time AS&HD receives a new product from the Vendor, AS&HD will send one
copy to each of its thirty-six (36) National Accounts for their review.
The Vendor understands this program is designed to assist AS&HD's outside
sales force in placing new products with these accounts. AS&HD will issue
a debit to the Vendor's account to cover the costs of these products,
there are no other charges associated with this program.
- - In the event that vendor contracts with AS&HD's customers for the
provision of advertising funds, whether directly or indirectly, such
amounts will have no bearing on AS&HD's Co-Op or MDF accrual of marketing
funds pursuant to this contract.
[*] Confidential Portion deleted and filed separately with the
Securities and Exchange Commission
<PAGE> 3
In Addition to Co-Op and MDF, Vendor agrees to sponsor the following programs:
AS&HD will bill Vendor once per quarter for funds in the amount of $200.00
for AS&HD's quarterly Theme Week.
Vendor agrees to sponsor advertising in each of the AS&HD quarterly
catalogs. A minimum of $[ * ] is required in the 1st year, thereafter,
all advertising requires vendors prior written approval, and will be
considered on a case by case basis.
- - Miscellaneous
If Vendor's product(s) is CD-ROM format, the Vendor agrees to allow
product(s) to be sold to dealers who will use the product(s) for rental
purposes.
- - Vendor agrees to issue AS&HD a credit for price protection any time the
vendor reduces the U.S. based distributor/reseller price of products.
- - An automatic $100.00 Administration Fee will be debited to the Vendor's
account for all SPIFF promotions. This fee is limited to one debit per
promotion.
- - Vendor agrees not to use AS&HD 800 customer order phone line for
communications.
- - Vendor agrees to sell to AS&HD at the lowest price offered to any other
U.S. or Canadian based distributor/reseller.
- - All product being ordered and delivered to AS&HD for resale must be coded
I/A/W the ABCD bar code standard. The standard bar code format is UPC, no
other format is acceptable. Any major change in product (version, bug fix,
etc.) must be made under a different UPC number. Products with different
media (3.5", CD Rom) or format (IBM/MAC/APPLE) must also have a new UPC.
All changes must be conveyed to Marketing Manager thirty (30) days prior
to change. The vendor will be charged back one dollar ($1.00) per unit for
any product received without a UPC code; however, AS&HD reserves the right
to reject any or all of said goods as defective.
- - Stock balancing is permitted.
- - Certificates of Origin will be supplied as requested.
- - Vendor understands and agrees that AS&HD is a global distributor. AS&HD
understands that this agreement is non-exclusive.
- - Any products received that are in need of assembly, shrink-wrapping or
similar preparation for sale will be returned to vendor.
- - Vendor understands that AS&HD does not always have the ability to track
serial #s and therefore, serial #s may not always be able to be provided
for returns.
[*] Confidential Portion deleted and filed separately with the
Securities and Exchange Commission
<PAGE> 4
- - The initial term of this agreement shall be for a period of one (1) year.
After the initial term, this agreement shall be automatically renewed for
successive one (1) year periods. Either party may terminate this agreement
not less than sixty (60) days after written notice.
- - If the Vendor/Distributor relationship ends, AS&HD reserves the right to
return all product within 180 days of termination of business with the
Vendor for credit.
- - All modifications of this agreement must be in writing, and signed by both
parties.
- - This agreement is to be interpreted under Illinois law and jurisdiction
lies only in the State of Illinois.
NOTE: This document must be signed by an officer or legal agent of the above
named vendor company.
Print Name:___Timothy M. Brannan__________ Title:__President_________________
Signature: _/s/ Timothy M. Brannan________ Date:__3__/__1__/__96_
Piranha Interactive Publishing
Print Name:___Paul Deckard________________ Title:__Director of Merchandising__
Signature: _/s/ Paul Deckard______________ Date:__4__/__23_/__96__
American Software & Hardware
Distributors, Inc.
<PAGE> 1
EXHIBIT 10.7
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is entered into this __20th_ day
of October, 1995 by and between Piranha Interactive Publishing, Inc., an Arizona
corporation ("PIRANHA") and Istvan Pely, an individual ("Licensor").
WHEREAS, Licensor is developing a computer software program and a
program demo (for distribution free of charge to the public in order to generate
consumer awareness and demand for the full version of the Program) (the program
and program demo and all updates, enhancements and versions of either and all
documents, components, executable software, source code, text files, sound
files, image files, video files, database files and other similar or related
files or material and disks relating to either are hereinafter collectively
referred to as the "Program") identified on Exhibit "A" attached hereto and
incorporated herein by this reference; and
WHEREAS, Licensor has agreed to grant to PIRANHA and PIRANHA
has agreed to accept, an exclusive worldwide license to copy, manufacture,
publish, distribute, sub license and market the Program on the terms and subject
to the conditions contained herein;
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
I. THE PROGRAM
1.01 Grant of License. Licensor hereby grants to PIRANHA, and PIRANHA
hereby accepts, on the terms and subject to the conditions contained herein, an
exclusive, worldwide license giving PIRANHA the right to copy, manufacture,
publish, distribute, sub license and market the Program, including, without
limitation, the right to use and copy the Program. PIRANHA may copy,
manufacture, publish, distribute, sub license and market the Program under such
names as it, in its sole discretion, considers appropriate. This grant includes
permission to market the Program in bundling arrangements which are commercially
advantageous in PIRANHA's sole and exclusive discretion.
Licensor agrees to provide the development, technical expertise and
technical support (to PIRANHA) for the Program and is responsible for the design
and programming quality. PIRANHA shall market and sell the Program and provide
technical support to the consumer.
1.02 Non-Competition. Licensor, neither directly nor indirectly through
affiliated parties, has not and will not finance, develop, market or distribute
another game anywhere in the world which is substantially similar to the Program
during the Term of this Agreement nor will it enter into any similar agreement
with a third party to do so.
1.03 Property Rights. All right, title and interest in and to the
Program, including but not limited to the source code and the executable version
of the Program and the copyright to the source code of and the executable
version of the Program, including all improvements, enhancements, translations
and updates, shall be the exclusive property of Licensor and no rights in
<PAGE> 2
or under such property shall pass to or remain in PIRANHA unless otherwise
provided by the terms of this Agreement. Licensor may use the source code in
connection with the development of other software products, provided such
products do not violate the non-competition provisions of this Agreement. All
art, images, pictures, graphics, maps, text, text files, sound files, image
files, video files, database files and other similar or related files contained
in the Program, and all modifications and updates relating thereto, shall be the
exclusive property of the Licensor and no rights in or under such property shall
pass to or remain in PIRANHA except the license granted by the terms of this
Agreement. All right, title and interest in and to the trademark for the name of
the Program and the trade names associated with PIRANHA which PIRANHA may create
and/or use in connection therewith, and the packaging, box design, manual,
registration card, consumer license agreement and other similar or related
material created by PIRANHA for the Program, shall be the exclusive property of
PIRANHA and no rights in or under such property shall pass to or remain in
Licensor unless otherwise provided by the terms of this Agreement.
1.04 Production and Quality of Program. PIRANHA's obligation to market
and sell the Program is conditional upon the Licensor producing a Program with
high quality design, format, content and programming. In order to assure
development of the Program in accordance with those standards and in order to
give Licensor the feedback necessary to ensure that the Program will ultimately
be approved by PIRANHA, Licensor and PIRANHA have agreed to the Master
Development Schedule attached hereto and made a part hereof by this reference as
EXHIBIT B. Additional standards and guidelines which the Program must meet prior
to receiving final approval are set forth in EXHIBIT C, attached hereto and made
a part hereof by this reference. With the exception of the target Launch Date
which may be postponed by PIRANHA for up to sixty days in its sole discretion,
changes in the Master Development Schedule or Exhibit C must be approved by both
parties in writing.
PIRANHA must approve, in writing, each stage of the Master Development
Schedule before Licensor may proceed to the next stage. Delays in the Master
Development Schedule must be approved in writing by PIRANHA. Unapproved delays
(other than delays caused by PIRANHA) shall be deemed to be a breach of this
Agreement, subject to the rights and remedies set forth elsewhere in the
Agreement. Final approval of the Program shall rest with PIRANHA, in its sole
discretion. Updates and upgrades to, or other versions or modification of, the
Program, including without limitation, any revisions for the purpose of fitting
new platforms, additionally require the formulation of a development schedule
(each a Secondary Development Schedule) by Licensor, subject to the written
approval of PIRANHA. Each Secondary Development Schedule shall be subject to
written milestone approvals and final written approval by PIRANHA, in its sole
discretion, in the same manner as the Master Development Schedule. All costs
associated with the development of the Program and any revisions to the Program
shall be borne by Licensor including, but not limited to, any and all work on
the Program undertaken by Licensor without the prior written approval of
PIRANHA. Once a final Program or update, upgrade or modification to a Program
has been approved, PIRANHA shall be responsible for ensuring that each copy of
the Program conforms to the approved original.
Licensor shall also deliver to PIRANHA a detailed account of the
supplier for all material contained in the Product, including without
limitation, all text, pictures, images, graphics, maps, video and sound, in the
form of Exhibit "D" attached hereto and made a part hereof by this reference (a
"Source Material Confirmation Report"). All material must either be i) the
original work product of the Licensor, ii) be licensed by the Licensor via
written contract from the
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individual or entity with full power and authority to convey the right to use
the material or iii) public domain material.
1.05 Nature of Relationship. The terms of this Agreement shall not
constitute a joint venture or partnership between Licensor and PIRANHA. Neither
Licensor nor PIRANHA is or shall be deemed to be an agent of the other. Licensor
shall have no right to bind PIRANHA, by contract or otherwise, or to transact
any business in its name or on its behalf, in any manner or form, or to make any
promises or representations on its behalf. PIRANHA shall not have any right to
bind Licensor, by contract or otherwise, transact any business in its name or on
its behalf, in any manner or form, or to make any promises or representations on
its behalf.
1.06 Translation of Program. PIRANHA is authorized to translate the
Program into foreign languages and to sell or arrange for the sale of the
Program in foreign countries. In some instances, PIRANHA shall deliver the
English text, sound and other necessary files and utilities to a translator,
usually physically located in the foreign country. The translator shall then
return the translated text, sound and other necessary files to PIRANHA for the
purpose of recompiling the translated files. Licensor shall have the option of
either recompiling the translated files or making the source code available to
PIRANHA so that PIRANHA may either recompile the files or hire a programmer to
recompile the translated files. In other instances it may be more practical to
send the source code overseas for the translation and recompiling of the
Program. In no event, however, shall the source code be delivered by PIRANHA to
an overseas translator without the prior written consent of the Licensor.
Licensor agrees to assist as reasonably necessary in connection with the
translation of the Program but, should PIRANHA determine that any utilities
and/or a translation programmer are required for the translation, PIRANHA shall
bear the costs associated therewith. PIRANHA may, with Licensor's prior written
permission, register Licensor's copyright in any such foreign country. PIRANHA
may also, in its sole discretion, register PIRANHA's trademark or trade names in
any such foreign country. Licensor shall bear the cost of the registration of
its copyright and PIRANHA shall bear the cost of the registration of its
trademark or trade names.
1.07 Right of First Refusal. Licensor hereby grants to PIRANHA a right
of first refusal on the same terms and conditions as set forth in this Agreement
to any sequels to the Program developed by Licensor. This right of first refusal
is for sequels to the Program only and does not extend to unrelated software
programs of Licensor or software programs which are not substantially similar,
in theme or characters, to the Program. Licensor shall provide PIRANHA with
written notice of any newly developed sequel to the Program and PIRANHA shall
have ninety (90) days from receipt of such notice to notify Licensor in writing
if it desires to exercise its right of first refusal. Any future programs
subject to the terms of this Agreement will be listed in Exhibit "A."
1.08 Confidentiality. Licensor and PIRANHA agree that as a result of
this relationship, they have in the past or may in the future develop, obtain,
or learn about confidential information which is the property of the other
party. Licensor and PIRANHA agree to use their best efforts and the utmost
diligence to guard and protect said confidential information, and each agrees
that it will not, during or after the period of this Agreement, use for itself
or others, or divulge to others said confidential information which that party
may develop, obtain or learn about during the Term of or as a result of this
Agreement, unless authorized to do so by the other party in writing. Licensor
and PIRANHA further agree that upon termination of this Agreement for any reason
they will return to the other all records and papers and all matters of whatever
nature which bear in any
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<PAGE> 4
way on the other's confidential information. Licensor and PIRANHA agree that
confidential information may not be disclosed to third parties, other than to
the Escrow Agent and the respective employees of Licensor and PIRANHA when such
disclosure is necessary to accomplish the purposes of this Agreement.
PIRANHA shall exercise reasonable diligence to ensure that its
employees and contractors do not reverse compile, reverse engineer or
disassemble (with the exception of PIRANHA's removal of images/text for
marketing purposes and the translation of the Program permitted in accordance
with the terms of section 1.06 of this Agreement) the Program in whole or in
part. Unless PIRANHA receives information suggesting further investigation is
necessary, however, reasonable diligence as regards contractors shall be
satisfied by the practice of engaging only reputable contractors to fulfill its
obligations under the Agreement.
For the purposes of this Agreement, the term "confidential information"
shall include lists of customers, distributors and retailers, processes,
technology, proprietary information, patents, designs, methods, techniques,
trade secrets, trademarks, copyrights, intellectual property, systems, formulas,
patterns, models, devices, compilations, source code and pre-release graphics
(except as the same may be used for marketing the Program) or any information of
whatever nature which is not otherwise readily available in the public domain.
The terms of this section 1.08 shall survive the termination of this Agreement.
1.09 Distribution of the Program. PIRANHA may distribute, free of
charge, copies of the Program for marketing and promotional activities,
including evaluation copies and "not for resale" copies. No royalties shall be
paid on such copies. PIRANHA shall provide Licensor with 50 units of the Program
at no cost to Licensor. Licensor may also purchase additional copies from
PIRANHA at the price PIRANHA charges its most favored unaffiliated customers. No
royalties shall be paid on such units purchased by or distributed to Licensor.
Any units given or sold to Licensor pursuant to this paragraph shall not be sold
by Licensor to any third party. PIRANHA shall be entitled to 50 copies of the
program at no cost for distribution to its staff and others in its sole
discretion. No royalties shall be paid on such copies. PIRANHA may permit staff
members to purchase additional units for $5.00 per unit. Royalties shall be paid
on the sale of copies to staff members. Any units given by PIRANHA to staff or
others or sold by PIRANHA to staff shall not be sold by the recipients to any
third party.
1.10 Escrow. On the due date for the Gold Master of the Product set
forth in the Master Development Schedule (Exhibit B), Licensor shall deliver a
copy of the fully functional and up-to-date code for the Product to an escrow
agent (the "Escrow Agent") mutually agreed upon by the parties, whose services
shall be paid for by PIRANHA. Licensor shall also deliver additional copies of
the fully functional and up-to-date code for the Product to the Escrow Agent
each time that an update or upgrade of the Product is accepted by PIRANHA as
ready for shipment to the consumer market. The Escrow Agent will retain
possession of the latest version of the code until such time as he receives
written instructions from the Licensor to release the code to PIRANHA for
purposes of translation, etc. or in the event of a breach of this Agreement by
Licensor as determined by an arbitration proceeding under the terms of this
Agreement. PIRANHA and Licensor shall execute an Escrow Agreement in the form of
Exhibit "E" attached hereto and made a part hereof by this reference.
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<PAGE> 5
1.11 Sales and Marketing. PIRANHA shall use its best commercial
efforts in marketing and distributing the Program.
1.12 Miscellaneous.
a) In order to assist Licensor with the completion of the
Program, PIRANHA agrees to provide, free of charge to Licensor, the software
programs 1) AutoDesk 3DStudio and 2)
MacroMedia Director for Windows.
b) Piranha agrees to place on the box and on the CD-ROMS for
the Program a statement that the software was developed by Istvan Pely.
c) After the execution of this Agreement, Licensor may
reference its contractual relationship with PIRANHA in material promoting
Licensor's abilities as a computer software developer and may disclose the
existence of its contractual relationship with PIRANHA to its present and
potential customers. Licensor shall not use PIRANHA's name for any other
commercial purpose and shall not imply that PIRANHA has approved or endorsed any
other product of Licensor without PIRANHA's prior written consent.
d) Final wording of the consumer license agreement from
Licensor to the end user shall be subject to Licensor's approval, which approval
shall not be unreasonably withheld.
e) Both parties acknowledge the possibility of a market for
ancillary merchandise related to the Program such as t-shirts, mugs, toys and
other items based on characters from the game. Both parties agree in principle
to license their various rights in the Program to the other party as necessary
for the purpose of the production of such merchandise but neither party shall be
permitted to use the other party's rights in the Program for such purpose prior
to the execution of a written agreement addressing licensing for such
merchandise. Each party agrees to negotiate in good faith regarding such rights
at such time as the issue may arise in the future.
II. MONTHLY PAYMENTS
2.01 Monthly Payments. A Program shall be considered sold on the date
that PIRANHA ships the Program to a bona fide buyer who has delivered a purchase
order in form and substance acceptable to PIRANHA in its sole discretion. All
other deliveries and/or shipments of the Program including, but not limited to,
the delivery of "not-for-resale" copies, evaluation copies, copies for marketing
and promotional activities and copies delivered to the staff of PIRANHA and to
Licensor, shall not constitute Program sales and no royalties shall be paid on
such Programs. On or before the 15th day of the fourth month following the month
in which sales are made, PIRANHA shall pay to Licensor by check payable to
Licensor, sent by mail to Licensor, an amount equal to [*] percent ([*]%) of
"Net Sales" of the Program by PIRANHA or by its affiliates, successors, assigns
or licensees during each such calendar month (the "Monthly Payment(s)"), but as
regards sales of the English language version of the Program, whether inside or
outside the U.S., in no event shall the Monthly Payment be less than $[*] per
copy of the Program sold during such calendar month (the "Minimum English
Language Royalty"). "Net Sales" shall mean (i) the actual sales price charged by
PIRANHA or by its affiliates, successors or assigns for the units of the Program
actually shipped that month, less normal trade discounts, freight, taxes of any
type, refunds, returns, rebates or write off of bad debts arising from the sale
of the Program (i.e. the
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[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 6
failure of a company or person to pay for units of the Program actually shipped)
or (ii), as applied to sales of the Program contracted to foreign copublishers
(with principal offices outside the U.S., for sales of the Program outside the
U.S.), shall mean the actual revenue received by PIRANHA from such copublisher
after copublisher's normal trade discounts, freight, taxes of any type, refunds,
returns, rebates or write off of bad debt arising from the sale of the Program
(i.e. the failure of a company or person to pay for units of the Program
actually shipped). Upon termination of the Agreement for any cause, payment of
any accrued royalties may be postponed an additional 90 days in order to
determine the amount of pending returns of the Program so that Monthly Payments
may be appropriately reduced.
Licensor acknowledges that PIRANHA may offer to the public, through its
technical support staff, a "cheat sheet" (solution key) to assist the end user
with progress through various stages of the Program. PIRANHA will charge a
nominal fee for such instructions (approximately $2.00) and no royalties shall
be paid to Licensor on the sale of such instructions.
If PIRANHA refunds or grants a credit for the sale of any Program for
which PIRANHA has been paid, and provided the Monthly Payment for such sale has
been paid by PIRANHA to Licensor, the amount of such payment made by PIRANHA to
Licensor pursuant to this section shall be deducted from the Monthly Payments
thereafter payable or if no further Monthly Payments are thereafter payable,
shall be immediately paid by Licensor to PIRANHA.
2.02 Statements and Procedure. Any payment made by PIRANHA to Licensor
as provided in Section 2.01 shall be accompanied by a statement setting forth
the number of Programs sold, returns, all offsets and deductions therefrom and
the calculation of the Monthly Payment (including discounts given and the number
of sales by foreign copublishers, to the extent that such information has been
delivered to PIRANHA by such foreign copublishers) due Licensor hereunder.
Payments and statements should be mailed to the following address:
Istvan Pely
19 Farm Gate Way
Reistertown, MD 21136
2.03 Review of Books and Records. If Licensor, acting reasonably,
disputes the aggregate amount of the Monthly Payments during the Term of this
Agreement, then in such event, but no more than once every six-month period
(i.e., a second review may not be requested until at least 6 months have passed
since the completion of any prior review), Licensor may provide written notice
to PIRANHA and to PIRANHA's accounting firm that it requests a review of the
financial records of PIRANHA relating to the sales of the Program for such
period and the determination of the aggregate amount of the Monthly Payments
which Licensor is entitled to be paid pursuant to Section 2.01 for such period
(the "Required Payment Total"). PIRANHA's and Licensor's accounting firms shall
work together to determine the Required Payment Total. The determination of
Required Payment Total shall be final and binding on both of the parties hereto
and from which there shall be no appeal. If Licensor requests a review of the
financial records of PIRANHA as provided herein, PIRANHA covenants and agrees to
make available to PIRANHA's and Licensor's accounting firms at PIRANHA's normal
place of business during normal business hours the financial records of PIRANHA
specifically relating to Program sales for such period.
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If PIRANHA's and Licensor's accounting firms determine that the
Required Payment Total for such period exceeds the payments made by PIRANHA to
Licensor pursuant to Section 2.01 for such period, PIRANHA shall forthwith pay
to Licensor within 30 days of the determination of the Required Payment Total an
amount equal to such excess by certified check, payable to, or to the order of,
the Licensor. If the balance owed by PIRANHA is more than 5% of the Required
Payment Total for such period, PIRANHA shall pay for all reasonable costs
associated with the review, including the reasonable fees of Licensor's
accounting firm. If, however, the balance owed by PIRANHA is less than 5% of the
Required Payment Total for such period, Licensor shall pay for all reasonable
costs associated with the review, including the reasonable fees of PIRANHA's
accounting firm.
