<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997
REGISTRATION NO. 333-36215
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SHOPPING.COM
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 45411 33-0733679
(STATE OF INCORPORATION) (PRIMARY NO. AMER. INDUSTRY (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
2101 E. COAST HIGHWAY, GARDEN LEVEL, CORONA DEL MAR, CALIFORNIA 92625
(714) 640-4393
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OR
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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KRISTINE E. WEBSTER
SENIOR VICE PRESIDENT & CHIEF FINANCIAL OFFICER
SHOPPING.COM
2101 EAST COAST HIGHWAY, GARDEN LEVEL, CORONA DEL MAR, CALIFORNIA 92625
(714) 640-4393
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
<TABLE>
<S> <C>
LEON M. COOPER, ESQ. ASHER M. LEIDS, ESQ.
ERIC C. CASTRO, ESQ. DONAHUE, MESEREAU & LEIDS LLP
LEWIS, D'AMATO, BRISBOIS & BISGAARD LLP 1900 AVENUE OF THE STARS, SUITE 2700
221 NORTH FIGUEROA STREET, SUITE 1200 LOS ANGELES, CALIFORNIA 90067
LOS ANGELES, CALIFORNIA 90012 (310) 277-1441
(213) 580-7984
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SECURITY(2) OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value per share........ 1,610,000 $9.00 $14,490,000 $4,390.91(3)
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</TABLE>
(1) Includes 210,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee.
(3) Previously paid.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
COVER GATEFOLD
Caption: Shopping.com offers a 24-hour on-line store located at
http://www.shopping.Com on the Internet's World Wide Web.
Picture: The picture on the first page shows what a person might see when
he/she visits Shopping.Com's Web site on the World Wide Web. It
displays various files that a customer can use to bid on products
that are being offered, plus two Shopping.com advertising logos.
Information contained on the Company's Web site or online services does not
constitute part of this Prospectus.
The Company has filed for U.S. trademark registration for the Shopping.com logo
design. All other trademarks or service marks appearing in this Prospectus are
trademarks or service marks of the respective companies that utilize them.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY
BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING".
LEFT SIDE OF GATEFOLD TO INSIDE FRONT COVER
Graphic: Computer mouse of customer.
Caption: How Shopping.com works.
Caption: From their home or office computer, customers can access the Web site
online at www.shopping.com, 24 hours a day, 365 days a year.
Graphic: Variety of products, such as saw, screw driver, masking tape, ruler.
Caption: Customers can choose from thousands of brand name items, with millions
more on the way, at the lowest prices anywhere. They then put the
selections into their online shopping cart.
Graphic: Picture of two customer service department employees.
Caption: When finish shopping, customers have the option of paying either
online or by telephone by calling the 24-hour customer service
department 1-888-LOVE-2-SHOP.
Graphic: Customer using computer keyboard.
Caption: Customers' orders are placed with Shopping.com electronically and
securely through Verisign, a leading online secure payment
verification technology company.
Graphic: Inside of computer, various electronic connectors.
Caption: Customers are then notified via e-mail of the status of their orders.
Once confirmed, the orders are sent
<PAGE>
electronically to each vendor by Shopping.com either over a Wide Area
Network or the Internet.
Graphic: Picture of plane and truck.
Caption: Merchandise is never stored by Shopping.com but instead is shipped
directly to customers from each vendor's warehouse, thereby passing
the cost savings along to its customers.
Graphic: Two story family dwelling.
Caption: Merchandise arrives at each customer's door. Customers never need to
leave the house or office to shop our online Web site.
RIGHT SIDE OF GATEFOLD TO INSIDE FRONT COVER.
Graphic: List of characteristics of shopping.com's program.
Caption: Program is user friendly, has extensive vendor relationships,
proprietary, state-of-the-art systems architecture, retail company run
by industry experienced retailers, and has the largest selection of
top brand names organized by category . . . online.
Graphic: List of directors.
Caption: Bill Gross, Chairman, Director, Idealab!, Robert J. McNulty, Director,
Chief Executor Officer, Douglas A. Hay, Director, Executive Vice
President, Edward Bradley, Director, Chairman/President, Cannon
Industries and Paul J. Hill, Director, Chairman, Crown Life Insurance
Company
Graphic: Serving huge and growing consumer market.
Caption: The Internet use is projected to grow over 100% in 1997. Over 175
million people use the Internet by the year 2001. Over 160 million
people will use computers, 60 million use e-mail and 28 million
currently use the Internet.
Graphic: Chart showing World wide use of Web.
Caption: The years 1996 to 2001 will witness over 175 million people using the
Internet.
Graphic: Chart showing amount of online commerce.
Caption: From the year 1996 through the year 2001 on-line use will rise to $220
billion.
Graphic: Shopping.com's advertising slogan.
Caption: Concept is so POWERFUL because of its product mix, demand creation and
everyday low prices.
PAGE OPPOSITE GATEFOLD TO INSIDE FRONT COVER.
Graphic: Displayed are various products that can be purchased through
Shopping.com system, such as computers, books, bikes, cosmetics.
Graphic: Shopping.com's advertising logo.
BACKSIDE OF GATEFOLD
LEFTSIDE OF BACK PAGE
No dealer, salesperson or any other person has been authorized by the
Company to give any information or to make any representations other
than those contained in this Prospectus in connection with the
offering made
<PAGE>
hereby, and, if given or made, such information or representations may
not be relied upon. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy any securities other than
those specifically offered hereby or an offer to sell, or a
solicitation of an offer to buy, to any person in any jurisdiction in
which such offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no
change in the affairs of the Company since any of the dates as of
which information is furnished or since the date of this Prospectus.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
----
Prospectus Summary.................................. 3
Risk Factors........................................ 7
Use of Proceeds..................................... 19
Dividend Policy..................................... 19
Capitalization...................................... 20
Dilution............................................ 21
Selected Financial Data............................. 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations....... 23
Business............................................ 26
Management.......................................... 35
Certain Transactions................................ 39
Principal Shareholders.............................. 41
Description of Securities........................... 42
Shares Eligible for Future Sale..................... 44
Underwriting........................................ 46
Legal Matters....................................... 48
Experts............................................. 48
Additional Information.............................. 48
Index to Financial Statements....................... F-1
</TABLE>
Until _____________, 1997 (25 days after the date of this prospectus),
all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligations of
dealers to deliver a Prospectus when acting as Underwriters and with
respect to their unsold allotments or subscriptions.
<PAGE>
RIGHT SIDE OF BACK PAGE
Graphic: Description of number of shares
Caption: $1,400,000 shares. Shown also is Shopping.com's advertising logo,
reference to "common stock", "prospectus", and listing of company
name: Waldron & Co., Inc., 1997
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED OCTOBER 31, 1997
1,400,000 SHARES
[LOGO OF SHOPPING.COM]
COMMON STOCK
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All of the shares of common stock, no par value per share (the "Common
Stock"), offered hereby are being offered by Shopping.com ("Shopping.com" or
the "Company"). Prior to this offering, there has been no public market for the
Common Stock and there can be no assurance that such a market will develop
after this offering. It is currently estimated that the initial public offering
price of the Common Stock will be between $8.00 and $9.00 per share. The
initial public offering price of the shares of Common Stock offered hereby will
be determined by negotiation between the Company and Waldron & Co., Inc. (the
"Representative"), as representative of the several underwriters (the
"Underwriters."). See "Underwriting" for information relating to the
determination of the initial public offering price. The Company has applied for
inclusion of its Common Stock, subject to official notice of issuance, on the
Nasdaq SmallCap Market under the symbol "SHPN."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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UNDERWRITING DIS-
PRICE TO COUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share...................... $ $ $
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Total(3)....................... $ $ $
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</TABLE>
(1) Does not include (a) a non-accountable expense allowance payable to the
Representative and (b) the value of five-year warrants granted to the
Representative to purchase up to 140,000 shares of Common Stock at 155% of
the initial public offering price per share of Common Stock (the
"Representative's Warrants"). For indemnification and contribution
arrangements with the Underwriters, see "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $682,000,
including the Representative's non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 210,000 additional shares of Common Stock, solely to cover over-
allotments (the "Over-Allotment Option"), if any. See "Underwriting." If
all such shares of Common Stock are purchased, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively.
The Common Stock is offered by the Underwriters when, as and if delivered to
and accepted by them and subject to their right to withdraw, cancel or modify
the offering and reject any order in whole or in part. It is expected that
delivery of the certificates for the shares of Common Stock will be made at the
offices of Waldron & Co., Inc., Irvine, California on or about ,
1997.
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WALDRON & CO., INC.