If, on the other hand, PIRANHA's and Licensor's accounting firms
determine that the payment made by PIRANHA to Licensor pursuant to Section 2.01
for such period exceeds the Required Payment Total for such period, such excess
amount shall be deducted from the Monthly Payments thereafter payable by PIRANHA
to Licensor or, if no further Monthly Payments are thereafter payable, shall be
paid by Licensor to PIRANHA within 30 days of the determination of the Required
Payment Total. In such event, all reasonable costs associated with the review,
including the reasonable fees of PIRANHA's accounting firm, shall be borne by
Licensor.
In the event PIRANHA's and Licensor's accounting firms are unable to
agree upon the Required Payment Total, the two accounting firms shall select an
independent certified public accounting firm ("Independent CPA") to make such
final determination. The determination of such Independent CPA shall be binding
on the parties. The parties hereto agree to each pay one-half of the fees and
expenses of such Independent CPA.
III. MODIFICATIONS, MAINTENANCE AND REPAIR
3.01 Modifications, Maintenance and Repair. Licensor agrees to use its
best efforts and to take all reasonable action necessary to repair or correct
any problems identified by PIRANHA with the content or with the programming of
the supporting software that drives the content (each individual problem shall
be referred to as a "Bug," the repair of which shall be referred to as a "Bug
Fix") in the Program, without charge to PIRANHA, within forty five (45) days of
the receipt of written notice from PIRANHA during the Term of this Agreement.
When making a request for a Bug Fix, PIRANHA must provide written documentation
setting forth the specific circumstances, to the extent known, which precipitate
each Bug and the exact nature and ramifications of the Bug, to the extent known.
Licensor shall only be required to undertake a Bug Fix for Bugs which can be
explained in sufficient detail to enable Licensor to reproduce the Bug in its
copy of the same version of the Program (a "Reproducible Test Case"). For the
initial launch of the Program and subsequent to each modification of the
Program, Licensor shall deliver to PIRANHA a clean copy of the complete Program,
free of all known bugs and errors, in machine readable form (on both 3.5 and
5.25 inch discs if not a CD-ROM program) to be used as a master for duplication
and mass production of the Program for sale to the public (a "Gold Master") and
shall deliver the source code and related documentation for such version of the
Program to the Escrow Agent. Licensor shall not, without the prior written
consent of PIRANHA, modify, enhance, alter, update or otherwise change the
Program.
If Licensor fails to correct any Bug within 45 days of the receipt from
PIRANHA of such written notice, unless extended by PIRANHA at its option,
PIRANHA may retain an independent
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<PAGE> 8
programmer or entity to correct such Bug. Any modifications or corrections to
the Program shall be the property of Licensor. Any third party programmer shall
be required to consult with Licensor and to report to the Licensor any and all
changes made to the Program. If PIRANHA deems it necessary to provide the source
code to a third party programmer for such a modification, PIRANHA shall obtain a
written statement from such programmer that the source code shall be kept in the
strictest of confidence and shall only be used for the purpose of making the
corrections requested by PIRANHA hereunder, and that any corrections shall
become part of the Program and the copyright for such corrections shall belong
to the Licensor, and all rights therein shall be assigned to Licensor. Licensor
shall not be liable for any problems, errors or defects that may arise due to
modifications as described above made by a third party programmer. PIRANHA shall
indemnify the Licensor against any claim arising due to any actions, omissions
or negligence by any such third party programmer.
If the failure of the Licensor to address any such Bug Fix takes place
prior to the date the Program is released for sale to the consumer market,
PIRANHA shall be entitled to deduct from any Monthly Payments due to Licensor
hereunder, the costs incurred by PIRANHA because of such Bug including, but not
limited to, the cost of inventory which is defective as a result thereof and all
costs associated with re-mastering disks as a result thereof. In addition, if
the target Launch Date for the sale of the Program to the consumer market is
delayed for more than 60 days because of the failure of the Licensor to meet the
deadlines set forth in this section 3.01, the future Monthly Payments due from
PIRANHA to Licensor after the passage of the 60 days shall be reduced by $2,500
per month for each month thereafter (fee to be adjusted pro rata for partial
months) for as long as the delay continues.
If the failure of the Licensor to address any such Bug takes place
after the date the Program is released for sale to the consumer market, PIRANHA
shall be entitled to deduct from any Monthly Payments due to Licensor hereunder,
the costs incurred by PIRANHA to correct or repair such Bug. In addition,
Licensor shall bear the cost of each copy of the Program returned by a customer
(individual or company) due to the Bug, including but not limited to, the cost
of postage and handling for the return of the defective Program, the mailing of
the modified Program and the reasonable cost of PIRANHA staff time spent dealing
with the problem, calculated at the hourly rate of such employee or, if the
employee is salaried, calculated at an "hourly rate" equivalent to their salary
divided by a 50 week, 40 hour per week, year.
Notwithstanding the cure period set forth in Section 6.02(a), if
Licensor fails to use its best efforts to correct any Bug within 45 days of the
receipt by Licensor of such written notice from PIRANHA, PIRANHA may terminate
this Agreement and no further Monthly Payments shall be due from PIRANHA to
Licensor (except as provided in section 6.04 of this Agreement) and PIRANHA may
exercise its rights pursuant to Section 6.04.
3.02 New Platforms/Media. PIRANHA and Licensor will consider new
platforms and media for the Program and future Programs and development fees and
timetables for release of such new platforms and media shall be negotiated in
good faith by the parties. Notwithstanding the foregoing, neither party shall be
committed to proceed with such new platforms or media until and unless both
parties agree that there is sufficient public demand for such platforms or media
to be profitable and an agreement is reached regarding the terms for the
development and publication of such platforms or media.
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IV. REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties of Licensor. Licensor hereby
represents and warrants to PIRANHA:
(a) This Agreement has been duly authorized, executed and delivered by
Licensor and is a legal, valid and binding obligation of Licensor, enforceable
against Licensor in accordance with its terms, except as enforcement thereof may
be limited by bankruptcy, insolvency and other laws affecting the rights of
creditors generally;
(b) Neither the execution and delivery of this Agreement by Licensor
nor the consummation of the transactions herein provided for will result in a
breach or violation of any of the provisions of, or constitute a default under,
or conflict with or cause the acceleration of, any obligation of Licensor under
(i) any agreement to which Licensor is a party or by which Licensor is bound;
(ii) any judgment, decree, order or award of any court, governmental body or
arbitrator having jurisdiction over Licensor; (iii) any license, permit,
approval, consent or authorization held by Licensor; or (iv) any applicable law,
statute, ordinance, regulation or rule; and
(c) Licensor hereby warrants and represents that it is the author and
exclusive owner of all rights to the material in the Program, which is the
original work of the Licensor or, if not the original work of the Licensor, (i)
has been legally licensed, via written contract, by the Licensor from the author
or the owner of the material who has full power and authority to license such
material, and Licensor has the full power to convey such material and such
rights to PIRANHA free of any and all claims or encumbrances or (ii) is public
domain material, and the Licensor has the full power to convey such material and
such rights to PIRANHA free of any and all claims and encumbrances.
4.02 Representations and Warranties of PIRANHA. PIRANHA hereby
represents and warrants to Licensor as follows:
(a) This Agreement has been duly authorized, executed and delivered by
PIRANHA and is a legal, valid and binding obligation of PIRANHA, enforceable
against PIRANHA in accordance with its terms, except as enforcement thereof may
be limited by bankruptcy, insolvency and other laws affecting the rights of
creditors generally; and
(b) Neither the execution and delivery of this Agreement by PIRANHA nor
the consummation of the transactions herein provided for will result in a breach
or violation of any of the provisions of, or constitute a default under, or
conflict with or cause the acceleration of, any obligation of PIRANHA under (i)
any agreement to which PIRANHA is a party or by which PIRANHA is bound; (ii) any
provision of the articles of incorporation or bylaws or resolutions of the board
of directors (or committee thereof) or shareholders of PIRANHA; (iii) any
judgment, decree, order or award of any court, governmental body or arbitrator
having jurisdiction over PIRANHA; (iv) any license, permit, approval, consent or
authorization held by PIRANHA; or (v) any applicable law, statute, ordinance,
regulation or rule.
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V. TRADEMARKS, TRADE NAMES AND COPYRIGHTS
5.01 Protection of Copyright. Licensor shall have the exclusive
ownership interest in, and may choose to obtain copyright registration for, the
source code for the Program. PIRANHA shall cooperate with Licensor should it
choose to obtain the copyright and, in connection therewith, shall execute and
deliver all such agreements, instruments and other documents as Licensor shall
reasonably request, but all costs associated therewith shall be borne by
Licensor. PIRANHA shall not contest the rights of Licensor in and to the
copyright. PIRANHA agrees to retain Licensor's copyright notices on all copies
of the Program and end user documentation prepared by Licensor. PIRANHA shall
have the exclusive ownership interest in, and may choose to obtain, copyright
registration for the box design, the manual, the consumer license agreement and
other parts of the packaging of the Program. Licensor shall cooperate with
PIRANHA should it choose to obtain any of such copyrights and, in connection
therewith, shall execute and deliver all such agreements, instruments and other
documents as PIRANHA shall reasonably request, but all costs associated
therewith shall be borne by PIRANHA.
5.02 Protection of Trademarks and Trade Names. PIRANHA shall have the
exclusive ownership interest in, and may choose to obtain trademark or trade
name registration for, all trademarks and trade names relating to the Program.
Licensor shall cooperate with PIRANHA should it choose to obtain any such
official trademarks or trade names in PIRANHA's name or to obtain other
intellectual property protection with respect to the trademarks and trade names
and, in connection therewith, shall execute and deliver all such agreements,
instruments and other documents as PIRANHA shall reasonably request, but all
costs associated therewith shall be borne by PIRANHA. Licensor shall not contest
the rights of PIRANHA in and to the trademarks or trade names.
5.03 Infringement of Copyright, Trademarks and Patents. Each party
shall promptly notify the other of any information which comes to its attention
from any source:
(a) indicating that copyrights, trademarks or patents issued or
registered or to be issued or registered may conflict with copyrights,
trademarks or patents of either party which are applicable to the Program; or
(b) of any and all actual or apparent infringement, imitation, illegal
or unauthorized use or misuse of the copyrights, trademarks, patents or patent
applications (if any) of either party which are applicable to the Program.
VI. DURATION OF AGREEMENT
6.01 Term of Agreement. Subject to Section 6.02, this Agreement shall
commence on the date hereof and shall terminate (i) when PIRANHA, in its sole
discretion, determines that sales of the Program have fallen below a level which
would justify further publication of the Program and terminates the sale of the
Program or (ii) five (5) years from the date hereof, whichever occurs first (the
"Initial Term"). If however, sales of the Program do not meet or exceed [*]
thousand ([*]) units in the first year of the Agreement, the Agreement shall
automatically become non-exclusive, and the Licensor shall be free to license
the Program to any other computer software publisher or distributor. After the
Initial Term, this Agreement shall be automatically renewed on
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[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 11
an annual basis unless terminated by written notice from either party delivered
at least 90 days prior to the end of the then current renewal year. If this
Agreement is renewed or otherwise extended, the terms and conditions applicable
during any renewal term shall be the same as those contained herein, except as
modified in writing (the period of time during which this Agreement is in effect
shall be known collectively as the "Term").
6.02 Events of Termination. A party to this Agreement (the
"Non-defaulting Party") shall have the right to terminate this Agreement upon
written notice to the other party (the "Defaulting Party") upon the occurrence
of one or more of the following events of default:
(a) if the Defaulting Party fails to perform any material covenant,
agreement or other obligation under this Agreement and such non-performance
shall not have been cured or remedied by the Defaulting Party within forty-five
(45) days after written notice thereof has been given by the Non-defaulting
Party;
(b) the Defaulting Party admits in writing its inability to pay its
debts generally as they become due or is insolvent or makes an assignment for
the benefit of its creditors, files or has filed against it (and the same is not
dismissed within 30 days of the date thereof) a valid petition in bankruptcy;
has a liquidator, provisional liquidator, receiver or receiver and manager
appointed in any jurisdiction in respect of all or a substantial portion of its
property and assets;
(c) if Licensor ceases to carry on business as a programmer of
computer software; or
(d) if PIRANHA ceases to carry on business as a publisher and/or
distributor of computer software titles.
6.03 Limited Liability. Neither party shall be liable to the other
party for indirect, consequential or incidental damages or for loss of
prospective profits.
6.04 Default by Licensor - Remedies of PIRANHA. Upon a default by
Licensor and termination of this Agreement by PIRANHA pursuant to Section 6.02,
PIRANHA (i) shall not be obligated to publish and market the Program, (ii) may
retain another Programmer in connection with a similar software program if
PIRANHA desires, in which event the non-compete provisions of the Agreement
shall not restrict PIRANHA from creating a similar program, but the creation of
such program shall be subject to the restrictions on the use of confidential
information, which shall survive the termination of this Agreement, (iii) shall
not be liable to Licensor for any costs or expenses incurred by any party in
connection with such Program or for any Monthly Payments or royalties other than
Monthly Payments accrued but unpaid as of the date of termination; and (iv)
shall have the right to dispose of any remaining inventory, at whatever price
PIRANHA deems necessary (subject to the Minimum English Language Royalty, as
applicable), for six (6) months following the date of termination. If the
Agreement is terminated, PIRANHA shall deduct the costs associated with Programs
returned to PIRANHA by any customer from any Monthly Payment still due to
Licensor from sales prior to the date of termination. If no Payments are due
from PIRANHA to Licensor, then Licensor shall, within twenty (20) days of the
return of any goods, reimburse PIRANHA for the costs of returned Programs.
6.05 Default by PIRANHA - Remedies of Licensor. Upon a default by
PIRANHA, and termination of this Agreement by Licensor pursuant to Section 6.02,
Licensor shall not be bound by
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the non-compete provisions of the Agreement, shall be free to engage another
publisher or distributor for the Program and neither PIRANHA nor its receivers,
representatives, trustees, agents, administrators, successors and/or assigns
shall have any right to distribute or market the Program, except as follows:
(a) because both parties acknowledge that PIRANHA's chief asset is its
customer relations, if PIRANHA has any commitments to provide the Program to any
customers then, in such event, after providing written evidence of said
commitments, PIRANHA may continue to produce and distribute the Program for
those customers to which it is bound by said commitments, for so long as the
commitments in question shall be binding on PIRANHA. PIRANHA shall continue to
make Monthly Payments to Licensor on such sales of the Program.
(b) PIRANHA shall have the right to dispose of any inventory in its
possession at time of termination. PIRANHA shall continue to make Monthly
Payments to Licensor on such sales of Program.
VII. INDEMNIFICATION
7.01 Indemnification of Licensor. PIRANHA shall indemnify and hold
Licensor harmless from and against all claims, suits, demands, actions and
proceedings, losses, liabilities, damages, costs and expenses (including,
without limitation, reasonable attorney fees and costs) Licensor may suffer or
incur as a result of any negligent action or failure to act of any employee,
agent or representative of PIRANHA.
7.02 Indemnification of PIRANHA. Licensor shall indemnify and hold
PIRANHA harmless from and against all claims, suits, demands, actions and
proceedings, losses, liabilities, damages, costs and expenses (including,
without limitation, reasonable attorney fees and costs) which PIRANHA may suffer
or incur as a result of (i) the failure by Licensor to supply to PIRANHA the
Program in a form which meets the established standards for Macintosh, Windows
(R) 3.1 and Windows(R) 3.11; which is compatible with Windows(R) 95 and which
meets the requirements set forth in Exhibit C, (ii) any negligence in act or
failure to act of any employee, agent or representative of Licensor, or (iii)
the infringement of the Program on the copyright, trademark [other than the
trademark for the name of the Program ("MAJESTIC: Alien Encounter") or such
other final title as shall be chosen by PIRANHA], patent or any other
intellectual property rights of any person or entity. The rights granted to
PIRANHA under this section shall be PIRANHA's sole and exclusive remedy for any
alleged infringement of any intellectual property rights of any party. Licensor
shall have no liability to PIRANHA under any provision of this section with
respect to any claim of patent or copyright infringement which is based upon
modifications made to the Program, if any, by a party other than Licensor, or
Licensor's employees/agents.
7.03 Method of Asserting Claims, Etc. If any claim or demand for which
an indemnifying party would be liable to an indemnified party hereunder is
asserted against or sought to be collected from an indemnified party by a third
party, the indemnified party shall promptly notify the indemnifying party of
such claim or demand, specifying the nature of such claim or demand and the
amount or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such claim and demand)
(the "Claim Notice"). The indemnifying party shall have twenty days from the
personal delivery or mailing of the Claim Notice (the "Notice
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Period") to notify the indemnified party (a) whether or not it disputes its
liability to the indemnified party hereunder with respect to such claim or
demand and (b) notwithstanding any such dispute, whether or not it desires, at
its sole cost and expense, to defend the indemnified party against such claim or
demand.
(i) If the indemnifying party disputes its liability with respect to such claim
or demand or the amount thereof (whether or not the indemnifying party desires
to defend the Indemnified party against such claim or demand as provided in
paragraphs (ii) and (iii) below), such dispute shall be resolved in accordance
with the arbitration provisions of this Agreement. Pending the resolution of any
dispute by the indemnifying party of its liability with respect to any claim or
demand, such claim or demand shall not be settled without the prior written
consent of the indemnified party.
(ii) If the indemnifying party notifies the indemnified party within the Notice
Period that it desires to defend the indemnified party against such claim or
demand then, except as hereinafter provided, the indemnifying party shall have
the right to defend the indemnified party by appropriate proceedings, which
proceedings shall be promptly settled or prosecuted by them to a final
conclusion in such a manner as to avoid any risk of the indemnified party
becoming subject to liability for any other matter; provided, however, the
indemnifying party shall not, without the prior written consent of the
indemnified party, consent to the entry of any judgment against the indemnified
party or enter into any settlement or compromise which does not include, as an
unconditional term thereof, the giving by the claimant or plaintiff to the
indemnified party of a release, in form and substance satisfactory to the
indemnified party, as the case may be, from all liability in respect of such
claim or litigation. If any indemnified party desires to participate in, but not
control, any such defense or settlement, it may do so at its sole cost and
expense. If, in the reasonable opinion of the indemnified party, any such claim
or demand or the litigation or resolution of any such claim or demand involves
an issue or matter which could have a material adverse effect on the business,
operations, assets, properties or prospects of the indemnified party, including
without limitation, the administration of the tax returns and responsibilities
under the tax laws of any indemnified party, then the indemnified party shall
have the right to control the defense or settlement of any such claim or demand
and its reasonable costs and expenses shall be included as part of the
indemnification obligation of the indemnifying party hereunder; provided
however, that the indemnified party shall not settle any claim or demand without
the prior written consent of the indemnifying party, which consent shall not be
unreasonably withheld. If the indemnified party should elect to exercise such
right, the indemnifying party shall have the right to participate in, but not
control, the defense or settlement of such claim or demand at its sole cost and
expense.
(iii) If the indemnifying party elects not to defend the indemnified party
against such claim or demand, whether by not giving the indemnified party timely
notice as provided above or otherwise, then the amount of any such claim or
demand, or if the same be defended by the indemnifying party or by the
indemnified party (but the indemnified party shall have no obligation to defend
any such claim or demand), then that portion thereof as to which such defense is
unsuccessful, in each case shall be conclusively deemed to be a liability of the
indemnifying party hereunder, unless the indemnifying party shall have disputed
its liability to the indemnified party hereunder as provided herein, in which
event such dispute shall be resolved as provided in the arbitration provisions
hereof.
(iv) If an indemnified party should have a claim against the indemnifying party
hereunder that does not involve a claim or demand being asserted against or
sought to be collected from it by a third
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<PAGE> 14
party, the indemnified party shall promptly send a Claim Notice with respect to
such claim to the indemnifying party. If the indemnifying party disputes its
liability with respect to such claim or demand such dispute shall be resolved as
provided in the arbitration provisions hereof; if the indemnifying party does
not notify the indemnified party within the Notice Period that it disputes such
claim, the amount of such claim shall be conclusively deemed a liability of the
indemnifying party hereunder.
7.04 Payment. Upon the determination of liability under this Article
VII, the appropriate party shall pay to the other, as the case may be, within
ten days after such determination, the amount of any claim for indemnification
made hereunder. If the indemnified party is not paid in full for any such claim
pursuant to the foregoing provisions promptly after the other party's obligation
to indemnify has been determined in accordance herewith, it shall have the
right, notwithstanding any other rights that it may have against any other
person, firm or corporation, to set off the unpaid amount of any such claim
against any amounts owed by it under any agreements entered into pursuant to
this Agreement. Upon the payment in full of any claim, either by setoff or
otherwise, the entity making payment shall be subrogated to the rights of the
indemnified party against any person, firm or corporation with respect to the
subject matter of such claim.
7.05 Other Rights and Remedies Not Affected. The indemnification rights
of the parties under this Agreement are independent of and in addition to such
rights and remedies as the parties may have at law or in equity or otherwise for
any misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any party to this Agreement, including without
limitation the right to seek specific performance, rescission or restitution,
none of which rights or remedies shall be affected or diminished hereby.
7.06 Viability of Program. If, in the event of a successful third party
claim for intellectual property infringement, the settlement of the claim does
not include the right to continue to publish the Program with the infringing
material, Licensor may, at its expense, remove the infringing material and
attempt to produce a modified version of the Program for continued publication.
The final decision regarding whether to proceed with publication of the modified
version of the Program, however, shall rest with PIRANHA in its sole discretion.
VIII. MISCELLANEOUS
8.01 Survival. The representations and warranties made by Licensor and
PIRANHA in the Agreement shall continue in full force and effect for the benefit
of the relevant party and shall survive the termination of this Agreement.
8.02 Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be delivered in person or
sent by U.S. registered mail, charges prepaid, to the parties at the addresses
set forth on the signature page of the Agreement.
8.03 Entire Agreement. This Agreement, when duly executed and
delivered, constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether written or oral.
8.04 Applicable Law. This Agreement shall be construed, interpreted and
enforced in accordance with, and the respective rights and obligations of the
parties shall be governed by, the
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<PAGE> 15
laws of the State of Arizona and each party irrevocably and unconditionally
submits to the non-exclusive jurisdiction of the courts of Maricopa County,
State of Arizona and all courts competent to hear appeals therefrom. The Parties
also waive any and all objections to such jurisdiction and venue, including
objections based on the doctrine of forum non conveniens.
8.05 Successors and Assigns. This Agreement shall inure to the benefit
of and shall be binding on and enforceable by the parties and their respective
successors and permitted assigns, as the case may be.
8.06 Amendment and Waivers. No amendment or waiver of any provision of
this Agreement shall be binding on either party unless consented to in writing
by such party. No waiver of any provision of this Agreement shall constitute a
waiver of any other provision, nor shall any waiver constitute a continuing
waiver unless otherwise provided.
8.07 Severability. If any provision of this Agreement is determined by
a court of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, such determination shall not affect or impair the validity, legality or
enforceability of the remaining provisions hereof and each provision is hereby
declared to be separate, severable and distinct.
8.08 Execution and Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and all of which taken
together shall constitute one and the same instrument.
8.09 Arbitration. All controversies which may arise between the parties
concerning any transaction or the construction, performance, or breach of this
Agreement shall be determined pursuant to the arbitration laws of the State of
Arizona, before the American Arbitration Association and in accordance with its
rules then in effect. The parties shall agree upon one arbitrator to hear the
dispute, or if they cannot agree upon a single arbitrator, each shall select one
arbitrator and the two arbitrators shall select a third arbitrator to hear the
dispute. The award of the arbitrator shall be final and judgment upon the award
rendered may be entered by the court specified as the chosen forum for this
Agreement. All parties hereto submit to the jurisdiction of Arizona and agree
that the arbitration hearing shall be held in Maricopa County, Arizona. Each
party shall bear the cost of its own attorney fees involved in such arbitration,
if any.
8.10 Force Majeure. If the performance of this Agreement, or any
obligation hereunder, is prevented or delayed by reason of fire, flood,
earthquake, explosion or other casualty or accident, strikes or labor disputes,
power failure, war or other violence, any law, order, regulation or the like of
any governmental agency, or any other act or condition beyond the reasonable
control of the affected party, the party so affected, upon giving prompt written
notice to the other party, shall be excused from performance, provided however
that the affected party shall resume performance as soon as possible.
8.11 NonAssignment. This Agreement may not be assigned by either party
without prior written permission from the other party (which permission shall
not be unreasonably withheld), provided however that either party may assign
this Agreement in connection with a merger, sale or transfer of all or
substantially all of its business and assets or a reorganization. Any attempt,
without such permission, to assign or delegate any rights, duties or obligations
which arise under this Agreement will be void.
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8.12 Export Control. PIRANHA agrees that it will not export or
re-export the Program in any form without the appropriate United States and
government licenses.
8.13 Injunctive Relief. It is understood and agreed that a material
breach of the provisions of this Agreement will cause the nonbreaching party
irreparable damages for which recovery of money damages would be inadequate, and
that the nonbreaching party shall be entitled to obtain timely injunctive relief
to protect its rights under this Agreement in addition to any and all remedies
at law.
IN WITNESS WHEREOF this Agreement has been executed by the parties
hereto as of the date first written above.
"LICENSOR"
__/s/ Istvan Pely_______________
Istvan Pely
Address: 19 Farm Gate Way
Reistertown, MD 21136
"PIRANHA"
PIRANHA INTERACTIVE PUBLISHING
By __/s/ Timothy M. Brannan_______
Timothy M. Brannan, President
Address: 4802 E. Ray Rd.
Suite 23-245
Phoenix, AZ 85044
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EXHIBIT "A"
The Program subject to the Agreement is described as follows:
TITLE: Majestic (working title)
PLATFORM/MEDIA:
Windows and Mac - CD-ROM, 1 or 2 discs (not yet determined)
DESCRIPTION:
An interactive, multimedia, 3-D rendered adventure game which is based in an
abandoned space cruiser called the Majestic. The player must navigate four
unmanned probes through the ship while investigating the strange occurrences
surrounding the abandonment of the cruiser and solving puzzles and defeating
aliens in order to win the game.
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EXHIBIT "B"
MASTER DEVELOPMENT SCHEDULE
I. MAC VERSION ---------------------------------------------------------------
DEADLINE LICENSOR'S TASK
ALREADY Alpha copy for review
DELIVERED
AND ACCEPTED
ALREADY First Beta for review
DELIVERED
AND ACCEPTED
10/23/95 Final Beta for review
11/8/95 "Gold Master" of the Program in machine readable form
and related materials in hard copy and machine
readable form
11/27/95 Target "Launch Date" for sale of first Program to the
consumer market
II. WINDOWS VERSION ----------------------------------------------------------
DEADLINE LICENSOR'S TASK
10/23/95 First Beta for review
10/30/95 Final Beta for review
11/8/95 "Gold Master" of the Program in machine readable form
and related materials in hard copy and machine
readable form
11/27/95 Target "Launch Date" for sale of first Program to the
consumer market
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"EXHIBIT C"
PIRANHA INTERACTIVE PUBLISHING, INC.
PRODUCT ENGINEERING STANDARDS
The following is an outline of Piranha's Product Engineering Standards for
software developers. They are divided into the following main categories:
I. MACINTOSH PLATFORM REQUIREMENTS
II. WINDOWS PLATFORM REQUIREMENTS
III. REQUIREMENTS FOR MPC LICENSING
IV. DEFINITION OF DEVELOPMENT STAGES
These engineering requirements are based upon industry standard expectations.
Meeting or exceeding these requirements is considered critical to maintaining
product competitiveness and life cycle in the market. Therefore, though
exceptions may be made to one or more of these requirements, they will only be
made at the discretion of Piranha and only if appropriate to the product. Such
exceptions, when made, will be considered on a case-by-case basis and will only
be approved by express written consent of Piranha.
I. MACINTOSH PLATFORM ENGINEERING REQUIREMENTS:
1. Product runs without errors or "bugs" on 68030 or faster, System 7.1 or
later. Supports minimum 640x480x256 color. Requires no more than 8 meg RAM.
Product must be accelerated for PowerMac.
2. Videos must be in Quicktime format and the logo must be licensed from Apple.
3. Features common Apple Macintosh interface support: File, Options, etc. Must
support general Macintosh standards (has support for Get Info, About, Finder,
Chooser, etc. as necessary).
4. Application window allows user to resize it with the mouse, and repaints
correctly after resize. Application's windows can be moved with mouse, and
repaint correctly after move. Application uses multiple windows, and each window
repaints correctly after it is maximized and minimized. Application's windows
repaint correctly after being covered by another application's window in the
foreground.
5. Scroll bars operate correctly and accurately in all windows.
6. Publisher's logo and information appears in install screen, splash screen,
credits/about screen, and exit screen (if any). Credit/About screen should
contain ALL copyright and trademark information pertaining to the product.
Install should also contain the following warning: "This computer program is
protected by copyright law and international treaties. Unauthorized reproduction
or distribution of this program, or any portion of it, may result in severe
civil and criminal penalties, and will be prosecuted to the maximum extent
permissible under law."
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7. Technical Information sheets must be completed and returned to the Product
Manager at (or before) the time Final Beta is delivered.
8. Turnaround time on technical questions must be 48 hours or less; Turnaround
time on bug fixes must be 7 days or less.
9. In addition to program itself, a self-running demo must be created, which
goes to all parts of the program. This will be used in trade show
demonstrations.
10. Application frees all system resources when closed.
11. Application has the ability to print both text and graphics directly from
the program, as well as export both text and graphics.
12. If any installation of extensions is necessary, product must include
standardized install per PIRANHA requirements (Install must be graphical; Must
include: Product name; "Published by Piranha Interactive Publishing, Inc.", the
PIRANHA logo, and the PIRANHA company address; Must prompt user for desired
install drive; Must set up appropriate necessary groups and icons).
II. WINDOWS PLATFORM ENGINEERING REQUIREMENTS:
1. Product runs on Windows 3.1, Windows for Workgroups 3.1, and Windows NT, and
Windows 95 (even if not WIN 95 native).
2. Windows 95 native products must pass WIN 95 Logo Licensing.
3. Product must pass requirements for MPC licensing (see below).
4. Runs correctly if MS-DOS Share program is running; runs correctly if Windows
for Workgroups program Vshare.386 is running.
5. Displays correctly with all of the standard Windows color options in Control
Panel. Alt-Tab retains Windows System colors. When Alt+Tab is used to move
through applications, application repaints its icon correctly each time it
receives focus.
6. Application window allows user to resize it with the mouse, and repaints
correctly after resize. Application's windows can be moved with mouse, and
repaint correctly after move.
7. Application uses multiple windows, and each window repaints correctly after
it is maximized and minimized. Application's windows repaint correctly after
being covered by another application's window in the foreground.
8. Scroll bars operate correctly and accurately in all windows.
9. Menu names follow MS Windows Standard names, i.e., FILE, EDIT, OPTIONS,
WINDOW, HELP.
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10. Help section follows MS Windows Standard Help, i.e., Hyperlinks, Menu bar
with File, Edit, Bookmark, Help; buttons for Contents, Search, Back, History,
forward & backward.
11. Printer setup within application. If default printer is changed in Control
Panel while the application is open, the application recognizes the change.
12. Application uses windows standard keyboard functions, i.e. Alt+F4 to close;
Alt+Tab to move through applications.
13. Application has the ability to copy images and text to the clipboard.
14. Publisher's logo and information appears in install screen, splash screen
credits/about screen, and exit screen (if any).
15. Technical Information sheets must be completed and returned to the Product
Manager at (or before) the time Final Beta is delivered.
16. Turnaround time on technical questions must be 48 hours or less; Turnaround
time on bug fixes must be 7 days or less.
17. In addition to program itself, a self-running demo must be created, which
goes to all parts of the program. This will be used in trade show
demonstrations.
18. Application frees all system resources when closed.
19. Application has the ability to print both text and graphics directly from
the program, as well as export both text and graphics.
20. If any installation is necessary, product must include standardized install
per PIRANHA requirements (Install must be graphical; Must include: Product name;
"Published by Piranha Interactive Publishing, Inc.", the PIRANHA logo, and the
PIRANHA company address; Must prompt user for desired install drive; Must set up
appropriate necessary groups and icons).
III. REQUIREMENTS FOR MPC LICENSING
Minimum System Requirements:
- - MS-DOS/PC-DOS version 3.1 or later
- - Microsoft Windows 3.1
- - Microsoft MS-DOS CD-ROM Extensions (MSCDEX) version 2.2 or later
- - Multimedia pc or equivalent, or pc with multimedia pc upgrade kit, (or
higher levels based on specific product requirements).
Minimum:
- 30386SX or higher microprocessor
- 2 MB memory
- 30 MB hard disk
- CD-ROM with CD-DA outputs
- VGA display
- Audio board: DAC, ADC, music synthesizer, on-board analog
audio mixing
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- Two button Mouse, 101-key keyboard
- Serial port, parallel port, MIDI I/O port, joystick port
- In addition to the above details, CD-ROM and sound requirements
should be referred to as "MPC Level 1 (or Level 2) Sound" and
"MPC Level 1 (or Level 2) CD-ROM".
General Specifications
a) Product must be compatible with the Windows Operating System version 3.0
with Multimedia Extensions 1.0 application program interface (API) or
Windows Operating System version 3.1 or its binary equivalent;
b) Product must use at least one of the following multimedia enhancements:
MIDI, waveform or CD Audio, animation, photographic images or motion video.
These must be supported through the Windows Operating System version 3.0
with Multimedia Extensions 1.0 application program interface (API) or
Windows Operating System version 3.1 or its binary equivalent;
c) Product must run on the Base Multimedia PC Level 2 specification as
described below:
- 486SX 25MHz or higher microprocessor
- 4 MB memory (8MB recommended)
- 160 MB hard disk
- CD-ROM doublespeed with CD-DA outputs, XA ready, multisession
capable
- VGA display minimum 640x480 with 65,536 colors
- Audio board: 16 bit DAC, 16 bit ADC, music synthesizer, on-board
analog audio mixing
- Two button Mouse, 101-key keyboard
- Serial port, parallel port, MIDI I/O port, joystick port
IV. DEFINITION OF DEVELOPMENT STAGES
ALPHA:
- - The user interface is defined, i.e., layout, palette and icons.
- - Content has been determined, though may not be completed.
- - All of the features have basic functionality, although may not necessarily
be complete.
FIRST BETA:
- - The user interface is fairly stable, i.e., no further changes are planned
for the layout, palette or icons.
- - All text files have been run through a spellchecker.
- - All of the features are functional, though the code may still be brittle.
INTERIM BETA:
- - Progress falls in between First Beta and Final Beta Stages. Some bugs and
errors found during First Beta testing have been fixed.
- - Publisher's Logo and information are in the product.
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FINAL BETA:
- - All features are functional and complete.
- - The Install and Help are complete.
- - All text files have been checked for spelling and grammar errors; all
errors corrected.
- - The program has been tested for two weeks by the development team, and all
of the problems/bugs found during that testing have been corrected.
- - The program is considered 'release quality' and ready for mastering if no
further problems are found during final testing by Piranha Interactive
Publishing.
- - The Technical Information forms have been completed and returned to the
PIRANHA Product Manager.
- - The Microsoft Windows Compatibility Survey has been completed and returned
to PIRANHA Product Manager (in the case of WIN 95 native programs, WIN 95
Logo has been approved by Microsoft).
- - All outside materials (video, graphics, sound, text, etc.) have been
properly licensed and written documentation of these agreements has been
provided to Piranha.
* The requirements of this Exhibit supersede anything to the contrary which may
be stated in the Program description in Exhibit "A"
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EXHIBIT "D"
SOURCE MATERIAL CONFIRMATION REPORT
Licensor hereby represents and warrants that it is the author of all of the
material in the Program (Mac and Windows versions), which is the original work
of the employees of Licensor or, if not the original work of the employees of
Licensor, has been legally licensed, via written contract, by Licensor and
Licensor has the full power to convey such material and such rights to PIRANHA
free of any and all claims or encumbrances. The source material for the various
components of the Program is as noted below (If there is no material in the
Program from a listed category, please enter "N/A" in the applicable space. If
there is material in the Program from a category not listed below, please add
the category and list the appropriate details in the space marked "Other" below.
Please attach to this document a copy of each contract for licensed material in
the Product.):
Photographs, graphics, and all other still images:
Video:
Sound:
Text:
Maps:
Other:
Other:
Signed and acknowledged as of the date first above written.
/s/ Istvan Pely
- ---------------------------------------
Istvan Pely
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EXHIBIT "E"
ESCROW AGREEMENT
This Escrow Agreement (the "Escrow Agreement") by and among Licensor,
PIRANHA and _____________________________________________________________ (the
"Escrow Agent") is made and effective as of the date of the Agreement to which
this Exhibit E is attached and made a part of (the "Agreement"). All terms used
herein and not otherwise defined herein shall have the meaning ascribed to them
in the Agreement.
WHEREAS, Licensor and PIRANHA have entered into the Agreement regarding the
Program; and
WHEREAS, it is the policy of the Licensor not to disclose the source code and
related documentation (hereinafter collectively referred to as the "Source
Code") for the Program to any parties except as provided by written agreement;
and
WHEREAS, Licensor and PIRANHA agree that upon the occurrence of certain events
described in section 3(a) hereof, PIRANHA shall be able to obtain the Source
Code and all revisions thereof, and in accordance therewith, the Licensor agrees
to deliver said Source Code to the Escrow Agent;
NOW, THEREFORE, in consideration of the mutual covenants, representations and
warranties contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Licensor, PIRANHA
and the Escrow Agent hereby agree as follows:
1. Deposits. The Escrow Agent, as a safekeeping (escrow) agent, agrees
to accept from the Licensor the Source Code ["Source code" is defined to
include: All pre-compiled material which is compiled or interpreted to generate
the run-time executable; any data files (including, but not limited to, text,
graphics, video, animations, sound, and music); supporting utilities;
development tools; second- and third-party .DLL's and VBX'es (and related linked
or accessed files) required to develop the program or to support the developed
program; and all other necessary software and/or documentation used to design,
develop, engineer, support, implement, integrate, or otherwise compile the
program and its supplementary modules into the final product.] and revisions
thereof as provided in section 2 of this Escrow Agreement. The Escrow Agent will
issue to the Licensor a receipt for the Source Code upon delivery. The Source
Code held by the Escrow Agent shall remain the exclusive property of the
Licensor, and the Escrow Agent shall not use the Source Code or disclose the
same to any third party except as specifically provided herein. The Escrow Agent
will hold the Source Code in safekeeping at its offices at the address set forth
below unless and until the Escrow Agent receives notice pursuant to the terms of
this Escrow Agreement that the Escrow Agent is to deliver the Source Code to
PIRANHA or Licensor, in which case the Escrow Agent shall deliver the Source
Code to the party identified therein, subject, however, to the provisions of
this Escrow Agreement.
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<PAGE> 26
2. Warranty of Licensor to PIRANHA. Licensor warrants to PIRANHA that
(i) the material described above constitutes the source code and documentation
for the Program; (ii) the Source Code delivered to the Escrow Agent is in a form
suitable for reproduction by computer and/or photocopy equipment, and consists
of a full source language statement of the program or programs comprising the
Program and complete program maintenance documentation, including all flow
charts, schematics and annotations which comprise the precoding detailed design
specifications, and all other material necessary to allow a reasonably skilled
third-party programmer or analyst to maintain or enhance the Program without the
help of any other person or reference to any other material; and (iii) the
Licensor will promptly supplement the Source code delivered hereunder with all
revisions, corrections, enhancements or other changes so that the Source code
constitutes a human-readable program for the current release of the Program.
3. Notice of Default.
a. The Licensor shall be deemed to be in material default of
its responsibilities to PIRANHA if (i) the Licensor fails to meet its
obligations under section 3.01 of the Agreement within forty five (45) days
after PIRANHA's notification to Licensor specifying in reasonable detail the
nature of the Bug; (ii) the Licensor fails, within 30 days of the receipt of
written notice, to meet its obligations under section 1.06 of the Agreement or
(iii) the Licensor becomes insolvent, makes a general assignment for the benefit
of creditors, files a voluntary petition of bankruptcy, suffers or permits the
appointment of a receiver for its business or assets, becomes subject to any
proceeding under any bankruptcy or insolvency law, whether domestic or foreign,
or has wound up or liquidated its business voluntarily or otherwise and PIRANHA
has compelling reasons to believe that such event(s) will cause Licensor to fail
to meet its warranty and maintenance obligations in the foreseeable future.
PIRANHA shall give written notice (the "Notice of Default") to the Escrow Agent
of any default by the Licensor. The Notice of Default shall, at the minimum, (i)
be labeled "Notice of Default"; (ii) identify the Agreement and this Escrow
Agreement; (iii) specify the nature of the default; (iv) identify the Source
Code with specificity; and (v) demand the delivery of the Source Code to the
PIRANHA.
b. Upon the receipt of the Notice of Default, the Escrow Agent
shall send a copy thereof to the Licensor by certified or registered mail,
postage prepaid, return receipt requested. If the Licensor desires to dispute
the Notice of Default, the Licensor shall, within fifteen business days after
the receipt of the copy of the Notice of Default from the Escrow Agent, deliver
to the Escrow Agent a sworn statement (the "Affidavit") saying that no default
has occurred, whereupon the provisions of paragraph 5 hereof will become
applicable. If the Escrow Agent receives the Affidavit within said fifteen
business days, the Escrow Agent shall send a copy of the Affidavit to PIRANHA by
certified or registered mail, return receipt requested, and if the Escrow Agent
does not receive the Affidavit within said fifteen business days and PIRANHA has
not terminated the Agreement, the Escrow Agent is authorized and directed to
deliver the Source Code to the PIRANHA.
4. Notice of Termination. Upon the termination of the Agreement, the
Licensor may obtain the return of the source Code by furnishing written notice
of the termination, agreed to by authorized and notarized signature of PIRANHA
to the Escrow Agent.
5. Disputes.
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<PAGE> 27
a. In the event that Licensor files the Affidavit with the
Escrow Agent in the manner and within the time period set forth in paragraph
3(b) hereof, or if PIRANHA shall fail to agree that the Agreement has been
terminated, the Escrow Agent shall not release the Source Code to either party
except in accordance with (i) a final decision of the arbitration panel as
hereinafter provided, or (ii) receipt of an agreement with authorized and
notarized signatures of both Licensor and PIRANHA, authorizing the release of
the Source code to one of the parties hereto.
b. Disputes arising under this Escrow Agreement shall be
referred immediately to, and be settled by, binding arbitration as provided in
section 8.09 of the Agreement.