The date of this Prospectus is , 1997
<PAGE>
PICTURE OF SHOPPING.COM
WEBSITE
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and Financial Statements and related
Notes thereto, appearing elsewhere in this Prospectus. Except as otherwise
noted, all information in this Prospectus (i) gives effect to the conversion of
all of the outstanding shares of preferred stock into 1,286,500 shares of
common stock, (ii) gives effect to the reverse stock split of one share of
Common Stock for two shares of existing Common Stock, effective upon the
closing of this offering, (iii) assumes no exercise of the Over-Allotment
Option, (iv) assumes no exercise of warrants issued and outstanding to purchase
1,226,000 shares of Common Stock, (v) assumes no exercise of the
Representative's Warrants and (vi) assumes no exercise of the 250,000 shares of
Common Stock reserved for issuance upon exercise of options outstanding or
available for future grant under the Company's Stock Option Plan of 1997 (the
"Plan"). See "Certain Transactions," "Description of Securities" and
"Underwriting." This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from the results discussed in these forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those set forth in the section entitled "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
Shopping.com is an innovative Internet-based electronic wholesaler/retailer
("wholetailer") specializing in retail marketing a broad range of products and
services at wholesale prices to both consumer and trade customers. Utilizing
proprietary technology, the Company has designed a fully-scalable systems
architecture for the Internet shopping marketplace. Shopping.com's system is
designed to fully integrate all aspects of retail transaction processing
including, order placement, secure payment verification, inventory control,
order fulfillment and vendor invoicing, in one seamless and automated process.
The Company believes that the principal competitive factors in its market are
price, speed of fulfillment, brand name recognition, wide selection,
personalized services, ease of use, 24-hour accessibility, customer service,
convenience, reliability, quality of search engine tools, and quality of
editorial and other site content. The Company has developed a creative
wholetailing format on the World Wide Web ("Web") that combines a highly
automated infrastructure with a user-friendly interface designed to enhance the
convenience and ease of online shopping.
The Company employs specialized information systems to provide its customers
with access to an automated marketplace of products and services, which consist
of the inventories of multiple manufacturers and distributors, price
comparisons, detailed product descriptions, product availability, available
delivery times, delivery status of products ordered and back-order information.
Product categories currently available on the Company's Web site include:
automotive, books, cigars, collectibles, computer hardware and software,
consumer electronics, cutlery, fragrances, furniture, gifts, gourmet foods,
health and beauty care, home improvements, marine supplies, music CDs, sporting
goods and watches. The Company has, and will continue to enter into,
arrangements with a number of manufacturers and distributors who will ship
their products directly to its customers, avoiding the expense and delay of
inventory maintenance. Although the Company only commenced selling on the
Internet on July 11, 1997, Shopping.com currently offers more than 900,000
Stock Keeping Units ("SKUs") and expects the number of SKUs to increase to over
2,000,000 by March 1998.
Customers order products and services on Shopping.com's Web site and provide
secure payment by either credit card over the Internet through Verisign or by
calling 1-888-LOVE-2-SHOP. Shipments are then made by the manufacturer or
distributor directly to the customer after verification by Shopping.com that
the payment has been properly credited. Because transactions are accomplished
without the need to maintain either inventory, warehouse facilities, retail
store space or attendant personnel, the Company believes it will be able to
obtain market share by passing cost savings along to its customers as a result
of selling its products and services at a discount to typical retail and
warehouse/discount prices. For the same reasons, the Company is also able to
provide a broader merchandise mix than retail stores, warehouse/discount stores
and mail order catalogue operators.
3
<PAGE>
Shopping.com's strategy is to become a dominant low-price leader in
wholetailing on the Internet by utilizing the warehousing, purchasing and
distribution strengths of multiple manufacturers and distributors, rather than
to assume those roles for itself. The Company believes this approach allows
Shopping.com to eliminate many of the risks and costs associated with
maintaining inventory, including the cost of leasing warehouse space, inventory
obsolescence, inventory tracking systems, as well as the increased costs
associated with employing large numbers of personnel for stocking and shipping
duties. By having access to the inventories of multiple manufacturers and
distributors, Shopping.com believes it is able to offer its customers a
competitive combination of price, product availability, order fulfillment and
delivery services and still obtain profitability. Beyond the benefits of a wide
selection, purchasing from Shopping.com can be done conveniently, 24 hours a
day, without requiring a trip to a store.
International Data Corporation ("IDC") estimates that the number of users
accessing the Web will grow from 28 million in 1996 to 175 million in 2001 and
that the amount of commerce conducted over the Web will increase from
approximately $2.6 billion in 1996 to $220 billion in 2001. Growth in Internet
usage has been fueled by a number of factors, including the large and growing
base of personal computers installed in the workplace and home, advances in the
performance and speed of personal computers and modems, improvements in network
infrastructure, easier and cheaper access to the Internet and increased
awareness of the Internet among consumer and trade customers.
The emergence of the Internet as a significant communications medium is
driving the development and adoption of Web content and commerce applications
that offer both convenience and value to consumers, as well as unique marketing
opportunities and reduced operating costs to businesses. A growing number of
consumer and trade customers have begun to conduct business on the Internet
including paying bills, booking airline tickets, trading securities and
purchasing consumer goods (e.g., personal computers, consumer electronics,
compact disks, books, groceries and vehicles). Moreover, online transactions
can be faster, less expensive and more convenient than transactions conducted
through a human intermediary.
The Company commenced operations in February 1996, incorporated in California
on November 22, 1996, and began selling products and services on its Web site
on July 11, 1997. The Company's executive offices are located at 2101 East
Coast Highway, Garden Level, Corona del Mar, California 92625 and the telephone
number is (714) 640-4393. The Company's Web site address is
http://www.shopping.com. Information contained on the Company's Web site or
online services does not constitute part of this Prospectus.
4
<PAGE>
RECENT DEVELOPMENTS
On August 19, 1997 Shopping.com signed an agreement with CitySearch, a market
innovator in providing community-based online information services for the Web,
to provide necessary back office transactions support for CitySearch's new
electronic commerce pilot program. According to the agreement, Shopping.com
will provide "shopping cart" tools, customer credit authentication and
verification, coordination with the merchant that an order has been placed,
communication with the customer when the order will be shipped, collection of
payment from the user and disbursement of payments to the merchant. CitySearch
plans to develop, manage, and monitor the electronic commerce program, select
customers for participation in the pilot program, as well as market the program
through its Austin CitySearch Web site. The pilot program will be launched in
early September and will run for a minimum of two months.
On September 15, 1997, Shopping.com signed an agreement with En Pointe
Technologies, Inc. ("En Pointe"), an electronic online provider of computer
hardware and software products, pursuant to which En Pointe granted
Shopping.com an unlimited world wide license for five years to use the En
Pointe's proprietary EPIC software in connection with the Company's Internet
shopping operations for a consideration of 125,000 shares of Common Stock
valued at $6.00 per share. The license has a five year renewal option. During
the term of the license, the Company will pay En Pointe an annual maintenance
and upgrade fee of $100,000. Further, En Pointe has agreed to provide
customization services to the EPIC software at additional cost to the Company.
En Pointe also loaned the Company $600,000. Such loan is evidenced by a
Promissory Note which is due on the earlier of nine months from its date of
issuance or on the closing of this offering. In connection with such loan, the
Company issued to En Pointe five-year warrants to purchase an aggregate of
199,800 shares of the Company's Common Stock at an exercise price of $4.50 per
share. See "Note 9 to the Company's Financial Statements."
5
<PAGE>
THE OFFERING
<TABLE>
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Common Stock Offered by the Company............. 1,400,000 shares(1)
Common Stock Outstanding after the Offering..... 4,102,000(1)(2)
Use of Proceeds................................. For (i) advertising and
marketing, (ii) repayment of
Promissory Notes, (iii)
general and administrative
expenses, (iv) capital
expenditures and systems
architecture development,
(v) personnel (recruiting,
hiring, training),
(vi) facilities, and (vii)
working capital and other
general corporate purposes.
Proposed Nasdaq SmallCap Market Symbol.......... SHPN
</TABLE>
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(1)Does not include 210,000 shares subject to the Over-Allotment Option.
(2) Based on the number of shares outstanding as of September 19, 1997.