6. Payment to Escrow Agent. As compensation for its services hereunder,
the Escrow Agent shall receive an annual fee of $250, payable in advance by
PIRANHA as of the date hereof and thereafter on the anniversary date hereof. The
time of the Escrow Agent (excluding the execution of this Escrow Agreement and
the initial receipt and storage of the Source Code) spent fulfilling its
obligations hereunder (receiving and storing updated Source Code, responding to
correspondence from Licensor and/or PIRANHA, etc.) shall be billed to Piranha by
the Escrow Agent at a rate of $100/hour, provided however, that the Escrow
Agent's combined fees for services under the terms of this Escrow Agreement
shall never exceed $1,000 in any given year without the prior written permission
of PIRANHA. PIRANHA reserves the right to choose a new Escrow Agent at any time
during the term of the Agreement and the then current Escrow Agent agrees to
transfer the Source Code to the new agent upon the payment in full by PIRANHA of
any outstanding indebtedness of PIRANHA to the Escrow Agent hereunder, including
a fixed charge of two hours for the arrangement of the transfer of the Source
Code to the new agent.
7. Termination. This Escrow Agreement shall terminate on the delivery
of the Source Code to either party in accordance with the terms of this Escrow
Agreement.
8. Waiver, Amendment or Modification; Severability. This Escrow
Agreement shall not be waived, amended, or modified except by the written
agreement of all the parties hereto. Any invalidity, in whole or in part, of any
provision of this Escrow Agreement shall not affect the validity of any other of
its provisions.
9. Notices. All notices required to be given hereunder shall be in
writing and shall be given by certified or registered mail, return receipt
requested, or overnight courier, to the parties at their respective addresses
set forth in the Agreement, or in the case of the Escrow Agent, at the address
set forth below, or at such other addresses as shall be specified in writing to
all other parties.
10. Limitation on Escrow Agent's Responsibility and Liability.
a. The Escrow Agent shall not be obligated or required to
examine or inspect the Source Code, or any of the revisions, corrections or
enhancements thereof. The Escrow Agent's obligation for safekeeping shall be
limited to providing the same degree of care for the Source Code as it maintains
for its valuable documents and those of its customers lodged in the same
location with appropriate atmospheric or other safeguards. However, the parties
agree and acknowledge that the Escrow Agent shall not be responsible for any
loss or damage to any of the Source Code due to changes in such atmospheric
conditions (including, but not limited to, failure of the air-conditioning
system), unless such changes are proximately caused by the gross negligence or
malfeasance of the Escrow Agent. If the Source Code is damaged in any way, the
Licensor shall
27
<PAGE> 28
immediately upon notice from the Escrow Agent provide the Escrow Agent with an
undamaged copy of the Source Code.
b. The Escrow Agent shall be protected in acting upon any
written notice, request, waiver, consent, receipt or other paper or document
furnished to it, not only in assuming its due execution and the validity and
effectiveness of its provisions but also as to the truth and acceptability of
any information therein contained, which it in good faith believes to be genuine
and accurate.
c. In no event shall the Escrow Agent be liable for any act or
failure to act under the provisions of this Escrow Agreement except where its
acts are the result of its gross negligence or malfeasance. The Escrow Agent
shall have no duties except those which are expressly set forth herein, and it
shall not be bound by any notice of a claim, or demand with respect thereto, or
any waiver, modification, amendment, termination or recision of this Escrow
Agreement, unless received in writing and, if its duties herein are affected,
unless it shall have given its prior written consent thereto.
d. The parties to this Escrow Agreement hereby jointly and
severally indemnify the Escrow Agent against any loss, liability, or damage
(other than any caused by the gross negligence or malfeasance of the Escrow
Agent), including reasonable costs of litigation and counsel fees, arising from
and in connection with the performance of its duties under this Escrow
Agreement.
11. Use of Source Code. PIRANHA'S use of the Source Code shall be
subject to the terms, conditions and limitations contained in the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of
the year and date of the Agreement.
PIRANHA INTERACTIVE PUBLISHING, INC.
/s/ TIMOTHY M. BRANNAN
- --------------------------------------
Timothy M. Brannan
President
/s/ ISTVAN PELY
- ---------------------------------------
Istvan Pely
- ---------------------------------------
Escrow Agent
Escrow Agent address: ---------------------------------------
---------------------------------------
28
<PAGE> 29
AMENDMENT #1
Whereas, Istvan Pely, an individual at address 19 Farmgate Way, Reisterstown,
MD, 21136 ("Istvan"), and Piranha Interactive Publishing, Inc., an Arizona
corporation with principal place of business at 1839 West Drake, Suite B, Tempe,
AZ 85283 ("Piranha") have entered into that certain License Agreement dated
October 20, 1995 (the "Agreement") and;
Whereas, Piranha and Istvan have agreed to develop a sequel to the Program, as
defined in the Agreement, and now wish to amend Exhibit A of the Agreement to
include the sequel ("Program #2");
Now Therefore, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:
Exhibit "A" of the Agreement is hereby modified to add the following computer
software game:
TITLE: PROGRAM #2 (WORKING TITLE - the program shall be referred to as
"Program #2" until such time as Piranha, in consultation with Istvan,
chooses a final name under which the program will be published)
PLATFORM/MEDIA:
Windows and Mac - CD-ROM, 1 or 2 discs (not yet determined)
DESCRIPTION:
A technically enhanced interactive, multimedia, 3-D rendered adventure
game sequel to Majestic with similar graphics and style of game play,
which takes place in five episodes, based in space, and occurring in a
space vessel (the Rident), a space buoy outpost (Plasfo), a colony
outpost (Carswell), an industrial corporation (SYNSYM), and an
industrial factory (SYNSYM facility). The player must navigate a
character through these five locations while investigating the strange
occurrences surrounding the attack on the Rident and the manufacturing
of cerebral enhancement implants. The player must solve puzzles and
outwit the game's nemesis, Jaques Debrise, to win the game.
Exhibit "B" of the Agreement is hereby modified to include the following
development schedule for Program #2:
MASTER DEVELOPMENT SCHEDULE
I. MAC VERSION ------------------------------------------------------
DEADLINE LICENSOR'S TASK
6/15/96 Alpha copy for review
7/15/96 First Beta for review
<PAGE> 30
8/1/96 Final Beta for review
8/21/96 "Gold Master" of Program #2 in machine
readable form and related materials in
hard copy and machine readable form
9/15/96 Target "Launch Date" for sale of first
Program #2 to the consumer market
II. WINDOWS VERSION -------------------------------------------------
DEADLINE LICENSOR'S TASK
6/15/96 Alpha copy for review
7/15/96 First Beta for review
8/1/96 Final Beta for review
8/21/96 "Gold Master" of Program #2 in machine
readable form and related materials in hard
copy and machine readable form
9/15/96 Target "Launch Date" for sale of first
Program #2 to the consumer market
Subsection (ii) of the first sentence of Section 6.01 is hereby modified to note
that the Initial Term is hereby revised to terminate five (5) years from the
date of this Amendment, as opposed to five years from the date of the Agreement.
References to the "Program" in the Agreement shall now be deemed to refer to
Program #2 as well as the original Majestic program and all terms of the
Agreement, as amended hereby, shall be applicable to the Program #2 as well as
to the original Majestic program.
Any terms used in this Amendment and not defined in this Amendment shall have
the meaning ascribed to such terms by the Agreement.
Other than as amended hereby, the terms of the Agreement remain valid and in
full force and effect.
Agreed, accepted and effective this 12th day of April, 1996.
/s/ Istvan Pely /s/ Timothy M. Brannan
- -------------------------------- ------------------------------------
Istvan Pely Piranha Interactive Publishing, Inc.
<PAGE> 1
EXHIBIT 10.8
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT
This Agreement is made between Zane Publishing, Inc., a Texas corporation with
its principal place of business at 1950 Stemmons, Suite 4044, Dallas, Texas
75207-3109 ("Publisher"), and the company with its principal place of business
located at the address on the signature page ("Licensee"). This Agreement is
effective as of the date signed by Publisher on the signature page ("Effective
Date").
RECITALS
Publisher publishes the software identified in Exhibit A ("Publisher Software")
which is to be combined by Licensee with the hardware products or the software
compilation products identified in Exhibit A under the heading "Authorized Use"
which are to be distributed together by Licensee ("Combined Units") in the
territory defined in Exhibit A ("Territory"). Licensee desires to replicate
Publisher Software from a master one-off ("Software Master") and sell the
Combined Units.
The parties hereby agree to the following:
AGREEMENT
1. LICENSE. Subject to the terms and conditions of this Agreement,
Publisher grants to Licensee a nonexclusive (see Exhibit A for
qualification regarding nonexclusivity), nontransferable, revocable
license to replicate Publisher Software, and a nonexclusive (see
Exhibit A for qualification regarding nonexclusivity) license to
distribute and sub license copies of Publisher Software to Licensee's
customers only in Combined Units in the Territory identified in Exhibit
A. All other licenses, including but not limited to the license to
rent, private label, and OEM Publisher Software, remain with Publisher.
Notwithstanding the foregoing, Publisher and Licensee have agreed that
Licensee shall publish the Combined Units under Licensee's name and not
Publisher's name. With the exception of Publisher's copyright and
trademark notices which shall appear on the packaging and on each
CD-ROM containing Publisher Software, the Combined Units shall be
published under Licensee's name and Publisher's name shall not be
featured on the packaging for the Combined Units or in the advertising
or marketing for the Combined Units. Other than the right to license
Publisher Software granted herein from Publisher to Licensee, this
Agreement does not transfer any right, title or ownership from
Publisher to Licensee in Publisher Software, or Publisher's name,
trademarks, or other software programs. This Agreement additionally
does not transfer any right, title or ownership from Licensee to
Publisher in Licensee's name, logo or trademarks. Licensee shall create
a name (subject to Publisher's approval, which shall not be
unreasonably withheld) for the Combined Units and the trademark to the
name of the Combined Units, along with Licensee's name and logo, shall
be and remain the property of Licensee. Licensee acknowledges that
Publisher Software is being licensed, not sold, to Licensee and that
any distribution or delivery of Publisher Software to any other
licensee, reseller or retailer will be by license, and not by sale.
Accordingly, Licensee acknowledges the 17 U.S.C. Section 109 (i.e., the
"first sale doctrine" as embodied in the Copyright Act of 1976, as
amended)
<PAGE> 2
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 2 OF 12
does not apply to Licensee's acquisition of Publisher Software.
Publisher shall provide end-user technical support for the Combined
Units free of charge (but not a toll-free call) and Licensee may
publish Publisher's technical support telephone number (currently
214.746.5630) in the Combined Units in connection therewith.
2. ROYALTIES. Licensee agrees to pay to Publisher a royalty advance as
identified in Exhibit A against a royalty due for each Combined Unit as
detailed in Exhibit A. The specified royalty is due on all Combined
Units distributed, sub licensed, given away, or otherwise not
maintained by Licensee in its personal possession (regardless of
whether Licensee is or ever will be paid, i.e. bad debt shall be the
responsibility of Licensee). Notwithstanding the foregoing, Licensee
shall be entitled to 100 royalty free copies of the Combined Units for
marketing and promotional activities and no royalties shall be due or
payable on Combined Units which are returned to the possession of
Licensee by any purchaser of the Combined Units or which are damaged or
defective. Licensee is responsible for collecting and paying for all
sales, value-added, use, tariffs, duties and similar taxes resulting
from Licensee's distribution and sub licensing of Publisher Software.
Publisher shall be responsible for any and all taxes imposed on the
royalties due under the terms of this Agreement from Licensee to
Publisher. Royalties are due per the terms indicated in Exhibit A and
are considered past due (and a material breach of this Agreement) if
payment is not received within 15 days of the date due. A royalty
statement shall be submitted to Publisher as indicated in Exhibit A,
regardless of the level of sales. The royalty statement shall be
certified by an officer of Licensee and be in sufficient detail to
determine proper royalty calculations and include at the least the
number of units sold and returned, all offsets and deductions
therefrom, if any, and the calculation of the royalty due Publisher
hereunder. Payments made more than 15 days after their due date will
incur interest at a rate equal to 1.5% per month (i.e., 18% per year)
or the highest rate permitted by applicable law, whichever is lower.
Publisher has the right upon five (5) days written notice to Licensee
to audit Licensee's books not more frequently than quarterly insofar as
they relate to this Agreement during normal business hours at
Licensee's main office. The expenses of such examination shall be borne
by Publisher unless errors of accounting amount to the greater of five
percent (5%) of total royalties due to Publisher upon which Licensee
shall be responsible for such reasonable examination expenses.
3. BUNDLING CONDITIONS. Licensee will comply with each of the following
"Bundling Conditions".
(A.) Licensee will only distribute and sub license Publisher
Software as a Combined Unit, containing the 10 Publisher
Software titles set forth in Exhibit A.
(B.) Licensee will not advertise list invoice or price Publisher
Software separately from the hardware products or compilation
products provided with Publisher Software in the Combined
Units.
(C.) Licensee will include no more than one copy of Publisher
Software in each Combined Unit, unless otherwise authorized in
writing by Publisher.
(D.) Licensee will not unpackage the Combined Units or alter,
obscure or remove any labels contained on the packaging of the
Combined Units, Publisher Software, hardware products, or
compilation products, including any label on the packaging
stating that Publisher Software is not to be distributed or
licensed on a stand-alone basis. Notwithstanding the
foregoing, Licensee reserves the right to redesign the
<PAGE> 3
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 3 OF 12
art printed on the face of each of the CD-ROMs containing
Publishers Products, including the right to incorporate images
from Publisher's Products on the face of the CD-ROM containing
Publisher's Product, with Publisher's approval, not to be
unreasonably withheld.
(E.) Licensee will identify the Combined Unit as a separate stock
keeping unit ("SKU") in any and all bills of materials,
invoices and other like documents. Licensee will not provide a
separate SKU for any Publisher Software provided in the
Combined Units in any bills of materials, invoices or other
like documents. Notwithstanding the foregoing, Publisher
understands that Licensee shall track Publisher Software
independently as regards replication of Publisher Software for
the Combined Units and that bills of material, invoices and
other like documents between Licensee and Replicator shall
distinguish between the various Publisher Software titles.
Bills of material, invoices and other like documents between
Licensee and distributors, resellers, etc., however, shall
reference only the one SKU number for the Combined Unit.
(F.) INJUNCTIVE RELIEF. Licensee acknowledges that the Bundling
Conditions are an essential part of this Agreement and that
violation or breach of any of the Bundling Conditions would
cause substantial and irreparable harm to Publisher that could
not be remedied by the payment of damages alone. Accordingly,
Publisher will be entitled to preliminary and permanent
injunctive relief and other equitable relief (including but
not limited to specific performance and a right of attachment)
for any material violation or breach of the Bundling
Conditions.
4. REPLICATION & MANUFACTURING.
(A.) REPLICATION. Licensee shall replicate Publisher Software from
the Software Master in only CD-ROM format and only at a
continental United States replicator ("Replicator"). Publisher
shall pre-approve in writing Licensee's Replicator which shall
report to Publisher, at Publisher's request, any and all
details related to Licensee's replications. Publisher shall
deliver a clean copy of the fully functioning version of each
of Publisher's Products in machine readable form on CD-ROM on
or before the effective date of this Agreement, to be used as
a master for duplication and mass production of Publisher's
Products (a "Gold Master").
(B.) MANUFACTURING. Licensee is solely responsible for creating,
designing, producing, and paying for all Publisher Software
replication, printing, packaging, and shipping, unless
identified differently in Exhibit A. Licensee shall design the
packaging and the artwork for the packaging for the Combined
Units and shall have the exclusive ownership interest in, and
may choose to obtain, copyright registration for the packaging
and/or the box design. Each Combined Unit of Publisher
Software must include a Software License Agreement (attached
in Exhibit B). Licensee shall provide Publisher five (5)
copies of Publisher Software from the first replication, and
every replication thereafter that uses a new Software Master
or has different design work from previous replications.
Licensee shall provide Publisher one (1) copy of the Combined
Unit. Should any Gold Master contain an error or defect,
Publisher agrees to use its best efforts and to take all
reasonable action necessary to make the necessary repairs,
without charge to Licensee, in its normal course of business,
and to provide Licensee with a new Gold Master for such
Publisher Software as soon as possible after the
<PAGE> 4
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 4 OF 12
modifications have been completed. When making a request for a
repair or correction in Publisher Software, Licensee must
provide written documentation setting forth the specific
circumstances, to the extent known, which precipitate each
problem and the exact nature and ramifications of the problem,
to the extent known. Publisher shall only be required to
undertake repairs for problems which can be explained in
sufficient detail to enable Publisher to reproduce the problem
in its copy of the same version of Publisher's Software. The
tentative "Launch" date for the Combined Units is Friday,
October 6th, but Licensee reserves the right to modify the
Launch date as necessary. The Launch of the Combined Units
shall be deemed to have occurred on the date of the first
shipment by Licensee of the Combined Units to a distributor,
reseller or retailer.
5. WARRANTIES AND INDEMNITIES.
(A.) WARRANTIES. Each party warrants and represents that it has the
full power and authority to enter into this Agreement and
grant the rights and fulfill the obligations set forth herein.
Publisher warrants and represents that (i) it is the owner of
(or it has obtained the necessary rights from third parties to
grant the licenses under this Agreement) Publisher Software,
and (ii) Publisher Software does not contain any unlawful
matter and does not infringe or violate any copyright,
trademark, patent, trade secret, or any proprietary,
contractual, or intellectual property rights of any third
party. Appropriate warranty disclaimers from Publisher to end
users shall be included in each Combined Unit as set forth in
Exhibit B.
(B.) INDEMNITIES. Each party will indemnify, hold harmless and, at
the injured party's request, defend the injured party and its
employees and agents from any claims, liability, damage, costs
and expense (including but not limited to reasonable
attorneys' fees and costs of suit) to the extent they arise
out of breach of any of the warranties set forth in Section
5(a.) above. Licensee will defend, indemnify and hold harmless
Publisher against any and all liabilities, losses and damages
and pay any and all costs (including but not limited to
reasonable attorney's fees and costs of suit) arising from any
material violation or breach of the Bundling Conditions by
Licensee, whether in connection with an investigation,
proceeding or action involving Licensee.
6. ADDITIONAL COVENANTS. Licensee agrees that Licensee will not use
Publisher Software in any manner to provide service bureau, time
sharing, coin-operation, Internet, on-line access, OEM license, or
other computer services to third parties.
7. ASSISTANCE OF LICENSEE. If any of Licensee's distributors, resellers or
retailers are distributing Publisher Software in violation or breach of
any of the Bundling Conditions, Licensee shall cooperate with Publisher
as reasonably necessary to terminate such breach including (i) securing
written assurances that the offending distributor, reseller or retailer
will immediately cease (and will not continue) the unauthorized
distribution of Publisher Software and (ii) ceasing or curtailing
distribution of Publisher Software and Combined Units to offending
distributor, reseller or retailer. Licensee shall also cooperate with
Publisher should Publisher choose to commence legal proceedings for a
violation of the copyright laws of the United States or for the breach
of contract, as appropriate, against
<PAGE> 5
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 5 OF 12
the offending distributor, reseller or retailer and shall assist with
(including providing information to Publisher in connection with) any
investigation, proceeding or litigation involving the violation or
breach by the offending distributor, reseller or retailer as reasonably
necessary, but all costs associated therewith shall be borne by
Publisher.
8. TERM AND TERMINATION.
(A.) TERM. This Agreement will commence on the Effective Date, and
it will remain in effect until the Expiration Date identified
in Exhibit A, unless extended upon the mutual written consent
of the parties.
(B.) TERMINATION. Either party may terminate this Agreement
immediately upon written notice to the other party if (i) the
other party admits in writing its inability to pay its debts
generally as they become due or is insolvent or makes an
assignment for the benefit of its creditors, files or has
filed against it (and the same is not dismissed within 30 days
of the date thereof) a valid petition in bankruptcy; has a
liquidator, provisional liquidator, receiver or receiver and
manager appointed in any jurisdiction in respect of all or a
substantial portion of its property and assets or (ii) if
Publisher ceases to carry on business as a programmer of
computer software or (iii) if Licensee ceases to carry on
business as a publisher and/or distributor of computer
software titles. Either party may terminate this Agreement
upon thirty (30) days prior written notice if the other party
is in breach of this Agreement and such breach is not remedied
within the thirty (30) day notice period, except that
Publisher may terminate the Agreement immediately upon
Licensee's breach of the Agreement for the non-payment of
royalties, or for the material violation or breach by Licensee
of any of the Bundling Conditions.
(C.) EFFECT OF TERMINATION DUE TO EXPIRATION. Upon the expiration
of this Agreement, Licensee: (i) shall return immediately the
Software Master to Publisher; (ii) shall cease and desist
immediately any and all replication of Publisher Software; and
(iii) may continue to distribute and sub license any remaining
units of Publisher Software for up to six (6) months.
Licensee's customers may continue to use Publisher Software
following termination of this Agreement.
(D.) EFFECT OF TERMINATION DUE TO BREACH BY LICENSEE. Upon the
termination of this Agreement due to a breach by Licensee,
Licensee: (i) shall return immediately the Software Master to
Publisher and (ii) shall cease and desist immediately any and
all replication of Publisher Software but (Licensee shall not
be entitled to the following if such termination is caused by
the non-payment of royalties, or by the material violation or
breach by Licensee of any of the Bundling Conditions), because
both parties acknowledge that Licensee's chief asset is its
customer relations, if Licensee has any commitments to provide
the Combined Units to any customers then, in such event, after
providing written evidence of said commitments, Licensee may
continue to produce and distribute the Combined Units for
those customers to which it is bound by said commitments, for
so long as the commitments in question shall be binding on
Licensee. Licensee shall continue to make royalty payment to
Publisher on such sales of the Program. Additionally, only in
the event that the termination is not caused by the non-
payment of royalties, or by the material violation or breach
by Licensee of any of the Bundling Conditions, Licensee shall
have the right to dispose, in the normal course of business,
of any inventory in its possession at the time of termination,
subject to
<PAGE> 6
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 6 OF 12
Publisher's right of first refusal to purchase any such
inventory, which right of first refusal must be exercised
within five business days of the receipt of notice thereof.
Licensee shall continue to make royalty payments to Publisher
on such sales of the Combined Units. Licensee's customers may
continue to use Publisher Software following termination of
this Agreement.
(E.) EFFECT OF TERMINATION DUE TO BREACH BY PUBLISHER. Upon the
termination of this Agreement due to a material breach by
Publisher, (i) Publisher shall immediately return the $[*]
advance, or the portion thereof paid by Licensee prior to the
termination and not earned, to Licensee; (ii) the guaranteed
minimum payment of royalties of $[*] per Combined Unit on [*]
units over the term of the License shall be automatically
terminated and (iii) Licensee shall have the right to dispose
of any remaining inventory, at whatever price Licensee deems
necessary, for six (6) months following the date of
termination, subject to Publisher's right of first refusal to
purchase any such inventory, which right of first refusal must
be exercised within five business days of the receipt of
notice thereof.
9. CONFIDENTIALITY. Each party agrees that certain information disclosed
by the other that is identified as confidential, including information
identified as confidential relating to such party's research,
development, proprietary technology, product and marketing plans,
customer names, finances, personnel and business opportunities will be
considered confidential information. Neither party will use any
confidential information of the other except as required to achieve the
objectives of this Agreement. Such restrictions will not apply to
information that becomes public knowledge other than through the
disclosing party. Licensee will not reverse engineer, decompile,
disassemble or modify or otherwise change Publisher Software. Aside
from Licensee's marketing and announcement of Publisher Software offer,
neither party will make a disclosure or statement covering this
Agreement or the subject matter hereof without first obtaining the
prior written consent of the other party.
10. LIMITED LIABILITY. Other than as specifically set forth herein, neither
party shall be liable to the other party for indirect, consequential or
incidental damages or for loss of prospective profits.
11. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof and supersedes
any prior agreement between the parties. No change, termination or
attempted waiver of any of the provisions hereof shall be binding
unless agreed to in writing by both parties.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the respective successors and assigns of the
parties hereto. Publisher may assign, transfer or sub license all or a
part of this Agreement. Licensee is prohibited from assigning all or
part of this Agreement unless Licensee receives prior written
permission from Publisher, which permission shall not be unreasonably
withheld.
13. GOVERNING LAW. This agreement, regardless of the place of its physical
execution, shall be construed and interpreted according to the laws of
the State of Texas and shall be binding upon the parties, their heirs,
successors, assigns and representatives. All
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 7
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 7 OF 12
references to Licensee and Publisher shall include their heirs,
successors, assigns, and representatives. Licensee hereby consents to
jurisdiction and venue in the State and Federal Courts sitting in the
County of Dallas, Texas. If either party employs attorneys to enforce
any rights arising out of or related to this Agreement, the prevailing
party shall be entitled to recover its reasonable attorney's fees,
cost, and other expenses.
14. DESIGNATIONS AND NOTICES. Any notices or other communications
hereunder, except as may otherwise be provided in this Agreement, will
be deemed given and delivered when delivered personally, or five (5)
days after being mailed if mailed by certified mail, return receipt
requested, or the next business day if sent by nationally recognized
courier service providing for a return receipt, in each case, postage
prepaid, addressed to the address on the signature page or to such
other address as either party shall designate by notice to the other,
effective ten (10) days after such notice.
15. RELATIONSHIP. The parties are independent contractors and not partners,
joint venturers, franchisers agents, and neither party may obligate the
other to any warranty or other obligation.
16. SURVIVAL. The representations and warranties made by Licensee and
Publisher in the Agreement shall continue in full force and effect for
the benefit of the relevant party and shall survive the termination of
this Agreement.
IN WITNESS WHEREOF, Publisher and Licensee have caused this Agreement to be
executed by their duly authorized officer,
Zane Publishing, Inc.
by: __/s/ Andrew J. Preston____________________
Andrew J. Preston, Jr., President & CEO
Date: August 30, 1995
LICENSEE: LICENSEE ADDRESS:
PIRANHA INTERACTIVE PUBLISHING, INC
by: ___/s/ Timothy M. Brannan__ Attn: Wade Stallings, Vice President
Timothy M. Brannan 4802 E. Ray Rd., Suite 23-245
President Phoenix, AZ 85044
Tel: 602.460.2244
Fax: 602.460.0042
Date: August 30, 1995
<PAGE> 8
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 8 OF 12
EXHIBIT A
PUBLISHER SOFTWARE: (COLLECTIVELY THE "COMBINED UNIT")
Name: 1. Biological Sciences: Genetics
2. A Literary History: Catch 22 - The Color Purple
3. History through Art: The Middle Ages
4. History of Music: Music and Culture
5. British Literature: The War of the Worlds - Brave New World
6. American Concise Encyclopedia(TM)
7. World History: Nineteenth Century Nationalism
8. U.S. History: U.S. Government (1865 - 1978)
9. Survey of the Animal Kingdom: Amphibians and Reptiles
10. Isaac Asimov's Library of the Universe: The Universe
Titles #1 through #10 shall each be on a separate CD-ROM. Each title
will contain the American Concise Encyclopedia. Each title (except for
the American Concise Encyclopedia) will contain the Webster's New World
Dictionary.
Format: CD-ROM, each title in both Windows (Windows '95 and Windows 3.1
compatible) and Macintosh format
ROYALTIES:
Advances: $[*]; payable in two equal payment of $[*], the
first payment due 30 days after Launch, the
second due 60 days after Launch. Subsequent
regularly scheduled royalty payments shall be
reduced by the amount of any outstanding advances
until all advances have been recouped by
Licensee, at which time regular royalty payments
to Publisher shall resume.
Royalty: $[*] per Combined Unit; payable every January
15th, April 15th, July 15th and October 15th
Royalty Statements: Due every January 15th, April 15th,
July 15th and October 15th
Min.Initial Quantity: N/A
Guaranteed Units: Licensee guarantees that, prior to the
first anniversary of the effective date of the
Agreement, Publisher will have received total
payments from Licensee equivalent to the
royalties due and payable on the sale of [*]
Combined Units.
EXPIRATION DATE: One year from the Effective Date of the Agreement. The term of
the Agreement may be extended for one year increments by
mutual written consent.
EXCLUSIVITY: The license for each of the individual software titles is not
exclusive but the license for this particular combination of 10 software titles
to be sold as a Combined Unit, is exclusive.
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 9
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 9 OF 12
LICENSING RESTRICTIONS:
Authorized Use: To be sold together in a Combined Unit as one package
with 10 CD-ROMS
Territory: Worldwide
Reseller/End User Restrictions: Not licensable to schools, colleges or
public libraries, or a distributor who
sells primarily to schools, colleges
or public libraries. Licensee shall
not be responsible for preventing
incidental sales to those institutions
through consumer retail channels.
PUBLISHER SUPPLIED DELIVERABLE(S):
_ Software Master
_ Software License Agreement (format: email)
_ CD-ROM Jewel Case Front Insert (format: N/A)
_ CD-ROM Jewel Case Back Insert (format: N/A)
_ Software Screen shots (format: Macintosh, CD-ROM)
_ Software Box Shots (format: Macintosh, CD-ROM)
_ Software Marketing Copy (format: product descriptions by facsimile)
COPYRIGHT NOTIFICATIONS:
AMERICAN CONCISE ENCYCLOPEDIA (C)1995 by Zane Publishing, Inc. ASIMOV'S LIBRARY
OF THE UNIVERSE: THE UNIVERSE (C)1995 by Zane Publishing, Inc., GARETH STEVENS,
Inc., and CLEARVUE/eav, Inc. This electronic publication is based on the book
series Isaac Asimov's Library of the Universe and Isaac Asimov's New Library of
the Universe published by GARETH STEVENS, Inc., Milwaukee, Wisconsin. HISTORY
THROUGH ART: THE MIDDLE AGES (C)1995, 1994 by Zane Publishing, Inc. and
CLEARVUE/eav, Inc. HISTORY OF MUSIC: MUSIC AND CULTURE (C)1995, 1994 by Zane
Publishing, Inc. and CLEARVUE/eav, Inc. AMERICAN LITERATURE: CATCH-22---THE
COLOR PURPLE (C)1995 by Zane Publishing, Inc. and CLEARVUE/eav, Inc. BRITISH
LITERATURE: THE WAR OF THE WORLDS---BRAVE NEW WORLD (C)1995 by Zane Publishing,
Inc. and CLEARVUE/eav, Inc. BIOLOGICAL SCIENCES: GENETICS (C) 1995 by Zane
Publishing, Inc. and Carolina Biological Supply Company, Inc. WORLD HISTORY:
NINETEENTH CENTURY NATIONALISM (C) 1995 by Zane Publishing, Inc. and
CLEARVUE/eav, Inc. U.S. HISTORY: U.S. GOVERNMENT (1865-1978) (C) 1995 by Zane
Publishing, Inc. and CLEARVUE/eav, Inc. SURVEY OF THE ANIMAL KINGDOM: AMPHIBIANS
AND REPTILES (C) 1995 by Zane Publishing, Inc. and Educational Images, Ltd.
POWERCD is a registered trademark of Zane Publishing, Inc. 1950 Stemmons, Ste.
4044, Dallas, TX 75207-3109, 214-746-5555. Windows is a trademark and the
Windows logo is a registered trademark of Microsoft Corporation. Macintosh and
the Mac OS logo are trademarks of Apple Computer, Inc., used under license.
American Concise Encyclopedia source: Barron's New Student's Concise
Encyclopedia, (C)1993, 1988 Barron's Educational Series, Inc., used under
license. Webster's New World Dictionary(R) (Third College Edition), (C)1994
Simon & Schuster, Inc. Webster's New World Dictionary(R) and associated
colophons are registered trademarks of Simon & Schuster, Inc. All rights
reserved. Used under license from Simon & Schuster, Inc. Barron's Book Notes,
(C)1984-1986 Barron's Educational Series, Inc., used under license from Educorp
Consultants Corporation. Published by Piranha Interactive Publishing, Inc.
Copyright (C) box design 1995 Piranha Interactive Publishing, Inc. All rights
reserved. Piranha Interactive Publishing, Inc. and the Piranha logo are
trademarks
<PAGE> 10
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 10 OF 12
of Piranha Interactive Publishing, Inc. Piranha Pack and The Academic Edge are
trademarks of Piranha Interactive Publishing, Inc. All other brand or product
names are registered trademarks, trademarks, or service marks of their
respective holders. All rights reserved. Made in the United States of America.
<PAGE> 11
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 11 OF 12
EXHIBIT B
SOFTWARE LICENSE AGREEMENT
IMPORTANT NOTICE TO USER
It is important that you read this document before using the enclosed POWERCD
runtime software (the "Software"). By using the Software, you agree to be bound
by the following agreement (hereinafter, the "Agreement") between you (the
"User"), Zane Publishing, Inc. ("Zane") and Piranha Interactive Publishing, Inc.
("Piranha"). If you do not agree to the terms of the Agreement, please promptly
return the Software to the place you obtained it for a full refund.
LICENSE GRANT. Zane grants a single User a non-exclusive, nontransferable,
limited license to use the Software with compatible equipment. The Software is
licensed for use by a single User on a single computer in a single location. Use
on a network is prohibited. Additionally, use of the Software titles Biological
Sciences: Genetics; A Literary History: Catch 22 - The Color Purple; History
through Art: The Middle Ages; History of Music: Music and Culture; British
Literature: War of the Worlds - Brave New World; World History: Nineteenth
Century Nationalism; U.S. History: U.S. Government (1865 - 1978) and Isaac
Asimov's Library of the Universe: The Universe in schools, colleges, and public
libraries is prohibited. COPYING. Any copying of the Software is prohibited.
OTHER. User may not loan, lease, rent, distribute or transfer the Software, nor
reverse engineer or otherwise attempt to discern the source code of the
Software, nor publicly display the Software contents. TITLE. Title to the
Software is not transferred to User. Ownership of the enclosed copy of the
Software is vested in Zane, subject to the rights granted to User in this
Agreement. User understands and acknowledges that, unless otherwise notified in
writing by Zane, the Software and all of the data, information, images, audio,
text, video, animation, and other contents of the Software are protected by
United States copyright laws and international treaty provisions.
LIMITED WARRANTY. Zane warrants that the medium upon which the Software is
provided by Zane to User shall be free from defects in material and workmanship
under normal use for a period of 90 days from the date of User's receipt
thereof. DISCLAIMER. EXCEPT AS EXPRESSLY STATED HEREIN, THE SOFTWARE IS PROVIDED
"AS IS" WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO WARRANTIES OF PERFORMANCE OR MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. USER BEARS ALL RISK RELATING TO QUALITY AND PERFORMANCE OF
THE SOFTWARE. The performance of the Software varies with the various
manufacturers' equipment with which it is used. Neither Zane nor Piranha
warrants that the Software or the functions contained in the Software will meet
User's requirements, operate without interruption or be error free. LIMITATION
OF LIABILITY. User's exclusive remedy for breach by Zane of its limited warranty
shall be replacement of any defective medium upon its return to Zane within the
warranty period (evidence of purchase and Software registration required), or,
if Zane is unable to provide a replacement which is free of defect, refund of
the license fee paid by User with respect to such medium (refunds to be
processed through the venue Software was purchased). In no event will Zane or
Piranha be liable for any lost profits, business interruption, loss of business
information, or other damages, including direct, indirect, incidental, special,
consequential or any other type of damages, arising out of this Agreement or the
use or
<PAGE> 12
SOFTWARE MANUFACTURING & DISTRIBUTION AGREEMENT, PAGE 12 OF 12
inability to use the Software licensed hereunder, even if Zane or Piranha has
been advised of the possibility of such damages. This warranty gives you
specific legal rights. You may have other rights which vary from jurisdiction to
jurisdiction. Some states do not allow certain limitations on warranties, in
which case the above limitations may not apply to you.
GENERAL PROVISIONS. TERM AND TERMINATION. User may terminate this Agreement by
ceasing all use of and destroying the Software. Zane may terminate this
Agreement if User commits a material breach hereof. Upon any termination of this
Agreement, User shall cease all use of the Software, destroy the copy thereof
then in its possession and take such other actions as Zane may reasonably
request to ensure that no copies of the Software remain in its possession.
EFFECT OF AGREEMENT. This Agreement embodies the entire understanding between
the parties with respect to, and supersedes any prior understanding or
agreement, oral or written, relating to the Software. GOVERNING LAW. This
Agreement shall be governed by and construed under the laws of the State of
Texas. GENERAL PROVISIONS. Neither this Agreement nor any part or portion hereof
shall be assigned, sub licensed or otherwise transferred by User. Should any
provision of this Agreement be held to be void, invalid, unenforceable or
illegal by a court, the validity and enforceability of the other provisions
shall not be affected thereby. Failure of a party to enforce any provision of
this Agreement shall not constitute or be construed as a waiver of such
provision or of the right to enforce such provision.
POWERCD is a registered trademark of Zane Publishing, Inc., Dallas, TX. (C)1995
by Zane Publishing, Inc. All rights reserved.
<PAGE> 13
AMENDMENT #1
Whereas, Zane Publishing, Inc., a Texas corporation with its principal place of
business at 1950 Stemmons, Suite 4044, Dallas, Texas 75207-3109 ("Publisher"),
and Piranha Interactive Publishing, Inc., an Arizona corporation with its
principal place of business at 1839 West Drake, Suite B, Tempe, AZ 85283
("Licensee") have entered into that certain Software Manufacturing &
Distribution Agreement dated August 30, 1995 (the "Agreement") and;
Whereas, Publisher and Licensee now wish to make certain limited exceptions to
the terms of the Agreement, as set forth in this Amendment #1 (the "Amendment"),
in order to permit Licensee to take advantage of a specific series of orders to
be placed by Apple Computer, Inc. ("Apple");
Now Therefore, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:
Despite the terms of the consumer license restriction set forth in Exhibits A
and B to the Agreement, specifically the statement that the CD ROMS contained in
the Combined Unit are "not licensable to schools, colleges or public libraries,
or a distributor who sells primarily to schools, colleges or public libraries,"
the Publisher hereby agrees that of the Publisher Software, the following three
specific titles, which Publisher owns or has the right to sublicense for the
purposes set forth in this Amendment:
1) Survey of the Animal Kindgdom: Amphibians and Reptiles;
2) American Concise Encyclopedia; and
3) Webster's New World Dictionary (as background material)
(individually a "Publisher Title" and collectively the "Publisher Titles") shall
be licensable by Licensee to schools and colleges as part of, and only as part
of, the series of orders to be placed by Apple with Licensee for the Combined
Units as part of a promotion called "Bring Learning Home" being conducted by
Apple (the "Promotion"). Under the terms of the Promotion, Apple will provide to
the purchaser of Apple computers, in the packaging contained with the Apple
computers, a certificate which schools may send to Apple to redeem for one
Combined Unit. The Combined Units sold to Apple (with revised licensing terms
permitting the software to be licensed to schools and colleges) in connection
with the Promotion shall be referred to as the "Promotional Combined Units."
Licensee is responsible for contacting Clearvue/eav, Inc. ("Clearvue"), the
owner of the other eight titles (each a "Title" and collectively the "Titles")
and obtaining their written permission to make the same exception to the
licensing restrictions for those Titles. Only when Licensee has obtained the
written consent of Clearvue, and provided a letter from Clearvue confirming the
same to Publisher, may Licensee proceed to revise the written consumer software
license agreement and proceed to sell the Promotional Combined Units to Apple as
part of the Promotion. Licensee bears all responsibility for reaching a written
agreement with Clearvue regarding the royalties to be paid by Licensee to
Clearvue for the eight Clearvue Titles to be contained in the Promotional
Combined Units and Licensee is responsible for making those royalty payments
directly to Clearvue. Such royalty payments to Clearvue shall be in addition to
the royalty to be paid by Licensee to Publisher for the three Publisher Titles.
The royalty to be paid by Licensee to Publisher in connection with the sale of
the Promotional Combined Units shall be $[*] per Publisher Title, for a total of
$[*] per Promotional Combined Unit.
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 14
Sales of the Promotional Combined Units and the royalties paid in connection
therewith shall NOT be applied to or count toward the guaranteed royalties due
from Licensee to Publisher in accordance with the terms of Exhibit A of the
Agreement.
Publisher knows of, and does not object to, Clearvue's request that Licensee
include a statement on the Promotional Combined Unit box reflecting the fact
that the package contains computer software with a value of at least $500.
Paragraph 9 of the Agreement is amended to permit Licensee, in this one
instance, to divulge the terms and contents of the Agreement to Clearvue.
Publisher consents to the possible use of the form of the Agreement by Licensee
and Clearvue for the contract between those parties for publication of the
Titles in the Promotional Combined Units.
The exceptions granted by Publisher to Licensee pursuant to the terms of this
Amendment are "one-time" restricted exceptions which are being made exclusively
for the Promotion and the sales of the Promotional Combined Units in connection
therewith. All other sales of the Combined Units by Licensee to any other
parties shall continue to be made in conformity with the terms of the Agreement
and any future, further exceptions to the consumer license restrictions set
forth in the Agreement, if any, must also be separately negotiated and set
forth in a written amendment, signed by both parties.
The term of this Amendment and permission to sell the Promotional Combined
Units in accordance herewith shall be for one year from the Effective Date of
this Amendment, and may be extended for one year increments by mutual written
consent. Although the Agreement may expire on August 30, 1996 and if not
extended by mutual consent, the term of this Amendment and permission to sell
the Promotional Combined Units to Apple in accordance with the terms of this
Amendment, shall survive any such termination.
Licensee agrees to consult with Publisher regarding the possibility of placing
a sticker on the box containing the Promotional Combined Units, and to add
such a sticker if deemed necessary by Publisher, in order to address concerns
the Publisher has had with enquiries from end users of the Combined Units to
date.
Any terms used in this Amendment and not defined in this Amendment shall have
the meaning ascribed to such terms by the Agreement.
Other than as amended herein, all other terms of the Agreement remain valid and
in full force and effect and are applicable to the sale of the Combined Units
whether as part of the Promotion or otherwise.
"Publisher" "Licensee"
Zane Publishing, Inc. Piranha Interactive Publishing, Inc.
Date: 3/29/96 Date: 3/29/96
by:__/s/ Reed Bilbray_________ by:___/s/ Timothy M. Brannan_____
Reed Bilbray Timothy M. Brannan
Vice President President
<PAGE> 1
EXHIBIT 10.9
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is entered into and effective
this 21st day of May, 1996 by and between PIRANHA INTERACTIVE PUBLISHING, INC.,
an Arizona corporation ("PIRANHA") and CAMBRIX PUBLISHING, INC., an Arizona
corporation ("CAMBRIX").