Includes the conversion of the Series A and Series B Preferred Stock into
1,286,500 shares of Common Stock. Does not include (i) 250,000 shares of
Common Stock reserved for issuance upon exercise of options outstanding or
available for future grant under the Plan; (ii) 1,226,000 shares of Common
Stock reserved for issuance upon exercise of the Company's warrants; and
(iii) up to 140,000 shares of Common Stock reserved for issuance upon
exercise of the Representative's Warrants.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
<TABLE>
<CAPTION>
FOR YEAR SIX MONTHS QUARTERS ENDED
ENDED ENDED ------------------
JANUARY 31, JULY 31, APRIL 30, JULY 31,
1997 1997 1997 1997
----------- ---------- --------- --------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................. $ -- $ 56 $ -- $ 56
Cost of sales......................... -- 51 -- 51
Gross profit.......................... -- 5 -- 5
Operating expenses.................... 202 1,070 346 724
Loss from operations.................. (202) (1,065) (346) (719)
Other expenses........................ -- (7) -- (7)
Net loss.............................. $ (202) $(1,072) $ (346) $ (726)
Net loss per share.................... $(0.06) $ (0.31) $(0.10) $(0.21)
Weighted average shares outstanding... 3,405 3,405 3,405 3,405
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1997
-------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 289 $1,348 $ 9,745
Working capital (deficit)....................... (990) (731) 9,416
Total assets.................................... 1,443 3,566 11,963
Promissory Notes................................ 950 1,750 --
Long-term liabilities........................... 74 74 74
Total shareholders' equity (deficit)............ (26) 1,297 11,444
</TABLE>
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(1) Treats the issuance of an additional 193,167 shares of Series B Preferred
Stock, the issuance of an additional 133,000 shares of Common Stock and the
issuance of $800,000 in Promissory Notes in August and September 1997 as if
such issuances took place on July 31, 1997.
(2) Adjusted to give effect to the sale of 1,400,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $8.50 per share after deducting the estimated underwriting discount and
offering expenses, and the receipt of the net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, investors
should carefully consider the following risk factors before making an
investment decision concerning the Common Stock. All statements, trend
analysis and other information contained in this Prospectus relative to
markets for the Company's products and trends in net sales, gross margin and
anticipated expense levels, as well as other statements including words such
as "anticipate," "believe," "plan," "estimate," "expect," "intend" and other
similar expressions, constitute forward-looking statements. These forward-
looking statements are subject to business and economic risks, and the
Company's actual results of operations may differ materially from those
contained in such forward-looking statements.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES; ABILITY TO
CONTINUE AS A GOING CONCERN
The Company commenced operations in February 1996, was incorporated on
November 22, 1996 and began selling products on its Web site on July 11, 1997.
Accordingly, the Company has a limited operating history on which to base an
evaluation of its business and prospects. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as online commerce. Such
risks for the Company include, but are not limited to, an evolving and
unpredictable business model and the management of growth. To address these
risks, the Company must, among other things, obtain a customer base, implement
and successfully execute its business and marketing strategy, continue to
develop and upgrade its technology and transaction-processing systems, improve
its Web site, provide superior customer service and order fulfillment, respond
to competitive developments, and attract, retain and motivate qualified
personnel. There can be no assurance that the Company will be successful in
addressing such risks, and the failure to do so could have a material adverse
effect on the Company's business, prospects, financial condition and results
of operations.
Since inception, the Company has incurred significant losses, and as of July
31, 1997 had an accumulated deficit of approximately $1.3 million. The Company
believes that its success will depend in large part on its ability to (i)
obtain a brand name position, (ii) provide its customers with outstanding
value and a superior shopping experience through the extensive retail
background of its management team, (iii) achieve sufficient sales volume to
realize economies of scale, and (iv) successfully coordinate the fulfillment
of customer orders without the need to maintain expensive real estate
warehousing facilities and personnel. Accordingly, the Company intends to
invest heavily in marketing and promotion, site development and technology and
operating infrastructure development. The Company also intends to offer
attractive pricing programs, which will reduce its gross margins. Because the
Company has relatively low gross margins, achieving profitability depends upon
the Company's ability to generate and sustain substantially increased sales
levels. As a result, the Company believes that it will incur substantial
operating losses for the foreseeable future, and that the rate at which such
losses will be incurred will increase significantly from current levels.
The Company expects to use a portion of the net proceeds of this offering to
fund its operating losses. If such net proceeds, together with cash generated
by operations, are insufficient to fund future operating losses, the Company
may be required to raise additional funds. There can be no assurance that such
financing will be available, if at all, in amounts or on terms acceptable to
the Company. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company incurred a net loss of $201,697 and had negative cash flows from
operations during the year ended January 31, 1997, and had a shareholders'
deficit of $78,647 as of January 31, 1997. The Company's independent certified
public accountants have included an explanatory paragraph in their report
stating that these factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1 to the Financial Statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements, the related Notes thereto and other
financial information included herein.
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IMPACT UPON FUTURE NET INCOME OR LOSS OF THE COMPANY BY CURRENT ACCOUNTING FOR
DEBT ISSUANCE COSTS
In September 1997, the Company issued a Promissory Note to En Pointe in the
amount of $600,000. In connection with this financing, the Company also issued
to En Pointe 199,800 warrants to purchase the Company's Common Stock for $4.50
per share. The Company has determined that additional financing expense of
$299,700 needs to be recognized in connection with the issuance of these
warrants. The $299,700 of additional financing cost is currently being
amortized over nine months, the term of the Promissory Note. However, upon
completion of the initial public offering, the $600,000 Promissory Note will
be repaid and the unamortized amount of the additional financing costs will be
charged to earnings as an extraordinary loss on debt extinguishment and will
significantly impact the net income or loss of the Company in the quarter in
which the initial public offering is completed.
UNPREDICTABILITY OF FUTURE REVENUES; POTENTIAL FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS; SEASONALITY
As a result of the Company's limited operating history and the emerging
nature of the markets in which it competes, the Company is unable to
accurately forecast its revenues. The Company's current and future expense
levels are based largely on its investment plans and estimates of future
revenues. Sales and operating results generally depend on the volume of,
timing of, and ability to fulfill orders received, which are difficult to
forecast. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to the Company's planned expenditures could
have an immediate adverse effect on the Company's business, prospects,
financial condition and results of operations. Further, as a strategic
response to changes in the competitive environment, the Company may from time
to time make certain pricing, service or marketing decisions that could have a
material adverse effect on its business, prospects, financial condition and
results of operations. See "Business--Competition."
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include: (i) the Company's ability to obtain and
retain customers, attract new customers at a steady rate, maintain customer
satisfaction and establish consumer confidence in conducting transactions on
the Internet environment, (ii) the Company's ability to manage fulfillment
operations electronically and without warehouse facilities and to establish
competitive gross margins, (iii) the announcement or introduction of new Web
sites, services and products by the Company and its competitors, (iv) price
competition or higher vendor prices, (v) the level of use and consumer
acceptance of the Internet and other online services for the purchase of
consumer products such as those offered by the Company, (vi) the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner, (vii) the level of traffic on the
Company's Web site, (viii) technical difficulties, systems downtime or
Internet brownouts, (ix) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure, (x) delays in revenue recognition at the end of a fiscal
period as a result of shipping or logistical problems, (xi) the level of
merchandise returns experienced by the Company, (xii) governmental regulation,
(xiii) economic conditions specific to the Internet and online commerce, and
(xiv) general economic conditions.
The Company expects that it will experience seasonality in its business,
reflecting a combination of seasonal fluctuations in Internet usage and
traditional retail seasonality patterns. Internet usage and the rate of
Internet growth may be expected to decline during the summer. Further, sales
in the traditional retail industry are significantly higher in the quarter of
each year ending January 31 than in the preceding three quarters.
Due to the foregoing factors, in one or more future quarters, the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the Common Stock would likely
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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RISK OF CAPACITY CONSTRAINTS; RELIANCE ON INTERNALLY DEVELOPED SYSTEMS; SYSTEM
DEVELOPMENT RISKS
A key element of the Company's strategy is to generate a high volume of
traffic on, and use of, its Web site. Accordingly, the satisfactory
performance, reliability and availability of the Company's Web site,
transaction-processing systems and network infrastructure are critical to the
Company's reputation and its ability to attract and retain customers, as well
as maintain adequate customer service levels. The Company's revenues depend on
the number of visitors who shop on its Web site and the volume of orders it
fulfills. Any system interruptions that result in the unavailability of the
Company's Web site or reduced order fulfillment performance would reduce the
volume of goods sold and the attractiveness of the Company's product and
service offerings. The Company may experience periodic system interruptions
from time to time. Any substantial increase in the volume of traffic on the
Company's Web site or the number of orders placed by customers will require
the Company to expand and upgrade further its technology, transaction-
processing systems and network infrastructure. There can be no assurance that
the Company will be able to accurately project the rate or timing of
increases, if any, in the use of its Web site or timely expand and upgrade its
systems and infrastructure to accommodate such increases.