WHEREAS, CAMBRIX has developed or licensed the seven (see Exhibit A for
details regarding possible eighth program) interactive CD-ROM computer software
programs (each of the programs and all updates, enhancements and versions
thereof and all documents, components, executable software, source code, text
files, sound files, image files, video files, database files and other similar
or related files or material and disks relating thereto is hereinafter
individually referred to as the "Program" and collectively referred to as the
"Programs") identified on Exhibit "A" attached hereto and incorporated herein by
this reference; and
WHEREAS, CAMBRIX has agreed to grant to PIRANHA and PIRANHA has agreed
to accept, an exclusive (see Exhibit A for details regarding limitation),
worldwide (see Exhibit A for details regarding limitation) license to copy,
manufacture, publish, distribute, sub license and market the Programs on the
terms and subject to the conditions contained herein;
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
I. NATURE OF LICENSE, PROGRAMS, SUPPORT AND PACKAGING
1.01 Grant of License. CAMBRIX hereby grants to PIRANHA, and PIRANHA
hereby accepts, on the terms and subject to the conditions contained herein, an
exclusive (see Exhibit A for details regarding limitation), worldwide (see
Exhibit A for details regarding limitation) license giving PIRANHA the right to
copy, manufacture, publish, distribute, sub license and market the Programs,
including, without limitation, the right to use and copy the Programs, solely
for the purpose of including the Programs in, and selling the Programs as part
of, a combined unit of ten or more CD-ROMs (the "Travel Pack") to be published
by PIRANHA. PIRANHA may copy, manufacture, publish, distribute, sub license and
market the Travel Pack under such names as it, in its sole discretion, considers
appropriate.
1.02 Publishing Restrictions. The license granted to PIRANHA by CAMBRIX
pursuant to the terms of this Agreement is solely and exclusively for the
purpose of including the Programs in the Travel Pack. CAMBRIX has not granted
PIRANHA the right, and PIRANHA does not have the right, to publish, distribute
or sub license the Programs as separate, individual, stand alone titles. PIRANHA
shall only publish, distribute and sub license the Programs as a part of the
Travel Pack. PIRANHA will not advertise, list, invoice or price the Programs
separately from the Travel Pack. PIRANHA will include no more than one copy of
each Program in each Travel Pack. PIRANHA shall identify the Travel Pack as a
separate and single stock keeping unit ("SKU") in any and all invoices and like
documents.
<PAGE> 2
1.03 Production, Quality and Delivery of Programs. Within 10 business
days of the effective date of this Agreement, CAMBRIX shall deliver to PIRANHA a
clean copy of the fully functional, latest version of each Program in machine
readable form on CD-ROM, to be used as a master for duplication and mass
production of each of the Programs (the "Gold Masters"). CAMBRIX is responsible
for ensuring the accuracy of the material contained in the Programs and is
responsible for the design and programming quality of the Programs. Should any
Gold Master contain a material defect, malfunction or error, CAMBRIX agrees to
use its best efforts and to take all reasonable action necessary to make the
necessary repairs, without charge to PIRANHA, and to provide PIRANHA with a new
Gold Master for such Program as soon as possible after the modifications have
been completed. When making a request for a repair or correction in a Program,
PIRANHA must provide written documentation setting forth the specific
circumstances, to the extent known, which precipitate each problem and the exact
nature and ramifications of the problem, to the extent known. CAMBRIX shall only
be required to undertake repairs for problems which can be explained in
sufficient detail to enable CAMBRIX to reproduce the problem in its copy of the
same version of the Program. Notwithstanding the cure period set forth in
Section 5.02(a), if CAMBRIX fails to use its best efforts to correct any
material defect, malfunction or error within 30 days of the receipt by CAMBRIX
of such written notice from PIRANHA, PIRANHA may terminate this Agreement and no
Quarterly Payments, including the Guaranteed Minimum and any advances thereof,
shall be due from PIRANHA to CAMBRIX and PIRANHA may exercise its rights
pursuant to Section 5.04.
1.04 Technical Support. Technical expertise and technical support for
the Programs shall be provided to PIRANHA and to customers at no cost, but not a
toll free call, by CAMBRIX. PIRANHA may list 818.993.4274 on the Travel Pack box
as the technical support telephone number for the Programs.
1.05 Disk and Box Art. PIRANHA reserves the right to redesign the art
printed on the face of each CD, subject to CAMBRIX's approval, and may use or
incorporate images from the Programs for this purpose. Such approval shall not
be unreasonably withheld and approval or denial must be given to PIRANHA within
48 hours of submission to CAMBRIX. Screen shots may also be used on the Travel
Pack box or other promotional material.
1.06 CAMBRIX Name. PIRANHA will not promote the Travel Pack as being a
CAMBRIX product and will not incorporate the CAMBRIX name in the box or
promotion of the Travel Pack except for trademark and copyright notices.
1.07 Consumer License Agreement. A consumer license agreement, similar
to the form of Exhibit B, attached hereto and incorporated herein by this
reference, shall be included in each Travel Pack. CAMBRIX understands that four
other companies (the "Other Participants") which will have products in the
Travel Pack must also approve the form of the consumer license agreement and
that further modifications to the form language may therefore be necessary to
reach a consensus on the final wording of the document. All proposed changes to
the language of the license agreement shall be presented to CAMBRIX for its
approval, which shall not be unreasonably withheld. In the event that a
consensus cannot be reached between PIRANHA, CAMBRIX and the Other Participants
regarding the language of a mutually acceptable license agreement, the form of
license agreement set forth in Exhibit B shall be used for the CAMBRIX Programs.
2
<PAGE> 3
II. QUARTERLY PAYMENTS
2.01 Quarterly Payments. On or before the last day of the first month
following the end of each calendar quarter (i.e., January 31, April 30, July 31,
October 31), PIRANHA shall pay to CAMBRIX by check payable to CAMBRIX, sent by
mail to CAMBRIX, [*] Dollars ($[*]) per Travel Pack, multiplied by the Net Sales
of the Travel Pack by PIRANHA or by its affiliates, successors, assigns or
licensees during each such calendar quarter (the "Quarterly Payment(s)"). "Net
Sales" shall mean the units of the Travel Pack actually shipped that quarter,
less returns arising from the sale of the Travel Pack. A Travel Pack shall be
considered sold on the date that PIRANHA ships the Travel Pack to a purchaser.
All other deliveries and/or shipments of the Travel Pack including, but not
limited to, the delivery of "not-for-resale" copies, evaluation copies, copies
for marketing and promotional activities and copies delivered to the staff of
PIRANHA and to CAMBRIX, shall not constitute Travel Pack sales and no royalties
shall be paid on such Travel Packs. Not-for-resale copies (excluding the 340
copies to be distributed to the Other Participants) shall be limited to 250
units, or 2% of Travel Pack shipments, whichever is greater.
2.02 Guaranteed Minimum Payments and Advances on Royalties. PIRANHA
agrees to make royalty payments to CAMBRIX of at least [*] Dollars ($[*]) during
the first twelve (12) months following the launch ("Launch") of the Travel Pack
(the "Guaranteed Minimum"). Of the $[*] Guaranteed Minimum royalty, PIRANHA
shall pay [*] Dollars ($[*]) to CAMBRIX within forty-five (45) days of the date
of this Agreement. The Launch of the Travel Pack shall be deemed to have
occurred on the date of the first shipment by PIRANHA of the Travel Pack to a
distributor, reseller or retailer. The tentative Launch date for the Travel Pack
is Friday, May 31, 1996 but the Launch date may be delayed by PIRANHA in its
sole discretion through and including July 31, 1996. If PIRANHA has not Launched
the Travel Pack by July 31, 1996, this Agreement and the license granted to
PIRANHA hereunder shall terminate and neither party shall have any obligations
to the other hereunder. PIRANHA, in its sole and absolute discretion, may pay
amounts to CAMBRIX in excess of those then due under the terms of this
Agreement. Any and all such amounts that may be paid to CAMBRIX by PIRANHA in
addition to or prior to becoming due and payable under the terms of this
Agreement, shall be considered an advance against the royalties due from PIRANHA
to CAMBRIX hereunder. Once royalty payments commence under the terms of the
Agreement, PIRANHA may deduct the full Quarterly Payment due to CAMBRIX from
advances made to CAMBRIX until such time as PIRANHA has recouped the full amount
of its advances to CAMBRIX. If, one year after Launch, CAMBRIX has an
outstanding advance balance in excess of the [*] Dollar ($[*]) Guaranteed
Minimum royalty payment and no further Quarterly Payments are thereafter
payable, the balance of such advances shall be immediately due and payable by
CAMBRIX to PIRANHA. All advances in excess of the [*] Dollar ($[*]) Guaranteed
Minimum royalty payment, shall be interest free until delinquent as set forth
above from which date they shall bear interest at the Prime Rate as defined,
set, and adjusted by Bank One, AZ, NA or its successors and assigns for as long
as the balance remains outstanding.
2.03 Complementary Travel Pack Distribution. PIRANHA may distribute,
free of charge, copies of the Travel Packs for marketing and promotional
activities, including evaluation copies and "not for resale" copies. No
royalties shall be paid on such copies. PIRANHA shall provide one of the Other
Participants with 100 complementary copies of the Travel Pack and shall supply
CAMBRIX (as requested) and the three remaining Other Participants with 60
complementary units of the Travel Pack. CAMBRIX and the Other Participants may
also purchase additional copies
3
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 4
from PIRANHA at the price PIRANHA charges its most favored unaffiliated
customers. No royalties shall be paid on such units purchased by or distributed
to CAMBRIX or the Other Participants. Any units given or sold to CAMBRIX or the
Other Participants pursuant to this paragraph shall not be sold by CAMBRIX or
the Other Participants to any third party. PIRANHA shall be entitled to 60
copies of the Travel Pack at no cost for distribution to its staff and others in
its sole discretion. No royalties shall be paid on such copies. Any units given
by PIRANHA to staff or others shall not be sold by the recipients to any third
party.
2.04 Statements and Procedure. Any payment made by PIRANHA to CAMBRIX
as provided in Section 2.01 shall be accompanied by a statement setting forth
the number of Travel Packs sold, returns, all offsets and deductions therefrom
and the calculation of the Quarterly Payment due CAMBRIX hereunder. Payments and
statements should be mailed to the following address:
CAMBRIX PUBLISHING, INC.
Attention: Bruce Edwards
9304 Deering Avenue
Chatsworth, CA 91311
2.05 Review of Books and Records. If CAMBRIX, acting reasonably,
disputes the aggregate amount of the Quarterly Payments which CAMBRIX is
entitled to be paid pursuant to Section 2.01 for such period (the "Required
Payment Total") during the Term of this Agreement, CAMBRIX may provide written
notice to PIRANHA of its decision to review the financial records of PIRANHA
relating to the sales of the Travel Packs for such period. CAMBRIX shall use an
independent, unaffiliated certified public accounting firm ("Independent CPA")
with offices in Arizona, to conduct the review, the choice of which shall be
subject to PIRANHA's approval, which shall not be unreasonably withheld (the
"Firm"). PIRANHA shall make available to the Firm, at PIRANHA's normal place of
business during normal business hours, the financial records of PIRANHA
specifically relating to Travel Pack sales for such period. Reviews may be
requested and conducted no more than once every twelve month period.
If the Firm determines that the Required Payment Total for such period
exceeds the payments made by PIRANHA to CAMBRIX for such period, PIRANHA shall
pay to CAMBRIX, within 30 days of the determination of the Required Payment
Total, an amount equal to such excess by certified check, payable to CAMBRIX. If
the balance owed by PIRANHA is more than 5% of the Required Payment Total for
such period, PIRANHA shall pay for all reasonable costs associated with the
review, including the reasonable fees of the Firm. If the balance owed by
PIRANHA is less than 5% of the Required Payment Total for such period, CAMBRIX
shall pay for all reasonable costs associated with the review.
If the Firm determines that the payment made by PIRANHA to CAMBRIX
pursuant to Section 2.01 for such period exceeds the Required Payment Total for
such period, all reasonable costs associated with the review shall be borne by
CAMBRIX. If PIRANHA wishes to appeal the decision of the Firm, PIRANHA may do
so, at its expense, by selecting another Independent CPA, subject to CAMBRIX's
approval, which shall not be unreasonably withheld, to make a final
determination of the Required Payment Total.
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<PAGE> 5
III. REPRESENTATIONS AND WARRANTIES
3.01 Representations and Warranties of CAMBRIX. CAMBRIX hereby
represents and warrants to PIRANHA:
(a) This Agreement has been duly authorized, executed and delivered by
CAMBRIX and is a legal, valid and binding obligation of CAMBRIX, enforceable
against CAMBRIX in accordance with its terms, except as enforcement thereof may
be limited by bankruptcy, insolvency and other laws affecting the rights of
creditors generally;
(b) Neither the execution and delivery of this Agreement by CAMBRIX nor
the consummation of the transactions herein provided for will result in a breach
or violation of any of the provisions of, or constitute a default under, or
conflict with or cause the acceleration of, any obligation of CAMBRIX under (i)
any agreement to which CAMBRIX is a party or by which CAMBRIX is bound; (ii) any
provision of the articles of incorporation or by-laws or resolutions of the
board of directors (or committee thereof) or shareholders of CAMBRIX; (iii) any
judgment, decree, order or award of any court, governmental body or arbitrator
having jurisdiction over CAMBRIX; (iv) any license, permit, approval, consent or
authorization held by CAMBRIX; or (v) any applicable law, statute, ordinance,
regulation or rule; and
(c) CAMBRIX hereby warrants and represents that it is the author or
licensee of all rights to the material in the Programs, which are the original
work of CAMBRIX or, if not the original work of CAMBRIX, (i) have been legally
licensed, via written contract, by CAMBRIX from the author or the owner of the
material who has full power and authority to license such material, and CAMBRIX
has the full power to convey such material and such rights to PIRANHA free of
any and all claims or encumbrances or (ii) is public domain material, and
CAMBRIX has the full power to convey such material and such rights to PIRANHA
free of any and all claims and encumbrances.
3.02 Representations and Warranties of PIRANHA. PIRANHA hereby
represents and warrants to CAMBRIX as follows:
(a) This Agreement has been duly authorized, executed and delivered by
PIRANHA and is a legal, valid and binding obligation of PIRANHA, enforceable
against PIRANHA in accordance with its terms, except as enforcement thereof may
be limited by bankruptcy, insolvency and other laws affecting the rights of
creditors generally; and
(b) Neither the execution and delivery of this Agreement by PIRANHA nor
the consummation of the transactions herein provided for will result in a breach
or violation of any of the provisions of, or constitute a default under, or
conflict with or cause the acceleration of, any obligation of PIRANHA under (i)
any agreement to which PIRANHA is a party or by which PIRANHA is bound; (ii) any
provision of the articles of incorporation or bylaws or resolutions of the board
of directors (or committee thereof) or shareholders of PIRANHA; (iii) any
judgment, decree, order or award of any court, governmental body or arbitrator
having jurisdiction over PIRANHA; (iv) any license, permit, approval, consent or
authorization held by PIRANHA; or (v) any applicable law, statute, ordinance,
regulation or rule.
3.03 Confidentiality. CAMBRIX and PIRANHA agree that as a result of
this relationship, they have in the past or may in the future develop, obtain,
or learn about confidential information
5
<PAGE> 6
which is the property of the other party. CAMBRIX and PIRANHA agree to use their
best efforts and the utmost diligence to guard and protect said confidential
information, and each agrees that it will not, during or after the period of
this Agreement, use for itself or others, or divulge to others said confidential
information which that party may develop, obtain or learn about during the Term
of or as a result of this Agreement, unless authorized to do so by the other
party in writing. CAMBRIX and PIRANHA further agree that upon termination of
this Agreement for any reason they will return to or leave with the other all
records and papers and all matters of whatever nature which bear in any way on
the other's confidential information. CAMBRIX and PIRANHA agree that
confidential information may not be disclosed, even to their respective
employees unless such disclosure is necessary to accomplish the purposes of this
Agreement.
For the purposes of this Agreement, the term "confidential information"
shall include lists of customers, distributors and retailers, processes,
technology, proprietary information, patents, designs, methods, techniques,
trade secrets, trademarks, copyrights, intellectual property, systems, formulas,
patterns, models, devices, compilations, or any information of whatever nature
which is not otherwise readily available in the public domain.
IV. TRADEMARKS, TRADE NAMES AND COPYRIGHTS
4.01 Property Rights. All right, title and interest in and to the
source code and the copyright to the source code for the Programs, and all other
copyrights and trademarks to the individual Programs, including all art, images,
pictures, graphics, maps, text, text files, sound files, image files, video
files, database files and other similar or related files or material for the
Programs, and all modifications, updates and upgrades relating thereto, shall be
the exclusive property of CAMBRIX and no rights in or under such property shall
pass to PIRANHA unless otherwise provided by the terms of this Agreement. Proper
copyright and trademark notices, in the form of Exhibit C attached hereto and
incorporated herein by this reference, shall appear on all packaging and on the
face of each CD-ROM, as noted in the Exhibit. All right, title and interest in
and to the copyrights, trademarks and trade names for the Travel Pack name,
packaging, box design, manual, registration card, and consumer license agreement
shall be the exclusive property of PIRANHA and no rights in or under such
property shall pass to CAMBRIX unless otherwise provided by the terms of this
Agreement.
4.02 Notification of Infringement of Copyright, Trademarks and Patents.
Each party shall promptly notify the other of any information which comes to its
attention from any source:
(a) indicating that copyrights, trademarks or patents issued or
registered or to be issued or registered may conflict with copyrights,
trademarks or patents of either party which are applicable to the Programs or
the Travel Pack; or
(b) of any and all actual or apparent infringement, imitation, illegal
or unauthorized use or misuse of the copyrights, trademarks, patents or patent
applications (if any) of either party which are applicable to the Programs or
the Travel Pack.
V. DURATION AND TERMINATION OF AGREEMENT
5.01 Term of Agreement. Subject to Section 5.02, this Agreement shall
commence on the date hereof and shall terminate (i) on July 31, 1996 if the
Travel Pack does not Launch on or before
6
<PAGE> 7
that date, (ii) when PIRANHA, in its sole discretion, determines that sales of
the Travel Pack have fallen below a level which would justify further
publication of the Travel Pack and terminates the sale of the Travel Pack or
(iii) two (2) years from the effective date hereof, whichever occurs first (the
"Initial Term"). After the Initial Term, PIRANHA shall have the option, in its
sole discretion, to extend the term of the Agreement for an additional period of
one year (the "Option"). PIRANHA may exercise the Option by delivering written
notice of its decision to CAMBRIX at least 90 days prior to the end of the
Initial Term. Further extensions of the term of this Agreement may be made by
mutual written consent. If this Agreement is renewed or otherwise extended, the
terms and conditions applicable during any renewal term shall be the same as
those contained herein, except as modified in writing (the period of time during
which this Agreement is in effect shall be known collectively as the "Term").
5.02 Events of Termination. A party to this Agreement (the
"Non-defaulting Party") shall have the right to terminate this Agreement upon
written notice to the other party (the "Defaulting Party") upon the occurrence
of one or more of the following events of default:
(a) if the Defaulting Party fails to perform any material covenant,
agreement or other obligation under this Agreement and such non-performance
shall not have been cured or remedied by the Defaulting Party within forty-five
(45) days (provided, however, that royalties or other monies due hereunder shall
require a thirty (30) day cure) after written notice thereof has been given by
the Non-defaulting Party;
(b) the Defaulting Party admits in writing its inability to pay its
debts generally as they become due or is insolvent or makes an assignment for
the benefit of its creditors, files or has filed against it (and the same is not
dismissed within 30 days of the date thereof) a valid petition in bankruptcy;
has a liquidator, provisional liquidator, receiver or receiver and manager
appointed in any jurisdiction in respect of all or a substantial portion of its
property and assets;
(c) if CAMBRIX ceases to carry on business as a publisher of computer
software; or
(d) if PIRANHA ceases to carry on business as a publisher and/or
distributor of computer software titles.
5.03 Limited Liability. Other than as specifically set forth herein,
neither party shall be liable to the other party for indirect, consequential or
incidental damages or for loss of prospective profits.
5.04 Default by CAMBRIX - Remedies of PIRANHA. Upon a default by
CAMBRIX , a) PIRANHA may terminate this Agreement pursuant to Section 5.02, in
which event PIRANHA (i) shall cease publishing and marketing the Programs as
part of the Travel Pack, (ii) may obtain other similar software programs from
other publishers for inclusion in the Travel Pack if PIRANHA desires, (iii)
shall not be liable to CAMBRIX for any costs or expenses incurred by any party
in connection with such Programs or for any Quarterly Payments or royalties,
including the Guaranteed Minumum and any advances thereof, except to the extent
earned (based upon Net Sales) as of the date of termination, and CAMBRIX shall
immediately return the $[*] advance, or the portion thereof paid by PIRANHA
prior to the termination and not earned, and (iv) shall have the right to
dispose of any remaining inventory for six (6) months following the date of
termination (royalties shall be paid on any such remaining inventory sold); or
b) PIRANHA may
7
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 8
continue to publish the Programs in the Travel Pack under the terms of this
Agreement, in which event (i) if the default is due to the failure of CAMBRIX to
correct a material defect, malfunction or error in one or more of the Programs
or if the default is due to intellectual property infringement of one or more of
the Programs, PIRANHA may discontinue the publication of the effected Program(s)
as part of the Travel Pack and make arrangements for a suitable, in PIRANHA's
sole discretion, replacement and (ii) PIRANHA shall be obligated to make
Quarterly Payments only and shall not be liable to CAMBRIX for the Guaranteed
Minumum or any advances thereof. "The Secret World of Caves," if PIRANHA has not
already exercised its Option to include such Program in the Travel Pack, shall
be available to PIRANHA, in its sole discretion, as an alternate to replace an
effected Program, but no additional royalty shall be due from PIRANHA to CAMBRIX
for the inclusion of "Secret World of Caves," under such circumstances. If, in
the event of such a default, the replacement for one or more of the effected
Programs is not a CAMBRIX software program, the amount of royalties paid by
PIRANHA to CAMBRIX under the terms of this Agreement shall be proportionately
reduced by the number of Programs so replaced (i.e., if two Programs are
replaced, the royalties due from PIRANHA to CAMBRIX hereunder shall be reduced
by [*] per Program, for a revised royalty per Travel Pack of $[*]).