The Company uses an internally developed system for its Web site, search
engine and substantially all aspects of transaction processing, including
order management, cash and credit card processing, purchasing, shipping,
accounting and financial systems. Any substantial disruptions or delays in any
of its systems would have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. See "Business--
Technology."
RISK OF SYSTEM FAILURE; SINGLE SITE AND ORDER INTERFACE
The Company's success, in particular its ability to successfully receive and
fulfill orders and provide high-quality customer service, largely depends on
the efficient and uninterrupted operation of its computer and communications
hardware systems. Substantially all of the Company's computer and
communications hardware is located at a single leased facility in Corona del
Mar, California. Although the Company has redundant and back-up systems onsite
and a disaster recovery plan, the Company's systems and operations may be
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquake and similar events. The
Company does not carry business interruption insurance sufficient to
compensate fully for any or all losses from any or all such occasions. Despite
the implementation of network security measures by the Company, including a
proprietary firewall, its servers may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to accept and fulfill
customer orders. The occurrence of any of the foregoing risks could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Business-- Facilities" and "--
Technology."
MANAGEMENT OF POTENTIAL GROWTH; NEW MANAGEMENT TEAM; LIMITED SENIOR MANAGEMENT
RESOURCES
The Company has rapidly and significantly expanded its operations, and
anticipates that further significant expansion will be required to address
potential growth in its customer base and market opportunities. This expansion
has placed, and is expected to continue to place, a significant strain on the
Company's management, operations and financial resources. From January 31,
1997 to July 31, 1997, the Company expanded from 4 to 44 employees,
respectively. The majority of the Company's senior management joined the
Company within the last several months, and some officers have no prior senior
management experience at public companies. The Company's new employees include
a number of key managerial, technical and operations personnel who have not
yet been fully integrated into the Company's operations and the Company
expects to add additional key personnel in the near future. To manage the
expected growth of its operations and personnel, the Company will be required
to improve existing, and implement new, transaction-processing, operational
and financial systems, procedures and controls, and to expand, train and
manage its already growing employee base. The Company may also be required to
expand its finance, administrative and operations staff. Further, the
Company's management will be required to maintain and expand its relationships
with various manufacturers, distributors,
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freight companies, other Web sites, other Internet Service Providers and other
third parties necessary to the Company's operations. There can be no assurance
that the Company's current and planned personnel, systems, procedures and
controls will be adequate to support the Company's future operations, that
management will be able to hire, train, retain, motivate and manage required
personnel or that the Company's management will be able to successfully
identify, manage and exploit existing and potential market opportunities. If
the Company is unable to manage growth effectively, its business, prospects,
financial condition and results and operations would be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Employees."
DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE
The Company's future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet and other
online services as an effective medium of commerce by consumers. Rapid growth
in the use of and interest in the Web, the Internet and other online services
is a recent phenomenon, and there can be no assurance that acceptance and use
will continue to develop or that a sufficiently broad base of consumers will
adopt, and continue to use, the Internet and other online services as a medium
of commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty and
there exist few proven services and products. The Company relies, and will
continue to rely, on consumers who have historically used traditional means of
commerce to purchase merchandise. For the Company to be successful, these
consumers must accept and utilize novel ways of conducting business and
exchanging information.
In addition, the Internet and other online services may not be accepted as a
viable commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. To the
extent that the Internet and other online services continue to experience
significant growth in the number of users, their frequency of use or an
increase in their bandwidth requirements, there can be no assurance that the
infrastructure for the Internet and other online services will be able to
support the demands placed upon them. In addition, the Internet or other
online services could lose their viability due to delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet or other online service activity, or due to increased governmental
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet or other online services also could result in
slower response times and adversely affect usage of the Internet and other
online services generally and Shopping.com in particular. If use of the
Internet and other online services does not continue to grow or grows more
slowly than expected, if the infrastructure for the Internet and other online
services does not effectively support growth that may occur, or if the
Internet and other online services do not become a viable commercial
marketplace, the Company's business, prospects, financial condition and
results of operations would be materially adversely affected.
RAPID TECHNOLOGICAL CHANGE
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of the Shopping.com online store.
The online commerce industry is characterized by rapid technological change,
changes in user and customer requirements and preferences, frequent new
product and service introductions embodying new technologies and the emergence
of new industry standards and practices that could render the Company's
existing Web site and proprietary technology and systems obsolete. The
Company's future success will depend, in part, on its ability to license
leading technologies useful in its business, enhance its existing services,
develop new services and technologies that address the increasingly
sophisticated and varied needs of its prospective customers, and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis. The development of a Web site and other
proprietary technology entails significant technical and business risks. There
can be no assurance that the Company will successfully use new technologies
effectively or adapt its Web site, proprietary technology and transaction-
processing systems to customer requirements or emerging industry standards. If
the Company is unable, for technical, legal, financial or other reasons, to
adapt in a timely manner in response to changing market conditions or customer
requirements, its business, prospects, financial condition and results of
operations would be materially adversely affected. See "Business--Technology."
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DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The Company's performance is substantially dependent on the continued
services and on the performance of its senior management and other key
personnel, particularly Robert J. McNulty, its President and Chief Executive
Officer, and Mark S. Winkler, its Chief Information and Technology Officer.
The Company's performance also depends on the Company's ability to retain and
motivate its other officers and key employees. The loss of the services of any
of its executive officers or other key employees could have a material adverse
effect on the Company's business, prospects, financial condition and results
of operations. The Company has recently entered into written employment
agreements with Mr. McNulty for five years and with Mr. Winkler for a period
ending May 20, 1998. Additionally, a $1,000,000 "key person" life insurance
policy on the life of Mr. McNulty has been issued to the Company. The
Company's future success depends on its ability to identify, attract, hire,
train, retain and motivate other highly skilled technical, managerial,
editorial, merchandising, marketing and customer service personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to successfully attract, assimilate and retain
sufficiently qualified personnel. In particular, the Company may encounter
difficulties in attracting a sufficient number of qualified software
developers for its Web site and transaction-processing systems, and there can
be no assurance that the Company will be able to retain and attract such
developers. The failure to retain and attract the necessary technical,
managerial, editorial, merchandising, marketing and customer service personnel
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. See "Business--Employees" and
"Management."
ONLINE COMMERCE SECURITY RISKS
A significant barrier to online commerce and communications is the need for
secure transmission of confidential information over public networks. The
Company relies on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card
numbers. There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments will
not result in a compromise or breach of the algorithms used by the Company to
protect customer transaction data. A party who is able to circumvent the
Company's security measures could misappropriate confidential information or
cause interruptions in the Company's operations. The Company may be required
to expend significant capital and other resources to protect against such
security breaches or to alleviate problems caused by such breaches. If any
such compromise of the Company's security were to occur, it could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
Concerns over the security of transactions conducted on the Internet and
other online services as well as user's desires for privacy may also inhibit
the growth of the Internet and other online services generally, and the Web in
particular, especially as a means of conducting commercial transactions. The
activities of the Company and third-party contractors involve the storage and
transmission of proprietary information, such as credit card numbers and other
confidential information. Any such security breaches could damage the
Company's reputation and expose the Company to a risk of loss, litigation
and/or possible liability. There can be no assurance that the Company's
security measures will prevent security breaches or that failure to prevent
such security breaches will not have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
See "Business--Technology."
COMPETITION
The online commerce industry, particularly on the Internet, is new, rapidly
evolving and intensely competitive, which the Company expects to intensify in
the future. Barriers to entry are minimal, allowing current and new
competitors to launch new Web sites at a relatively low cost. The Company
currently or potentially competes with a variety of other companies. These
competitors include: (i) various online vendors of other consumer and trade
products and services such as CUC International, Amazon.com., ONSALE, Peapod,
NetGrocer, iMALL, Internet Shopping Network, Micro Warehouse, CD Now, QVC and
Home Shopping
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Network, (ii) a number of indirect competitors that specialize in online
commerce or derive a substantial portion of their revenues from online
commerce, including America Online, Microsoft Network, Prodigy and Compuserve,
(iii) mail order catalogue operators such as Speigel, Lands End, and Sharper
Image, (iv) retail and warehouse/discount store operators such as Wal-Mart,
Home Depot, Target and Price/Costco, and (v) other international retail or
catalogue companies which may enter the online commerce industry. Both Wal-
Mart and Home Depot have announced their intention to devote substantial
resources to online commerce at discount prices, which if successful, could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations. However, the Company believes that retail
and warehouse/discount operators will be somewhat restricted in their ability
to lower prices by the need to protect their own pricing strategy to avoid
cannibalizing their store margins.
The Company believes that the principal competitive factors in its market
are price, speed of fulfillment brand name recognition, wide selection,
personalized services, ease of use, 24-hour accessibility, customer service,
convenience, reliability, quality of search engine tools, and quality of
editorial and other site content. Many of the Company's current and potential
competitors have longer operating histories, larger customer bases, greater
brand name recognition and significantly greater financial, marketing and
other resources than the Company. In addition, online retailers may be
acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Certain of the Company's
competitors may be able to secure merchandise from vendors on more favorable
terms, devote greater resources to marketing and promotional campaigns, adopt
more aggressive pricing or inventory availability policies and devote
substantially more resources to Web site and systems development than the
Company. Increased competition may result in reduced operating margins, loss
of market share and a diminished franchise value. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors, and competitive pressures faced by the Company may have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to
changes in the competitive environment, the Company may, from time to time,
make certain pricing, service or marketing decisions or acquisitions that
could have a material adverse effect on its business, prospects, financial
condition and results of operations. New technologies and the expansion of
existing technologies may increase the competitive pressures on the Company.
In addition, companies that control access to transactions through network
access or Web browsers could promote the Company's competitors or charge the
Company a substantial fee for inclusion. See "Business--Competition."
RELIANCE ON CERTAIN SUPPLIERS AND SHIPPERS
Unlike retail and warehouse/discount store operators and certain online
commerce providers, the Company, as a wholetailer, carries no inventory, has
no warehouse employees or facilities, and relies on rapid fulfillment from its
vendors. The Company has no long-term contracts or arrangements with any of
its vendors or shippers that guarantee the availability of merchandise, the
continuation of particular payment terms, the extension of credit limits or
shipping schedules. There can be no assurance that the Company's current
vendors will continue to sell merchandise to, or that shippers will be able to
provide delivery service for, the Company on current terms or that the Company
will be able to establish new, or extend current, vendor and shipper
relationships to insure acquisition and delivery of merchandise in a timely
and efficient manner and on acceptable commercial terms. If the Company were
unable to develop and maintain relationships with vendors and shippers that
would allow it to obtain sufficient quantities of merchandise on acceptable
commercial terms, or in the event of labor disputes or natural catastrophes,
its business, prospects, financial condition and results of operations would
be materially adversely affected. See "Business--Customer Service and Order
Fulfillment."
AVAILABILITY OF MERCHANDISE; VENDOR CREDIT FOR THE COMPANY
Although the Company's merchandising division maintains past relationships
with vendors which it believes will offer competitive sources of supply, and
believes that other sources are available for most merchandise it will sell or
may sell in the future, there can be no assurance that Shopping.com will be
able to obtain the quantity
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or brand quality of items that management believes are optimum. The
unavailability of certain product lines could adversely impact the Company's
operating results. Given its lack of operating history, certain vendors of
products sold by the Company may not be prepared to advance normal levels of
credit to the Company. An unwillingness to extend credit may increase the
amounts of capital required to finance the Company's operations and reduce
returns, if any, on invested capital.
RISKS ASSOCIATED WITH ENTRY INTO NEW BUSINESS AREAS
The Company may choose to expand its operations by developing new Web sites,
promoting new or complementary products or sales formats, expanding the
breadth and depth of products and services offered or expanding its market
presence through relationships with third parties. Although it has no present
understandings, commitments or agreements with respect to any material
acquisitions or investments, the Company may pursue the acquisition of new or
complementary businesses, products or technologies. There can be no assurance
that the Company would be able to expand its efforts and operations in a cost-
effective or timely manner or that any such efforts would increase overall
market acceptance. Furthermore, any new business or Web site launched by the
Company that is not favorably received by consumer or trade customers could
damage the Company's reputation or the Shopping.com brand name. Expansion of
the Company's operations in this manner would also require significant
additional expenses and development, operations and editorial resources and
would strain the Company's management, financial and operational resources.
The lack of market acceptance of such efforts or the Company's inability to
generate satisfactory revenues from such expanded services or products could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards its Shopping.com brand name and related technology as
proprietary and relies primarily on a combination of copyright, trademark,
trade secret and confidential information laws as well as employee and third-
party non-disclosure agreements and other methods to protect its proprietary
rights. There can be no assurance that these protections will be adequate to
protect against technologies that are substantially equivalent or superior to
the Company's technologies. The Company does not currently hold any patents or
have any patent applications pending for itself or its products and has not
obtained Federal registration for any of its trademarks. The Company enters
into non-disclosure and invention assignment agreements with certain of its
employees and also enters into non-disclosure agreements with certain of its
consultants and subcontractors. However, there can be no assurance that such
measures will protect the Company's proprietary technology, or that its
competitors will not develop software with features based upon, or otherwise
similar to, the Company's software or that the Company will be able to prevent
competitors from developing similar software.
The Company believes that its products, trademarks and other proprietary
rights do not infringe on the proprietary rights of third parties. The Company
has been displaying its Web site on the Internet without receiving claims from
third parties that its products or names infringe on any proprietary rights of
other parties. However, the Company is a recent entrant in the sale of
merchandise on the Internet, and 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, trademarks or other Company works. Such
assertion may require the Company to enter into royalty arrangements or result
in costly litigation. The Company is also dependent upon obtaining additional
technology related to its operations. To the extent new technological
developments are unavailable to the Company on terms acceptable to it, or at
all, the Company may be unable to continue to implement its business and any
such inability would have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. See "Business--
Intellectual Property."
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access to online
commerce. However, due to the increasing popularity and use of the Internet
and other online services, it is possible that a number of laws and
regulations may be adopted with respect to the Internet or other online
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services covering issues such as user privacy, pricing, content, copyrights,
distribution and characteristics and quality of products and services.
Furthermore, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations may decrease the growth of the Internet
or other online services, which could, in turn, decrease the demand for the
Company's products and services and increase the Company's cost of doing
business, or otherwise have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. Moreover,
the applicability to the Internet and other online services of existing laws
in various jurisdictions governing issues such as property ownership, sales
and other taxes, libel and personal privacy is uncertain and may take years to
resolve. Any such new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to the
Company's business, or the application of existing laws and regulations to the
Internet and other online services could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Permits or licenses may be required from federal, state or local government
authorities to operate or to sell certain products on the Internet. No
assurances can be made that such permits or licenses will be obtainable. The
Company may be required to comply with future national and/or international
legislation and statutes regarding conducting commerce on the Internet in all
or specific countries throughout the world. No assurances can be made that the
Company will be able to comply with such legislation or statutes. See
"Business--Governmental Regulation."
SALES AND OTHER TAXES
The Company does not currently collect sales or other similar taxes with
respect to shipments of goods to consumers into states other than California.
However, one or more states may seek to impose sales tax collection
obligations on out-of-state companies such as the Company which engage in
online commerce. In addition, any new operation in states outside California
could subject shipments into such states to state sales taxes under current or
future laws. A successful assertion by one or more states or any foreign
country that the Company should collect sales or other taxes on the sale of
merchandise could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
CONTROL OF COMPANY
Following this offering, the current officers and directors of the Company
and their affiliates will beneficially own or have voting control over
approximately 46.32% of the outstanding shares of Common Stock. Accordingly,
these individuals will have the ability to influence the election of the
Company's Board of Directors and effectively to control corporate decisions.
This concentration of ownership may also have the effect of delaying,
deterring or preventing a change in control of the Company. See "Principal
Shareholders."
CONTINUING PUBLICITY
The Company may receive a high degree of media coverage, including coverage
that is not directly attributable to statements by the Company's officers and
employees. Neither the Company, nor any of the Underwriters, have confirmed,
endorsed or adopted any statement for utilization by, or distribution to,
prospective purchasers in this offering. To the extent any statements in any
article, publication or other media report are inconsistent with, or conflict
with, the information contained in this Prospectus, or relate to information
not contained in this Prospectus, they are disclaimed by the Company and the
Underwriters. Accordingly, prospective investors should not rely on the
statements, or any other information not contained in this Prospectus.
POSSIBLE NEED FOR ADDITIONAL CAPITAL; ALLOCATION OF FUNDS
The Company believes, based on currently-proposed plans and assumptions
relating to its operations, that the net proceeds from this offering, together
with existing capital and anticipated funds from operations, should be
sufficient to sustain current operations and finance planned expansion for at
least 15 months after consummation of this offering. However, in the event
that the Company's plans change or its assumptions and
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estimates change or prove to be inaccurate, the Company could be required to
seek additional financing in order to sustain operations or achieve planned
expansion. There can be no assurance that such additional funds will be
available or that, if available, such additional funds will be on terms
acceptable to the Company. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
BROAD DISCRETION OF APPLICATION OF PROCEEDS OF OFFERING
A substantial portion of the proceeds from this offering will be used for
general working capital. Management will have broad discretion as to the use
of such proceeds and management reserves the right to reallocate all proceeds
from this offering to working capital. See "Use of Proceeds."