5.05 Default by PIRANHA - Remedies of CAMBRIX. Upon a default by
PIRANHA, and termination of this Agreement by CAMBRIX pursuant to Section 5.02,
neither PIRANHA nor its receivers, representatives, trustees, agents,
administrators, successors and/or assigns shall have any right to distribute or
market the Programs in the Travel Pack, except as follows:
(a) PIRANHA shall have the right, for six months only, to dispose of
any inventory in its possession at time of termination. PIRANHA shall continue
to make Quarterly Payments to CAMBRIX on such sales of the Travel Pack. Any
inventory in PIRANHA's possession at the end of the six month period shall be
destroyed by PIRANHA.
5.06 Return adjustments upon termination. Upon termination of the
Agreement for any cause, payment of any accrued royalties and payment of
subsequently accruing royalties shall be subject to a 50% reserve withholding
for an additional 90 days in order to determine the amount of pending returns of
the Travel Pack so that Quarterly Payments may be appropriately reduced. If
PIRANHA refunds or grants a credit for the sale of any Travel Pack for which
PIRANHA has been paid, and provided the Quarterly Payment for such sale has been
paid by PIRANHA to CAMBRIX, the amount of such payment made by PIRANHA to
CAMBRIX pursuant to this section shall be deducted from the Quarterly Payments
thereafter payable or if no further Quarterly Payments are thereafter payable,
shall be immediately paid by CAMBRIX to PIRANHA.
VI. INDEMNIFICATION
6.01 Indemnification of CAMBRIX. PIRANHA shall indemnify and hold
CAMBRIX harmless from and against all claims, suits, demands, actions and
proceedings, losses, liabilities, damages, costs and expenses (including,
without limitation, reasonable attorney fees and costs) CAMBRIX may suffer or
incur as a result of any negligent action or failure to act of any employee,
agent or representative of PIRANHA.
6.02 Indemnification of PIRANHA. CAMBRIX shall indemnify and hold
PIRANHA harmless from and against all claims, suits, demands, actions and
proceedings, losses, liabilities, damages, costs and expenses (including,
without limitation, reasonable attorney fees and costs)
8
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 9
which PIRANHA may suffer or incur as a result of (i) the failure by CAMBRIX to
meet its obligations under Section 1.03, (ii) the Programs containing any
unlawful content, (iii) any negligence in act or failure to act of any employee,
agent or representative of CAMBRIX, or (iv) the Programs infringing the
copyright, trademark or any other intellectual property rights of any person or
entity.
VII. MISCELLANEOUS
7.01 Survival. The representations and warranties made by CAMBRIX and
PIRANHA in the Agreement shall continue in full force and effect for the benefit
of the relevant party and shall survive the termination of this Agreement.
7.02 Nature of Relationship. The terms of this Agreement shall not
constitute a joint venture or partnership between CAMBRIX and PIRANHA. Neither
CAMBRIX nor PIRANHA is or shall be deemed to be an agent of the other. CAMBRIX
shall have no right to bind PIRANHA, by contract or otherwise, or to transact
any business in its name or on its behalf, in any manner or form, or to make any
promises or representations on its behalf. PIRANHA shall not have any right to
bind CAMBRIX, by contract or otherwise, transact any business in its name or on
its behalf, in any manner or form, or to make any promises or representations on
its behalf.
7.03 Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be delivered in person or
sent by U.S. registered mail, charges prepaid, to the parties at the addresses
set forth on the signature page of the Agreement.
7.04 Entire Agreement. This Agreement, when duly executed and
delivered, constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether written or oral.
7.05 Applicable Law. This Agreement shall be construed, interpreted and
enforced in accordance with, and the respective rights and obligations of the
parties shall be governed by, the laws of the State of Arizona and each party
irrevocably and unconditionally submits to the non-exclusive jurisdiction of the
courts of Maricopa County, State of Arizona and all courts competent to hear
appeals therefrom. The Parties also waive any and all objections to such
jurisdiction and venue, including objections based on the doctrine of forum non
conveniens.
7.06 Successors and Assigns. This Agreement shall inure to the benefit
of and shall be binding on and enforceable by the parties and their respective
successors and permitted assigns, as the case may be.
7.07 Amendment and Waivers. No amendment or waiver of any provision of
this Agreement shall be binding on either party unless consented to in writing
by such party. No waiver of any provision of this Agreement shall constitute a
waiver of any other provision, nor shall any waiver constitute a continuing
waiver unless otherwise provided.
7.08 Severability. If any provision of this Agreement is determined by
a court of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, such determination shall not affect or impair the validity, legality or
enforceability of the remaining provisions hereof and each provision is hereby
declared to be separate, severable and distinct.
9
<PAGE> 10
7.09 Execution and Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and all of which taken
together shall constitute one and the same instrument.
7.10 Arbitration. All controversies which may arise between the parties
concerning any transaction or the construction, performance, or breach of this
Agreement shall be determined pursuant to the arbitration laws of the State of
Arizona, before the American Arbitration Association and in accordance with its
rules then in effect. The parties shall agree upon one arbitrator to hear the
dispute, or if they cannot agree upon a single arbitrator, each shall select one
arbitrator and the two arbitrators shall select a third arbitrator to hear the
dispute. The award of the arbitrator shall be final and judgment upon the award
rendered may be entered by the court specified as the chosen forum for this
Agreement. All parties hereto submit to the jurisdiction of Arizona and agree
that the arbitration hearing shall be held in Maricopa County, Arizona. Each
party shall bear the cost of its own attorney fees involved in such arbitration,
if any.
7.11 Registered Users. PIRANHA shall make available to CAMBRIX, upon
request by CAMBRIX, no more than twice annually, the list of registered users of
the Travel Pack which PIRANHA has entered into its computer data base as of the
date of the request. PIRANHA is not obligated to keep the data base up-to-date
or to enter registration cards within any specific time frame after receipt.
CAMBRIX, shall, however, always receive the most current data base maintained by
PIRANHA at the time of the request. This service is provided as a courtesy to
CAMBRIX. The registered user data base may only be used by CAMBRIX and may not
be sold, leased or otherwise tranfserred by CAMBRIX to any third party.
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<PAGE> 11
IN WITNESS WHEREOF this Agreement has been executed by the parties
hereto as of the date first written above.
"CAMBRIX"
CAMBRIX PUBLISHING, INC.
By: /s/ Bruce Edwards______________________
Bruce Edwards, Executive Vice President
Address: CAMBRIX PUBLISHING, INC.
Attention: Bruce Edwards
9304 Deering Avenue
Chatsworth, CA 91311
"PIRANHA"
PIRANHA INTERACTIVE PUBLISHING, INC.
By /s/ Timothy M. Brannan___________________
Timothy M. Brannan, President
Address: 1839 West Drake
Suite B
Tempe, AZ 85283
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<PAGE> 12
EXHIBIT "A"
The Programs subject to the Agreement are the following software
programs and all documents, components, executable software, source code,
graphics and disks relating thereto.
PROGRAMS*: 1) "Adventures"
2) "Explore America"
3) "Great Restaurants"
4) "Sport Fishing Around the World"
5) "White Water Rafting, USA"
6) "Ballooning and Soaring"
7) "National Parks" - version 2.0 is the most current version
* "Secret World of Caves" is an optional eighth (8th) Program.
PIRANHA shall have a thirty (30) day option, from the date of this Agreement, to
give CAMBRIX written notice of its decision to include "Secret World of Caves"
as an eighth (8th) Title in the Travel Pack, and in the event that PIRANHA
exercises its option, the royalties to be paid by PIRANHA to CAMBRIX shall be
increased by [*]/Travel Pack sold, for a new total of $[*] per Travel Pack sold.
PLATFORM/MEDIA:
All Programs are PC/Windows only with the exception of "Sport Fishing
Around the World" which is dual platform, PC/Windows and Mac. Each Program is
contained on a separate, single CD-ROM.
LIMITED EXCLUSIVE LICENSE:
The license granted by CAMBRIX to PIRANHA pursuant to the terms of this
Agreement is nonexclusive as to the individual Programs, but exclusive, for a
period of two years from the effective date of this Agreement, as to any
combination of five or more of the Programs being sold in a CD-ROM 10 pack. Both
parties acknowledge, however, that CAMBRIX has one license agreement with
Micromedia for six of the Programs which predates this Agreement and which is
not subject to this restriction.
TERRITORY:
The territory covered by the license granted by CAMBRIX to PIRANHA
pursuant to the terms of this Agreement is worldwide, with the exception that
"Sport Fishing Around the World" cannot be sold in Europe or in the United
Kingdom.
12
[*] Confidential portion deleted and filed separately with the Securities and
Exchange Commission.
<PAGE> 13
EXHIBIT "B"
CONSUMER LICENSE AGREEMENT
LICENSE AGREEMENT - READ THIS AGREEMENT BEFORE USING THE SOFTWARE CONTAINED IN
THIS PACKAGE. BY USING THE SOFTWARE CONTAINED IN THIS PACKAGE YOU AGREE TO BE
BOUND BY THE TERMS OF THIS LICENSE. IF YOU DO NOT AGREE TO THE TERMS OF THIS
LICENSE, PLEASE RETURN THE UNUSED SOFTWARE AND ALL PACKAGING AND ACCOMPANYING
MATERIAL, ALONG WITH YOUR RECEIPT, TO YOUR POINT OF PURCHASE FOR A FULL REFUND.
The enclosed computer software (collectively the "Software") and all
accompanying material is protected by copyright laws and international treaty
provisions and may only be used in accordance with the terms of this license.
You are permitted to use the Software on a single computer. You may not copy the
Software or the accompanying material. You may, however, permanently transfer
(but may not rent or lease) the enclosed original Software and all accompanying
material to another person as long as you do not retain any aspect of the
Software, including any set up files, or the enclosed material, and provided the
recipient agrees to be bound by the terms of this license. You may not
decompile, reverse engineer, disassemble or otherwise break the Software into
its component parts, nor may you print, download or otherwise transfer any of
the images or other material contained therein without the prior written
permission of Piranha. The Software may only be used on a network if you have
purchased a license for each terminal on the network. If the enclosed Software
is an upgrade and you already possess one or more prior versions of the enclosed
Software, you have a single license which covers all versions of the Software
and individual versions of the Software may not be transferred separately.
LIMITED WARRANTY - 90 DAYS - Piranha warrants the disk(s) containing the
Software to be free from defects in materials and workmanship for a period of
ninety (90) days from the date of purchase. All implied warranties are also
limited to ninety (90) days from the date of purchase. Some states do not allow
limitations on the duration of implied warranties so this limitation may not
apply to you. This Limited Warranty is void if the disk malfunction is the
result of damage to the disk subsequent to the purchase. This Limited Warranty
gives you specific legal rights. You may have other rights which vary from state
to state. REMEDIES - Piranha's entire liability and your exclusive remedy shall
be the replacement of the defective disk(s) returned to Piranha with a copy of
the purchase receipt. NO ADDITIONAL WARRANTIES - Except as explicitly set forth
herein, the Software and the accompanying material is provided "as is." Piranha
disclaims all other warranties, express or implied, including warranties of
merchantability and fitness for a particular purpose, for either the Software or
the accompanying material. NO ADDITIONAL LIABILITY - In no event whatsoever, to
the maximum extent permitted by applicable law, shall Piranha be liable for any
damages, whether incidental, indirect, special or consequential, including, but
not limited to, loss of business profits, business interruption, or loss of
business information, arising from the use of or the inability to use the
Software, even if Piranha has been advised of the possibility of such damages.
Some states do not allow the limitation or exclusion of liability for incidental
or consequential damages so this limitation may not apply to you.
Use of the Software and accompanying material by the U.S. Government is subject
to Restricted Rights as set forth in DFARS 252.227-7013, subparagraph (c)(1)(ii)
of the section entitled Rights in Technical Data and Computer Software or 48 CFR
52.227-19, subparagraphs (C)(1) and (2) of the section entitled Commercial
Computer Software - Restricted Rights. This agreement shall be governed by the
laws of the State of Arizona.
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<PAGE> 14
EXHIBIT "C"
FORM OF COPYRIGHT AND TRADEMARK NOTICES FOR THE FACE OF EACH CD-ROM:
1) Adventures(TM)- "copyright(C)1993 Deep River Publishing, Inc. All rights
reserved."
2) Explore America!(TM)- "copyright(C)1995 Deep River Publishing, Inc. All
rights reserved."
3) Great Restaurants(TM) Wineries & Breweries - "copyright (C) 1994 Deep River
Publishing, Inc. All rights reserved."
4) Sport Fishing Around the World - "copyright(C)1995 Pearson Publishing. All
rights Reserved."
5) White Water Rafting USA - "copyright(C)1994 Cambridge Multimedia Corporation.
All rights reserved."
6) Ballooning and Soaring - "copyright(C)1995 Cambridge Multimedia Corporation.
All rights reserved."
7) National Parks - "copyright(C)1995 Cambrix Publishing, Inc. and its
licensors. All rights reserved."
8) Secret World of Caves - "copyright (C) 1995 Cambridge Multimedia Corporation
and its licensors. All rights reserved."
FORM OF COPYRIGHT AND TRADEMARK NOTICES FOR THE BOX/PACKAGING:
1) "Adventures(TM) copyright (C) 1993 Deep River Publishing, Inc. All rights
reserved. Adventures is a trademark of Deep River Publishing, Inc."
2) "Explore America!(TM) copyright (C) 1995 Deep River Publishing, Inc. All
rights reserved. Explore America! is a trademark of Deep River Publishing, Inc."
3) "Great Restaurants(TM) Wineries & Breweries copyright (C) 1994 Deep River
Publishing, Inc. All rights reserved. Great Restaurants Wineries & Breweries is
a trademark of Deep River Publishing, Inc."
4) "Sport Fishing Around the World copyright(C)1995 Pearson Publishing. All
rights Reserved."
5) "White Water Rafting USA copyright (C) 1994 Cambridge Multimedia Corporation.
All rights reserved."
6) "Ballooning and Soaring copyright (C) 1995 Cambridge Multimedia Corporation.
All rights reserved."
7) "National Parks copyright (C) 1995 Cambrix Publishing, Inc. and its
licensors. All rights reserved."
8) "Secret World of Caves copyright (C) 1995 Cambridge Multimedia Corporation
and its licensors. All rights reserved."
14
<PAGE> 1
EXHIBIT 10.10
SUBLEASE
<TABLE>
<CAPTION>
<S> <C>
EFFECTIVE DATE: December 15th, 1995
LESSOR: PHOENIX NEWSPAPERS, INC., an
Arizona corporation
120 East Van Buren
Phoenix, Arizona 85004
Attention: Don Zabek
Telephone: (602) 271-8370
LESSEE: PIRANHA INTERACTIVE PUBLISHING INC., an
Arizona corporation
1839 West Drake, Suite B
Tempe, Arizona 85283
Attention: J. Wade Stallings, II
Telephone: (602) 460-2244
</TABLE>
RECITALS:
Lessor is the tenant under that certain Lease dated November
23, 1994 (the "Master Lease"), by and between Lessor, as tenant, and SFERS Real
Estate Corp.M, a Delaware corporation, as landlord ("Master Landlord").
Pursuant to the Master Lease, Lessor is leasing from Master
Landlord approximately 30,000 square feet of that certain building (the
"Building") located at 1839 West Drake, Suite 7101, Tempe, Arizona 85283 (the
"Property"), together with the right to use certain parking spaces and other
common areas comprising the Property.
Subject to the approval of Master Landlord, Lessor has the
right to sublease all or a portion of the premises being leased by Lessor from
Master Landlord ("Lessor's Leased Premises").
Lessee desires to lease approximately 4,751 square feet of the
Property outlined in red on Exhibit A attached hereto (the "Leased Premises")
from Lessor and Lessor is willing to lease the Leased Premises to Lessee on the
terms and conditions set forth herein.
NOW THEREFORE, FOR VALUABLE CONSIDERATION, it is agreed as
follows:
1. Leased Premises. Lessor hereby sublets to Lessee, and
Lessee hereby sublets from Lessor, the Leased Premises, together with the right
to use the common areas of the Property available to Lessor pursuant to the
Master Lease, including but not limited to the walkways, corridors, drives and
parking area.
<PAGE> 2
2. Sublease. Lessor and Lessee acknowledge and agree that this
Sublease is a sublease subject to all of the terms and conditions set forth in
the Master Lease, and shall be subordinate to the Master Lease and all the terms
and conditions of the Master Lease. Lessee shall perform faithfully and be bound
by all the terms, covenants, conditions, provisions and agreements of the Master
Lease, excepting only as to the rental, Direct Expenses, Services and Utilities,
Common Area Maintenance charges and taxes payable by the Lessor thereunder. This
Sublease shall in no way change or diminish Lessor's obligation to the Master
Landlord pursuant to the Lease. Lessee shall not commit or permit to be
committed on the leased premises any act or omission which shall violate any
term or condition of the Master Lease. Lessee specifically acknowledges that the
effectiveness of the Sublease is subject to the approval of the Master Landlord.
3. Term. The term of this Sublease shall be for a period of
four (4) years, commencing on the first (1st) day of December, 1995, at 12:01
a.m., and continuing to 11:59 p.m. on the 30th day of November 1999, subject to
the terms and conditions set forth in this Sublease which may permit or provide
for an earlier termination.
4. Assignment or Subletting. Lessee may assign or sublet its
interest in and to this Sublease provided that Lessee obtains the prior written
consent of Lessor and Master Landlord, which consent shall not be unreasonably
withheld. Lessee shall give Lessor and Master Landlord at least ninety (90) days
written notice prior to the commencement date of any such assignment or
subletting, which notice shall set forth the name of the proposed assignee or
subtenant, the relevant terms of any assignment or sublease and copies of
financial reports and other relevant financial information of the proposed
subtenant or assignee. Provided that Lessor and Master Landlord consent to such
an assignment or sublease, and such assignee or sublessee executes an instrument
in form acceptable to Lessor and in compliance with Section 9 of the Master
Lease, assuming all of Lessee's obligations hereunder, Lessee shall be released
from further obligation hereunder.
5. Rental. Lessee shall pay to Lessor as rental (which amount
includes all charges for utilities) during the term hereof the following on the
first (1st) day of each calendar month:
<TABLE>
<CAPTION>
Period Monthly Rent
------ ------------
<S> <C>
December 1, 1995
through
March 15, 1996 $0.00
March 16, 1996
through
November 30, 1996 $3,662.23
(March 1996 rent to be prorated)
December 1, 1996
through
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
November 30, 1997 $3,761.21
December 1, 1997
through
November 30, 1998 $3,860.19
December 1, 1998
through
November 30, 1999 $3,959.17
</TABLE>
Lessee shall also pay, as additional rental, any excise, privilege, or sales
taxes levied on the rent or the receipt thereof by Lessor. In addition, to the
extent that as a result of fire or other casualty, Lessor receives an abatement
of its rent pursuant to the Master Lease, Lessee shall receive a corresponding
abatement of its rent pursuant to this Sublease.
6. Security Deposit. Lessee shall deposit with Lessor upon the
execution of this Sublease a security deposit in the amount of $3,662.23. Said
security deposit may be commingled with Lessor's general funds, and Lessee shall
not be entitled to any interest on the security deposit. In the event that
Lessee fully performs its obligations under this Sublease, the security deposit
shall be refunded to Lessee upon the expiration of the term of this Lease. In
the event of any default by Lessee, Lessor shall be entitled to apply the
security deposit to amounts owing pursuant to this Sublease. If any portion is
to used, Lessee shall within five (5) days after written notice from Lessor,
deposit with Lessor an amount sufficient to restore the security deposit to the
original amount.
7. Direct Expenses/Taxes. Lessor, pursuant to the terms of the
Master Lease, is responsible for the payment of the Property's proportionate
share of Direct Expenses and Taxes, as defined in the Master Lease. Lessee shall
have no liability for the same which are applicable to the Leased Premises.
Except as specifically set forth in Section 5 above, Lessor shall be solely
responsible for the payment of Direct Expenses and Taxes applicable to the
Leased Premises.
8. Parking. Subject to Section 17.2 of the Master Lease,
Lessee shall be entitled to the use of up to twenty-five (25) parking spaces
from 5:01 a.m. until 11:00 p.m. each day, and no more than ten (10) parking
spaces from 11:01 p.m. until 5:00 a.m. each day. The above described parking
spaces shall be as close as possible to the Leased Premises.
9. Signage. Subject to receiving the approval (which approval
may be conditioned upon, among other things, receipt of plans, specifications
and manner of affixation) of the Master Landlord, and any and all necessary
governmental entities, Lessee shall have the right, at its sole cost and
expense, to install signage on the entry door of the Leased Premises and on the
upper exterior wall of the Leased Premises.
10. Use. The Leased Premises shall be used solely for the
purposes of operating an administrative office of software publishing and design
business, and in full compliance with Section 1 of the Master Lease. Any other
uses of the Leased Premises shall
-3-
<PAGE> 4
be subject to Lessor's and Master Landlord's prior approval, which approval
shall not be unreasonably withheld. Lessee's business shall be established and
conducted throughout the term hereof in a first class manner. Lessee shall not
use the Leased Premises for, or carry on, or permit to be carried on, any
offensive, noisy or dangerous trade, business, manufacture or occupation nor
permit any auction sale to be held or conducted on or about the Leased Premises.
Lessee shall not do or suffer anything to be done on the Leased Premises which
will cause structural injury to the Leased Premises or the building of which the
same forms a part. The Leased Premises shall not be overloaded and no machinery,
apparatus or other appliance shall be used or operated upon the Leased Premises
which will in any manner injure, vibrate or shake the Leased Premises or the
building of which it is a part. No use shall be made of the Leased Premises
which will in any way impair the efficient operation of the sprinkler system
within the building containing the Leased Premises. Lessee shall not leave the
Leased Premises unoccupied or vacant during the term. No musical instrument of
any sort, or noise making device will be operated or allowed upon the Leased
Premises for the purpose of attracting trade or otherwise. Lessee shall not use
or permit the use of the Leased Premises or any part thereof for any purpose
which will increase the existing rate of insurance upon the building in which
the Leased Premises are located, or cause a cancellation of any insurance policy
covering the building or any part thereof. If any act on the part of Lessee or
use of the Leased Premises by Lessee shall cause directly or indirectly, any
increase of Lessor's or Master Landlord's insurance expense, said additional
expense shall be paid by Lessee to Lessor or Master Landlord, as applicable,
upon demand; provided, however, Lessor acknowledges that the use of the Leased
Premises for purposes of operating a software publishing and design business
will not cause any such premium increase. No such payment by Lessee shall limit
Lessor or Master Landlord, as applicable, in the exercise of any other rights or
remedies, or constitute a waiver of Lessor's or Master Landlord's right to
require Lessee to discontinue such act or use.
11. Improvements. Lessee, at its sole cost and expense, may
make such improvements to the Leased Premises as it deems necessary, subject
however to receiving the prior written approval of Lessor and Master Landlord,
and in compliance with Sections 6, 7 and 8 of the Master Lease, and all
necessary governmental permits and approvals for each such improvement. Lessee
preliminary intends to make the improvements listed on Exhibit B attached
hereto; provided however, inclusion on Exhibit B shall not be deemed to be
Master Landlord's final approval of the same. Lessor and Master Landlord shall
approve, or give a detailed explanation of objections to, Lessee's formal
presentation/request for tenant improvements (to follow execution of this
Sublease under separate cover) within five (5) business days of their receipt of
such written request. Any delay in responding beyond such five (5) business days
shall result in the abatement of the rental payments (scheduled to commence on
March 16, 1996) which abatement shall continue for the number of days equal to
the length of such delay. Upon the expiration or termination of the Sublease,
all such improvements shall become the property of Lessor, and Lessee shall have
no right, title or interest in or to the same.
12. Truck Parking. Lessee shall have the right to temporarily
park a truck near the Leased Premises (during the hours of 7:00 a.m. through
7:00 p.m.) for not more than 15 minutes at any one time, for the purpose of
offloading and loading its product.
-4-
<PAGE> 5
13. Premises Maintenance. Lessee shall at all times, at its
sole cost and expense, maintain the interior of the Leased Premises in good and
sanitary condition and repair. Lessor shall at all times, at its sole cost and
expense, maintain or cause to be maintained the exterior of the Leased Premises
and the structural integrity of the Leased Premises including HVAC, the roof and
major plumbing.
14. Insurance. At all times during the term of this Sublease,
Lessee, at its sole cost and expense, shall comply with the insurance provision
of the Master Lease, and shall provide Master Landlord and Lessor (who shall
also be named as an additional insured under all such policies of insurance)
with the insurance terms and coverages set forth in the insurance provision of
the Master Lease.
15. Encumbering the Leased Premises. During the term of this
Sublease, Lessee shall not cause or permit any lien, claim, charge or
encumbrance of any nature or description whatsoever to attach to or encumber the
Leased Premises or any part thereof.
16. Indemnity. Lessee covenants and agrees to indemnify and
save Lessor, Master Landlord and their respective officers, directors, employees
and agents, entirely harmless for, from and against each and every claim,
demand, liability, loss, cost, damage and expense, including, without
limitation, reasonable attorneys' fees and court costs, arising out of any
accident or other occurrence causing injury to or death of persons or damage to
property by reason of the use or neglect of the Leased Premises by Lessee or any
agent, employee, invitee, contractor, or customer of Lessee, or any other
person, or otherwise occurring upon the Lease Premises, unless resulting from
the negligence of Landlord or Master Landlord. Lessee further agrees to
indemnify and save Lessor, Master Landlord and their respective officers,
directors, employees and agents, and its interests in the Leased Premises
entirely harmless from all claims, demands, liabilities, damages and penalties
arising out of any failure of Lessee to comply with any of Lessee's obligations
under the Sublease, including without limitation reasonable attorneys' fees and
court costs, unless resulting from the negligence or misconduct of Landlord or
Master Landlord.
17. Lessor's Access to Leased Premises. Lessor, Master
Landlord and their agents, at all reasonable times, shall have free access to
the Leased Premises for the purpose of examining or inspecting the condition
thereof, for the purpose of determining if Lessee is performing the covenants
and agreements of this Sublease, and during the final lease year, for the
purpose of showing the Leased Premises to other prospective tenants. Lessor and
Master Landlord shall give Lessee reasonable notice of Lessor's intent to enter
the Leased Premises and shall use its best efforts not to interfere with
Lessee's business operation during such entry. No such notice shall be required
in cases of an emergency.
18. Default. Upon the nonpayment of any portion of rent due
hereunder, or any other sum or sums of money due to Lessor under the provision
hereof, or upon the non-performance by Lessee of any other covenant or condition
herein set forth on the part of Lessee to be kept and performed, Lessee shall be
in default hereunder; provided, however, Lessor shall not be entitled to
exercise its remedies for default unless Lessor shall have given Lessee written
notice of the default and Lessee shall have failed to cure such default on or
before ten (10) days
-5-
<PAGE> 6
after Lessee receives such notice. Upon such default and the expiration of the
grace period, it shall be lawful for Lessor, at its option, to declare a
termination of this Sublease and to re-enter upon the Leased Premises and to
again repossess and enjoy the same and all the improvements thereon free of any
claims or interest of Lessee whatsoever. In addition, upon such default, Lessor
shall be entitled to avail itself of whatever remedies it may have at law or in
equity for the collection of any unpaid rentals hereunder, past and future, or
for any damages that it may have sustained by reason of the breach by Lessee of
the terms and condition thereof. No termination of this Sublease by forfeiture
nor taking or recovering possession of the Leased Premises shall deprive Lessor
of any other action, right, or remedy against Lessee. Any sum of money not paid
when due shall bear interest from the due date until paid at the rate of
eighteen percent (18%) per annum, and shall be subject to a late charge of six
percent (6%) of the sum due.
19. Waiver of Breach. No waiver by Lessor or Lessee of the
breach of any provision of this Sublease shall be construed as a waiver of any
preceding or succeeding breach of the same or any other provision of this
Sublease, nor shall the acceptance of rent by Lessor during any period of time
in which Lessee is in default in any respect other than payment of rent be
deemed to be a waiver of such default.
20. Notices. Notices shall be in writing and shall be given by
personal delivery or by deposit in the United States mail, certified mail,
return receipt requested (which receipt shall be preserved as evidence of
delivery), postage prepaid, addressed to Lessor and Lessee at the following
addresses:
If to Lessor: Phoenix Newspapers, Inc.
Attn: Don Zabek
120 East Van Buren
Phoenix, Arizona 85004
If to Lessee: Piranha Interactive Publishing, Inc.
Attn: J. Wade Stallings, II
1839 West Drake, Suite B
Tempe, Arizona 85283
The date notice is effective shall be the date upon which the notice is actually
received, whether notice is given by personal delivery or is sent through the
United States mail. Either party may furnish to the other in writing a different
mailing address and designate another individual upon whom all notices may be
served as herein provided.
21. Attorneys' Fees. If any action is brought by any party
(including Master Landlord) to this Sublease in respect of its rights hereunder,
the prevailing party shall be entitled to reasonable attorneys' fees and court
costs as determined by the court.
22. Insolvency. Should Lessee at any time during the term of
this Sublease become insolvent, or if proceedings in bankruptcy shall be
instituted by or against Lessee, or if a receiver or trustee shall be appointed
of Lessee's property, or if this Sublease shall, by
-6-
<PAGE> 7
operation of law, devolve upon or pass to any person or persons other than
Lessee, then, and in each of such cases, it shall be lawful for Lessor, at its
own election, to declare this Sublease terminated.
23. Holding Over. If Lessee shall hold over said term of this
Sublease with the consent of Lessor, express or implied, such holding shall be
construed to be a tenancy from month to month at 150% of the rental for the last
month of the original term hereof.
24. Waiver of Responsibility. Provided that Lessor is not
negligent in its compliance with its obligations contained in Section 13, Lessor
shall not, under any circumstance, be liable or otherwise accountable to Lessee
or to any third person for any damage or injury to Lessee or to any third person
or to the property of Lessee or of any third person, however caused, and whether
such damage or injury has its origin in the Leased Premises hereby sublet or
elsewhere. In no event shall Master Landlord be liable or otherwise accountable
to Lessee or to any third person for any damage or injury to Lessee or to any
third person of the property of Lessee or of any third person, however caused,
and whether such damage or injury has its origin in the Leased Premises hereby
sublet or elsewhere. This provision applies to such items as, but is not limited
to, damage to any of the fixtures, merchandise, property or equipment contained
in the Leased Premises, whether owned by Lessee or by any other person, due to
the overflowing or breaking of steam, sewer or water pipes, tanks, drains,
boilers, basins, toilets, lavatories, or gutters, or other plumbing, or from
smoke, fire, odors, earthquake, explosion, gas, electricity, lightning, and
wiring, or from any other cause whatever.
25. Compliance with Laws. Throughout the term hereof, Lessee
shall, at its sole cost and expense, at all times comply with all Federal, State
and local laws, rules, regulations, administrative orders and ordinances,
including but not limited to the Americans with Disabilities Act.
26. Governing Law. This Sublease shall be governed by and
construed in accordance with the internal laws of the State of Arizona without
regard to conflict of laws principles.
27. Recording. Neither Lessor nor Lessee shall record the
Sublease, or any memorandum of this Sublease.
28. Limitation of Master Landlord's Liability. Redress for any
claims against Master Landlord under the Master Lease or the Sublease shall only
be made against Master Landlord to the extent of Master Landlord's interest in
the property of which the Subleased Premises are a part. The obligations of
Master Landlord under the Master Lease or the Sublease shall not be personally
binding on, nor shall any resort be had to the private properties of, any of its
trustees or board of directors and officers, as the case may be, the general
partners thereof or any beneficiaries, stockholders, employees or agents of
Master Landlord or the investment manager.
-7-
<PAGE> 8
29. Miscellaneous. The Sublease of the Leased Premises shall
include the assignment to Lessee by Lessor of one of the large mailboxes outside
the entrance of the Leased Premises and shall also include access to one or more
dumpsters for trash/garbage disposal. Lessee acknowledges and agrees that said
dumpster(s) is/are located in the common area behind the Property and the Leased
Premises.
In witness whereof, the parties hereto have executed this
instrument as of the day and year first above written.
PHOENIX NEWSPAPERS, INC., an Arizon
a corporation
By Donald F. Zabek
---------------
Its Assistant Secretary
PIRANHA INTERACTIVE PUBLISHING,
INC., an Arizona corporation
By Timothy M. Brannan
------------------
Its President
CONSENTED AND ACKNOWLEDGED
SFERS Real Estate Corp.M,
a Delaware corporation
By: RREEF MANAGEMENT COMPANY,
a California corporation
By ____________________________
Kathleen Bloemker
Its District Manager
Date 12-27-95
-8-
<PAGE> 9
EXHIBIT A
Outline of Leased Premises
-9-
<PAGE> 10
EXHIBIT B
All work is subject to the review and approval of Master Landlord and Lessor
(which shall not be unreasonably withheld) and all necessary governmental
approvals, including but not limited to the City of Tempe.
1. New exterior door in rear, where proposed. Door needs safety glass
window above it or a safety glass pane set into the door. Cement walk
poured from new exterior door to parking asphalt. (AS TO THIS
IMPROVEMENT ONLY, LESSOR SHALL REIMBURSE LESSEE UPON SUBMISSION OF
APPROPRIATE INVOICES, IN AN AMOUNT NOT TO EXCEED $4,000.00).
2. Remove East wall/door of reception area. Add electrical outlets in
reception and elsewhere as necessary. Light switch to control hallway
lights placed in reception area.
3. Subdivide three north offices into four smaller ones with widths of
11'7", 10', 10' and 10', per sketch.
4. Small 5'x5' closet built in back of corridor. Door needs small vent and
doorknob must have keyed security lock. Move phone line panel to
interior of this closet. Two electrical outlets installed in closet.
5. Floor cabinets with countertop and wall cabinets built in remainder of
corridor (color to be determined). Three electrical outlets installed
along wall at back of countertop.
6. Remove east wall of breakroom, reverse kitchen cabinets so accessible
from east instead of west, add demising wall at new back of cabinets.
Replace break sink and countertop. Sink should be wider/deeper and
stainless steel. Countertop color to be determined.
7. Door with keyed security lock added to close off corridor just past
break area. West and south walls of current breakroom removed. *SUBJECT
TO FIRE CODE RESTRICTIONS*
8. Close large door in north wall of office adjoining dead-end corridor.
Place normal door in west wall.
9. Close off storage closet in men's room with angled wall. Add angled
wall in women's room. Add wooden accordion (closet) doors to access the
bathroom storage closet instead from hallway. Reverse bathroom doors
**SUBJECT TO COMPLIANCE WITH ADA STANDARDS**
10. Restroom sinks and toilets replace with new fixtures. Commodes should
be elongated design. Countertops replaced (color to be determined). One
more fluorescent light or
-10-
<PAGE> 11
incandescent lights at wash basin in each restroom. Second sink in
men's room removed and capped off to make room for supplies storage
shelving.
11. Conference room door and wall replaced with glass panels which can open
entire west wall.
12. Three walkway/entryway lights added, one entryway light over each
entrance and one walkway light in the middle portion of Leased
Premises. (TO BE PERFORMED BY LESSOR SUBJECT TO CITY OF TEMPE APPROVAL)
13. Add 10'x15' graveled area on exterior, with cement table, benches.
14. Glass pane with mail slot to be removed and replaced. (TO BE PERFORMED
BY LESSOR)
15. Permission to add company name and logo signage in vinyl letters on
door/entry window provided the same is consistent with Master Landlord
Signage standards. Permission to install our own non-back lit lighted
sign with company name and logo on upper exterior wall which forms the
exterior wall of the Leased Premises, to be visible at night from
Interstate 10. SUBJECT TO MASTER LESSOR APPROVAL, MASTER LEASE SIGNAGE
CRITERIA, PLACEMENT AND CITY OF TEMPE. LESSOR SHALL ASSIST AS
REASONABLY NECESSARY IN OBTAINING MASTER LANDLORD APPROVAL.
16. All carpet and tile removed, floor sanded, painted (color to be
determined), and gloss- coated. No new carpet or tile to be applied.
17. Walls painted (color to be determined). Doors and door frames painted
(block). Floor molding and trim replaced (black). New mini-blinds
(color to be determined).
18. All damaged ceiling tiles replaced and roof leaks repaired. (TO BE
PERFORMED BY LESSOR)
-11-
<PAGE> 1
EXHIBIT 10.11
November __, 1996
Piranha Interactive Publishing, Inc.
1839 West Drake, Suite B
Tempe, Arizona 85283
Gentlemen:
You have agreed that D.H. Blair Investment Banking Corp.
("Blair") may act as a finder or financial consultant for you in various
transactions in which Piranha Interactive Publishing, Inc. (the "Company") may
be involved, such as mergers, acquisitions, joint ventures, debt or lease
placement and similar or other on or off balance sheet corporate finance
transactions, product or technology licensing arrangements, research and
development sponsorships or product or service sales. The Company hereby agrees
that in the event that Blair or an agent, representative or other designee of
Blair shall first introduce to the Company another party or entity, and that as
a result of such introduction, a transaction in the nature described above is
consummated (a "Consummated Transaction"), then the Company shall pay to Blair a
finder's fee as follows:
a. 7% of the first $1,000,000 of the consideration paid
in such transaction;
b. 6% of the second $1,000,000 of the consideration paid
in such transaction;
c. 5% of the next $5,000,000 of the consideration paid
in such transaction;
<PAGE> 2
d. 4% of the consideration in excess of $7,000,000 and
up to $8,000,000;
e. 3% of the consideration in excess of $8,000,000 and
up to $9,000,000; and
f. 2 1/2% of any consideration in excess of $9,000,000.
The fee due Blair shall be paid by the Company in cash at the
closing of the Consummated Transaction, without regard to whether the
Consummated Transaction involves payment in cash, in stock, or a combination of
stock and cash, or is made on an installment basis. By way of example, if the
Consummated Transaction involved securities of the acquiring entity (whether
securities of the Company, if the Company is the acquiring party, or securities
of another entity, if the Company is the selling party) having a value of
$8,000,000, the cash consideration to be paid by the Company to Blair at closing
shall be $420,000. The consideration paid in the Consummated Transaction shall
include, for purposes of calculating Blair's fee hereunder, assumption of
liabilities by, and any payments or distributions of cash or other assets made
to the Company or to the principals of the Company prior to, simultaneously with
or subsequent to the Consummated Transaction if such payments or distributions
are made in contemplation of or in connection with the Consummated Transaction.
Notwithstanding the foregoing, in the event the Consummated Transaction involves
continuing payments to the Company such as product sales to a customer
introduced to the Company by Blair or royalties based on sales (a "Continuing
Transaction"), the fee due Blair shall be calculated as a royalty on net sales
or royalty payments at the percentages set forth above during the five year
period following the first payment received by the Company in connection with
the Continuing Transaction.
In the event that for any reason the Company shall fail to pay
to Blair all or any portion of the finder's fee payable hereunder when due,
interest shall accrue and be payable on the unpaid cash balance due hereunder
from the date when first due through and including the date when actually
collected by Blair, at a rate equal to four percent above the prime rate of
Citibank, N.A., in New York, New York, computed on a daily basis and adjusted as
announced from time to time.
This agreement shall be effective on the date hereof and shall
expire on the fifth anniversary of the date hereof; provided, however, that the
obligation of the Company to pay fees in connection with a Continuing
Transaction shall survive termination of this agreement.
Notwithstanding anything herein to the contrary, if the
Company shall, within 180 days immediately following the termination of the five
year period provided above, conclude a Consummated Transaction (which shall be
deemed to include the right to received a payment in connection with a
Continuing Transaction) with any party introduced to the Company by Blair or its
agent, representative or other designee prior to the termination of said five
year period, the Company shall also pay Blair the fee determined above.
-2-
<PAGE> 3
The Company represents and warrants to Blair that Blair's
engagement hereunder has been duly authorized and approved by the Board of
Directors of the Company and this letter agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company.
This agreement has been executed and delivered in the State of
New York and shall be governed by the laws of such state, without giving effect
to the conflicts of laws rules thereunder. The Company hereby submits and
consents to the jurisdiction of the state or federal courts of New York in
connection with any action arising under this agreement.
This agreement shall be binding upon, and enforceable against,
the successors and assigns of each of the undersigned.
Please sign this letter at the place indicated below,
whereupon it will constitute our mutually binding agreement with respect to the
matters contained herein.
Very truly yours,
D.H. BLAIR INVESTMENT BANKING CORP.
By: /s/ Marty Bell_____________________
Agreed to and accepted:
PIRANHA INTERACTIVE PUBLISHING, INC.
By: /s/ Timothy M. Brannan______
Timothy M. Brannan
President
-3-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form SB-2 of
our report, which includes an explanatory paragraph concerning the substantial
doubt about the Company's ability to continue as a going concern, dated November
1, 1996, except for Note 10 for which the date is December 10, 1996, on our
audit of the financial statements of Piranha Interactive Publishing, Inc. We
also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
December 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from form SB-2
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1996 DEC-31-1995
<EXCHANGE-RATE> 1 1
<CASH> 660 202,216
<SECURITIES> 0 0
<RECEIVABLES> 5,250 137,663
<ALLOWANCES> 74,234 55,736
<INVENTORY> 176,428 143,119
<CURRENT-ASSETS> 196,400 491,086
<PP&E> 55,822 25,563
<DEPRECIATION> 16,216 6,033
<TOTAL-ASSETS> 256,572 521,166
<CURRENT-LIABILITIES> 582,397 317,160
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (62,541) (16,977)
<TOTAL-LIABILITY-AND-EQUITY> 256,572 521,166
<SALES> 403,896 1,342,034
<TOTAL-REVENUES> 403,896 1,342,034
<CGS> 234,890 900,967
<TOTAL-COSTS> 879,884 1,148,425
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,722 5,466
<INCOME-PRETAX> (489,710) 188,143
<INCOME-TAX> (53,935) 79,020
<INCOME-CONTINUING> (435,775) 109,123
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (435,775) 109,123
<EPS-PRIMARY> (1.08) .26
<EPS-DILUTED> (1.08) .26
</TABLE>
<PAGE> 1
EXHIBIT 99.1
December 19, 1996
Piranha Interactive Publishing, Inc.
1839 West Drake, Suite B
Tempe, AZ 85283
Ladies and Gentlemen:
I hereby consent to be named as a Director-Nominee in the Company's
Registration Statement on Form SB-2 to be filed with the Securities and Exchange
Commission (including any pre-and post-effective amendments thereto) relating to
the sale of up to 1,200,000 Units by the Company.
Very truly yours,
/s/ Ian D. Berman
Ian D. Berman
<PAGE> 1
EXHIBIT 99.2
December 19, 1996
Piranha Interactive Publishing, Inc.
1839 West Drake, Suite B
Tempe, AZ 85283
Ladies and Gentlemen:
I hereby consent to be named as a Director-Nominee in the Company's
Registration Statement on Form SB-2 to be filed with the Securities and Exchange
Commission (including any pre-and post-effective amendments thereto) relating to
the sale of up to 1,200,000 Units by the Company.
Very truly yours,
/s/ Michael Flink
Michael Flink