NO PRIOR PUBLIC MARKET; ARBITRARY OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Common
Stock. Although the Company intends to apply for inclusion of its Common Stock
on the Nasdaq SmallCap Market, there can be no assurance that an active
trading market will develop or, if it develops, that it will be sustained.
Holders of the Common Stock may, therefore, have difficulty in selling their
securities should they desire to do so. The initial public offering price will
be determined by negotiations between the Company and the Representative, and
may not be indicative of the market price of the Common Stock after this
offering. The trading price of the Common Stock could also be subject to
significant fluctuation in response to variations in quarterly results of
operations, announcements of technological innovations or new products by the
Company or its competitors, developments or disputes with respect to
proprietary rights, general trends in the industry and overall market
conditions and other factors. The market for securities of early-stage, small-
market capitalization companies has been highly volatile in recent years,
often as a result of factors unrelated to a Company's operations. In addition,
the stock market in general, and the Nasdaq National and SmallCap Markets and
the market for Internet-related and high technology companies in particular,
have experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of such companies.
The trading prices of many high technology companies' stocks are at or near
historical highs and reflect price earnings ratios substantially above
historical levels. There can be no assurance that these trading prices and
price earnings ratios will be sustained. These broad market and industry
factors may materially and adversely affect the market price of the Common
Stock, regardless of the Company's operating performance. In the past,
following periods of volatility in the market price of a company's securities,
securities class-action litigation has often been instituted against such
company. Such litigation, if instituted, could result in substantial costs and
a diversion of management's attention and resources, which would have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
After completion of this offering, 4,102,000 shares of Common Stock will be
issued and outstanding, assuming no exercise of (i) the Over-Allotment Option,
(ii) 250,000 options available for grant pursuant to the Plan, (iii) warrants
to purchase 1,226,000 shares of Common Stock, or (iv) the Representative's
Warrants. The 2,702,000 shares of Common Stock issued by the Company prior to
this offering, including 1,286,500 shares of Common Stock issued on the
conversion of the Series A and Series B Preferred Stock, will be "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act, and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. Each officer, director or key employee of the
Company, each shareholder of the Common Stock, and each holder of the warrants
issued on the sale of the Preferred Stock and the Promissory Notes has entered
into a "lock-up" agreement providing that such shareholder will not offer,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any shares of the Company's Common Stock or any
security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for shares of the Company's Common Stock for
a period of 12 months after the date of this Prospectus without the prior
written consent of the Representative.
15
<PAGE>
Sales of substantial amounts of shares in the public market following the
expiration of the lock-up agreement or restrictions imposed by Rule 144, or
the prospect of such sales, could adversely affect the market price of the
Common Stock. The Company has also entered into registration rights agreements
with certain shareholders. See "Certain Transactions" and "Description of
Securities--Registration Rights."
EXERCISE OF WARRANTS AND OPTIONS
To the extent that the Representative's Warrants, any options granted under
the Plan, or any other warrants or options are exercised, the ownership
interests of the Company's shareholders may be diluted proportionately. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management--Employee Benefit Plans" and "Underwriting."
DIVIDEND POLICY
The Company has never declared or paid any dividend on its Preferred or
Common Stock and anticipates that for the foreseeable future, all earnings, if
any, will be retained for the operation and expansion of the Company's
business. See "Dividend Policy."
DILUTION
After giving effect to the sale of 1,400,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $8.50 per
share, the issuance of an additional 193,167 shares of Series B Preferred
Stock and 133,000 shares of Common Stock subsequent to July 31, 1997 and the
receipt of the estimated net proceeds therefrom, and the conversion of the
Series A and Series B Preferred Stock and the issuance of 1,286,500 shares of
Common Stock upon conversion thereof, the Company's existing shareholders will
experience an immediate increase in net tangible book value of $2.41 per share
and purchasers of Common Stock in this offering will experience immediate
dilution in net tangible book value of $5.89 per share or approximately 69.3%
of their investment. See "Dilution."
LIMITATIONS ON LIABILITY OF DIRECTORS
The Company's Articles of Incorporation, By-Laws and Indemnification
Agreements substantially limit the liability of the Company's directors to the
Company and its shareholders for breach of fiduciary and other duties to the
Company. See "Management--Limitation of Liability and Indemnification
Matters."
RISKS RELATED TO REPRESENTATIVE'S AGREEMENTS WITH THE COMPANY
The Company has agreed to appoint Waldron & Co., Inc. as Representative of
the several underwriters in this offering. In connection with such engagement,
the Company has agreed to appoint the Representative, for a period of three
years, as its exclusive advisor for the purpose of identifying and developing
future merger and acquisition candidates. If, during the term of this
appointment, the Company participates in any merger, acquisition or other
transaction, whether as acquiror or acquiree, including acquisitions of assets
or stock and in which it pays for the acquisition, in whole or in part, with
shares of the Company's Common Stock, then it will be obligated to pay the
Representative a fee for such services which will vary depending upon the size
of the transaction. In addition, the Representative will have the right for a
period of three years following the date of this Prospectus to receive notice
of, and to have an observer present at, meetings of the Board of Directors and
shareholders of the Company, and the Company is obligated to reimburse the
Representative for the costs and expenses reasonably incurred by such observer
in attending such meetings. See "Underwriting."
LACK OF EXPERIENCE OF WALDRON & CO., INC.
While Waldron & Co., Inc. has been in the investment banking business and a
registered NASD member since 1939, it has only recently participated as a
managing underwriter in its first public offering of securities. Prospective
purchasers of shares of Common Stock in this offering should consider the lack
of experience of Waldron & Co., Inc. in evaluating an investment in the
Company. See "Underwriting."
16
<PAGE>
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
It is anticipated that a significant number of the shares of Common Stock
being offered hereby will be sold to clients of the Representative. Although
the Representative has advised the Company that it currently intends to make a
market in the Common Stock following this offering, it has no legal
obligation, contractual or otherwise, to do so. The Representative, if it
becomes a market maker, could be a dominating influence in the market for the
Common Stock, if one develops. The prices and the liquidity of the Common
Stock may be significantly affected by the degree, if any, of the
Representative's participation in such market. There can be no assurance that
any market activities of the Representative, if commenced, will be continued.
POSSIBLE REMOVAL OF SHARES OF COMMON STOCK FROM THE NASDAQ SMALLCAP MARKET
While the Company believes the shares of Common Stock will be included for
quotation on the Nasdaq SmallCap Market, there can be no assurance that this
will actually occur. The Company will have to maintain certain minimum
financial requirements for continued inclusion on the Nasdaq SmallCap Market.
If the Company is unable to satisfy Nasdaq's maintenance requirements, the
Company's securities may be removed from the Nasdaq SmallCap Market. In such
event, trading, if any, in the shares of Common Stock would thereafter be
conducted in the over-the-counter markets in the so-called "pink sheets" or
the NASD's "Electronic Bulletin Board." Consequently, the liquidity of the
Company's securities could be significantly impaired, not only in the number
of securities which could be bought and sold, but also through delays in the
timing of transactions, reductions in securities analysts' and the news
media's coverage of the Company, and lower prices for the Company's securities
than might otherwise result.
RISK OF LOW-PRICE STOCKS
If the Company's securities were to be removed from the Nasdaq SmallCap
Market, they could become subject to Rule 15g-9 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which imposes additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers and "accredited investors" (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered
by this rule, a broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Consequently, the rule may adversely affect the
ability of broker-dealers to sell the Company's securities and may adversely
affect the ability of purchasers in the offering to sell any of the securities
acquired hereby in the secondary market.
Securities and Exchange Commission (the "Commission") regulations define a
"penny stock" to be any non-Nasdaq equity security that has a market price (as
therein defined) of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require delivery, prior to
any transaction in a penny stock, of a disclosure schedule prepared by the
Commission relating to the penny stock market. Disclosure is also required to
be made about commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are included on the Nasdaq SmallCap
Market and have certain price and volume information provided on a current and
continuing basis or meet certain public float minimum net tangible assets and
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
17
<PAGE>
public interest. If the Company's securities were subject to the rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
FORWARD-LOOKING STATEMENTS
When used in this Prospectus and the documents incorporated herein by
reference, the words "plan," "estimate," "anticipate," "believe," "intend,"
"expect" and other similar expressions are intended to identify in certain
circumstances, forward-looking statements. Such statements are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those projected, including the risks described in this "Risk
Factors" section. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such statements. The Company
undertakes no obligation to update these forward-looking statements.
The forward-looking statements, which appear in this Prospectus, are based
on the following underlying assumptions. These, in turn, are based upon facts
which management has assumed and amounts it has estimated. All of these are
believed by management to be reasonable based on their current understanding
and best judgment. Notwithstanding this belief, there can be no assurance that
these are either correct under current facts or that the facts upon which
these assumptions are founded will not change. The accuracy of these forward-
looking statements is therefore dependent upon the factors upon which they are
based. Given the subjective nature of those assumptions, each prospective
investor should carefully review each of the underlying assumptions and apply
his own judgment regarding each of those assumptions.
Each prospective investor should further understand that these forward-
looking statements are necessarily based on the limited knowledge currently
available to everyone concerned. Given the fact that many of the assumptions
in this Prospectus will vary from what will actually occur, the prospective
investor should treat the forward looking statements only as illustrations
based upon the assumptions made, and not as the operating results of the
Company as they will probably occur. Among such assumptions are the following:
Products. It is anticipated that the management team of Shopping.com will
use their contacts from previous business dealings with vendors with whom they
have had a previous working relationship, to secure its initial product base.
It is also anticipated that with presentations to additional vendors, the
Company will be able to demonstrate the opportunities for the vendors to
conduct business with the Company on the Internet. Additional vendors will be
contacted by Shopping.com's marketing/merchandising division with a formal
demonstration of the sales, operating procedures and rewards from being a
major value added reseller on the Internet. It is assumed that from these
demonstrations, a sufficient interest and understanding will be obtained which
will produce and establish additional vendor representation by the Company on
its Web site.
Market Penetration. The Company believes that it can secure a substantial
share of the mass merchandise business currently being generated on the
Internet. Because of the experience and retail background of the Company's
officers and the technical team organized, the Company believes that it will
have generated a substantial lead over any other mass merchandiser planning to
conduct business on the Internet.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,400,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$8.50 per share, are estimated to be approximately $10.1 million
(approximately $11.7 million if the Underwriters' Over-Allotment Option is
exercised in full) after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company.
The Company intends to utilize the net proceeds from the Offering
approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
DOLLAR PERCENTAGE OF
AMOUNT NET PROCEEDS
----------- -------------
<S> <C> <C>
Advertising and marketing......................... $ 4,000,000 39.6%
Repayment of Promissory Notes(1).................. 1,750,000 17.3%
General and administrative expenses............... 2,200,000 21.8%
Capital expenditures and systems architecture
development...................................... 700,000 6.9%
Personnel (recruiting, hiring, training and other
associated costs)................................ 200,000 2.0%
Facilities (rent, capital improvements)........... 100,000 1.0%
Working capital and other general corporate
purposes......................................... 1,150,000 11.4%
----------- -----
TOTAL........................................... $10,100,000 100.0%
=========== =====
</TABLE>
- --------
(1) The interest rate on Company's said Promissory Notes is 10% per annum.
Such Promissory Notes mature commencing on March 25, 1998 through June 30,
1998 or the closing of this offering, if earlier. The net proceeds raised
by the Company were used for working capital.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of the offering, based on the expected utilization of funds
necessary to finance the Company's existing activities in accordance with
management's current objectives and market conditions. The amounts actually
expended by the Company for each purpose will vary significantly depending on
a number of factors, such as the amount of cash used or generated by the
Company's operations and management's assessment of the Company's specific
needs. The Company may also use a portion of the net proceeds of this offering
to acquire new technologies, businesses or vendors which will result in a
reallocation of the estimated amounts set forth in the table above (which
reallocation may be substantial). While the Company from time to time may
evaluate such potential acquisitions, the Company has no present agreements or
commitments with respect to any such possible acquisition, nor are any
negotiations regarding any such possible acquisitions currently ongoing.
Pending such uses, the Company intends to invest the net proceeds of the
offering in short-term investment grade, interest bearing obligations. See
"Risk Factors--Limited Operating History; Accumulated Deficit; Anticipated
Losses; Ability to Continue as a Going Concern," "--Possible Need for
Additional Capital; Allocation of Funds," "--Broad Discretion of Application
of Proceeds of Offering," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
DIVIDEND POLICY
The Company has never declared or paid any dividend on its Preferred or
Common Stock and does not expect to declare or pay dividends for the
foreseeable future. The Company currently intends to retain future earnings,
if any, to finance the development and operation of its business. Any future
declarations and payments of dividends shall be at the sole discretion of the
Company's Board of Directors. Payment of dividends on the Common Stock would
be subject to the prior payment of all accrued and unpaid dividends on any
shares of Preferred Stock the Company may issue in the future in its sole
discretion. See "Risk Factors--Dividend Policy" and "Description of
Securities."
19
<PAGE>
CAPITALIZATION
The following table sets forth at July 31, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company giving effect to the issuance, after July 31, 1997, of an additional
193,167 shares of Series B Preferred Stock at $3.00 per share, the issuance of
an additional 133,000 shares of Common Stock for software licensing rights and
consulting services valued at $6.00 per share, and the issuance of an
additional $800,000 in Promissory Notes after July 31, 1997. Further, the pro
forma capitalization of the Company gives effect to the conversion of the
Series A and Series B Preferred Stock into 1,286,500 shares of Common Stock
upon the closing of this offering and gives effect to the reverse stock split
of one share of common stock for two shares of existing common stock,
effective upon the closing of this offering, and (iii) the pro forma
capitalization as adjusted to reflect the issuance and sale of 1,400,000
shares of Common Stock offered by the Company at an assumed initial public
offering price of $8.50 per share, less estimated underwriting discounts and
commissions and offering expenses, payable by the Company, and the application
of the estimated net proceeds therefrom. See "Use of Proceeds." This table
should be read in conjunction with the financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
-----------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Promissory Notes................................ $ 950 $ 1,750 $ --
Shareholders' equity:(1)
Series A Preferred Stock, no par value
(1,500,000 shares authorized; 750,000 issued
and outstanding actual; 0 shares issued and
outstanding Pro Forma; and 0 shares issued and
outstanding Pro Forma As Adjusted.............. 300 -- --
Series B Preferred Stock, no par value
(4,000,000 shares authorized; 343,333 shares
issued and outstanding actual; 0 shares issued
and outstanding Pro Forma; and 0 shares issued
and outstanding Pro Forma As Adjusted)......... 916 -- --
Common Stock, no par value
(8,000,000 shares authorized; 1,282,500 shares
issued and outstanding actual; 2,702,000 shares
issued and outstanding Pro Forma; 4,102,000
shares issued and outstanding Pro Forma As
Adjusted....................................... 31 2,618 13,065
Deficit accumulated during development stage.... (1,273) (1,321) (1,621)
Total Shareholders' equity (deficit).......... (26) 1,297 11,444
------- ------- --------
Total capitalization........................ $ 924 $ 3,047 $ 11,444
======= ======= ========
</TABLE>
- --------
(1) Excludes (i) 210,000 shares of Common Stock reserved for issuance subject
to the Over-Allotment Option plan; (ii) 250,000 shares of Common Stock
reserved for issuance upon exercise of options outstanding or available
for future grant under the Plan; (iii) 1,226,000 shares of Common Stock
reserved for issuance on exercise of outstanding warrants; and (iv)
140,000 shares of Common Stock reserved for issuance upon exercise of the
Representative's Warrants.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of July 31, 1997,
after giving effect to the issuance of an additional 193,167 shares of Series
B Preferred Stock and 133,000 shares of Common Stock subsequent to July 31,
1997 and the conversion of the Series A and B Preferred Stock, was $547,421 or
approximately $0.20 per share of Common Stock. Pro forma net tangible book
value per share of Common Stock is equal to the Company's total pro forma
tangible assets less total liabilities, divided by the total number of shares
of Common Stock outstanding assuming the conversion of the Series A and B
Preferred Stock. After giving effect to the sale of the 1,400,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $8.50 per share, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company, the
pro forma as adjusted net tangible book value of the Company at such date
would have been approximately $10,694,421 or approximately $2.61 per share.
This represents an immediate increase in tangible book value of $2.41 per
share to existing shareholders and an immediate dilution of $5.89 per share to
new purchasers of shares in the Offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $8.50
Pro forma net tangible book value per share of Common Stock
before the Offering.......................................... $0.20
Increase per share attributable to new investors.............. 2.41
-----
Pro forma as adjusted net tangible book value per share of
Common Stock after the Offering................................ 2.61
-----
Dilution per share to new investors............................. $5.89
=====
</TABLE>
The following table summarizes as of July 31, 1997, on a pro forma adjusted
basis after giving effect to the conversion of the Series A and B Preferred
Stock and the Offering, the difference between existing shareholders and new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total cash or other consideration paid to the Company, and
the average price per share paid by existing shareholders and by the
purchasers of the shares offered by the Company hereby (at an assumed initial
public offering price of $8.50 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........ 2,702,000 65.9% $ 2,738,550 18.7% $1.01
New Investors................ 1,400,000 34.1 11,900,000 81.3 8.50
--------- ----- ----------- -----
Total...................... 4,102,000 100.0% $14,638,550 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of (i) 210,000 shares of Common
Stock reserved for issuance subject to the Over-Allotment Option; (ii) 250,000
shares of Common Stock reserved for issuance upon exercise of options
outstanding or available for future grant under the Plan; (iii) 1,226,000
shares of Common Stock reserved for issuance on exercise of outstanding
warrants and (iv) 140,000 shares of Common Stock reserved for issuance upon
exercise of the Representative's Warrants.
21
<PAGE>
SELECTED FINANCIAL DATA
The data set forth below is qualified by reference to, and 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. The following
selected financial data of the Company for the fiscal year ended January 31,
1997 are derived from the financial statements of the Company audited by
Singer Lewak Greenbaum & Goldstein LLP, independent certified public
accountants. The balance sheet at January 31, 1997 and the related statements
of operations, shareholders' equity (deficit) and cash flows for the fiscal
year ended January 31, 1997 and notes thereto are included elsewhere in this
Prospectus. The selected financial data as of July 31, 1997, and for the six-
month period ended July 31, 1997 have been derived from the Company's
unaudited financial statements which, in the opinion of management, reflect
all adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the results of operations for such periods. The results of the
interim periods are not necessarily indicative of the results of a full year.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS QUARTERS ENDED
YEAR ENDED ENDED ------------------
JANUARY 31, JULY 31, APRIL 30, JULY 31,
1997 1997 1997 1997
----------- ---------- --------- --------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................. $ -- $ 56 $ -- $ 56
Cost of sales......................... -- 51 -- 51
------ ------- ------ ------
Gross profit.......................... -- 5 -- 5
Operating expenses:
Advertising and marketing........... -- 12 -- 12
Product development................. 83 265 57 208
General and administrative.......... 119 793 289 504
------ ------- ------ ------
Total operating expenses.......... 202 1,070 346 724
------ ------- ------ ------
Loss from operations.................. (202) (1,065) (346) (719)
Other expenses........................ -- (7) -- (7)
------ ------- ------ ------
Net loss.............................. $ (202) $(1,072) $ (346) $ (726)
====== ======= ====== ======
Net loss per share.................... $(0.06) $ (0.31) $(0.10) $(0.21)
====== ======= ====== ======
Weighted average shares outstanding... 3,405 3,405 3,405 3,405
====== ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1997
--------------------------------
AS PRO
FORMA
ACTUAL PRO FORMA(1) ADJUSTED(2)
------ ------------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 289 $1,348 $ 9,745
Working capital (deficit)...................... (990) (731) 9,416
Total assets................................... 1,443 3,566 11,963
Promissory Notes............................... 950 1,750 --
Long-term liabilities.......................... 74 74 74
Total shareholders' equity (deficit)........... (26) 1,297 11,444
</TABLE>
- --------
(1) Treats the issuance of an additional 193,167 shares of Series B Preferred
Stock, the issuance of an additional 133,000 shares of Common Stock and
the issuance of $800,000 in Promissory Notes in August and September 1997
as if such issuances took place on July 31, 1997.
(2) Adjusted to give effect to the sale of 1,400,000 shares of Common Stock
offered hereby by the Company at an assumed initial public offering price
of $8.50 per share after deducting the estimated underwriting discount and
offering expenses, and the receipt of the net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
financial statements and the related notes thereto appearing elsewhere herein.
OVERVIEW
Shopping.com began operations in February 1996, was incorporated on November
22, 1996 and commenced selling on the Internet on July 11, 1997. The Company
is an innovative Internet-based electronic wholetailer specializing in retail
marketing a broad range of products and services at wholesale prices to both
consumer and trade customers. Utilizing proprietary technology, the Company
has designed a fully-scalable systems architecture for the Internet shopping
marketplace.
The Company has assembled an experienced management team to design, develop
and implement the Company's strategic business plan. This group combines the
experiences of:
. Executives with extensive background in both retail and
warehouse/discount store formats.
. Executives who have experience in computer and information systems
design and development.
. Directors with entrepreneurial skills who currently oversee and manage
their own existing companies.
The Company has only recently begun generating sales, thus making an
evaluation of the Company and its prospects difficult to calculate. The
Company anticipates that sales from the Company's Web site will constitute
substantially all of the Company's sales. Over the next twelve months, the
Company intends to increase its revenues by pursuing an aggressive advertising
and marketing campaign aimed at attracting customers to shop on its Web Site
and to co-brand with other commercial partners which will help increase the
Company's brand name recognition as well as increase traffic on the Company's
Web Site. The Company believes, based on currently proposed plans and
assumptions relating to its operations, that the net proceeds from this
offering, together with existing capital and anticipated funds from
operations, should be sufficient to sustain current operations and finance
planned expansion for at least 15 months after consummation of this offering.
However, in the event that the Company's plans change or its assumptions and
estimates change or prove to be inaccurate, the Company could be required to
seek additional financing in order to sustain operations or achieve planned
expansion. There can be no assurance that such additional funds will be
available or that, if available, such additional funds will be on terms
acceptable to the Company. See "Risk Factors--Possible Need for Additional
Capital; Allocation of Funds" and "Use of Proceeds."
Since the Company anticipates that its operations will incur significant
operating losses for the foreseeable future, the Company believes that its
success will depend upon its ability to obtain sales on its Web site, which
cannot be assured. The Company's ability to generate sales is subject to
substantial uncertainty. The Company's prospects must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in new and rapidly
evolving markets such as online commerce. Such risks for the Company include,
but are not limited to, an evolving and unpredictable business model and the
management of growth. To address these risks, the Company must, among other
things, obtain a customer base, implement and successfully execute its
business and marketing strategy, continue to develop and upgrade its
technology and transaction-processing systems, improve its Web site, provide
superior customer service and order fulfillment, respond to competitive
developments, and attract, retain and motivate qualified personnel. There can
be no assurance that the Company will be successful in addressing such risks,
and the failure to do so could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
Additionally, the Company's lack of an operating history makes predictions of
future operating results difficult to ascertain. Accordingly, there can be no
assurance that the Company will be able to generate sales, or that the Company
will be able to achieve or maintain profitability. Since inception, the
23
<PAGE>
Company has incurred significant losses and, as of July 31, 1997, had an
accumulated deficit of approximately $1.3 million. Upon completion of this
offering, the Company intends to substantially increase its operating expenses
in order to, among other things, fund increased advertising and marketing
efforts, expand and improve its Internet operations and user support
capabilities, and develop new Internet content and applications. The Company
expects to continue to incur significant operating losses on a quarterly and
annual basis for the foreseeable future. To the extent such increases in
operating expenses are not offset by revenues, the Company will incur greater
losses than anticipated. See "Risk Factors--Limited Operating History;
Accumulated Deficit; Anticipated Losses; Ability to Continue as a Going
Concern" and "Use or Proceeds."
The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors many of which are outside of the Company's
control. Factors that may adversely affect the Company's quarterly operating
results include: (i) the Company's ability to obtain and retain customers,
attract new customers at a steady rate, maintain customer satisfaction and to
establish consumer confidence in conducting transactions on the Internet
environment, (ii) the Company's ability to manage fulfillment operations
electronically and without warehouse facilities and establish competitive
gross margins, (iii) the announcement or introduction of new Web sites,
services and products by the Company and its competitors, (iv) price
competition or higher vendor prices, (v) the level of use and consumer
acceptance of the Internet and other online services for the purchase of
consumer products such as those offered by the Company, (vi) the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner, (vii) the level of traffic on the
Company's Web site, (viii) technical difficulties, systems downtime or
Internet brownouts, (ix) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure, (x) delays in revenue recognition at the end of a fiscal
period as a result of shipping or logistical problems, (xi) the level of
merchandise returns experienced by the Company, (xii) governmental regulation,
(xiii) economic conditions specific to the Internet and online commerce, and
(xiv) general economic conditions. In seeking to effectively implement its
business plan, the Company may elect, from time to time, to make certain
marketing or acquisition decisions that could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations. The Company believes that period-to-period comparisons of its
results of operations are not meaningful and should not be relied upon for an
indication of future performance. Due to all of the foregoing factors, it is
likely that in some future quarters, the Company's results of operations may
be below the expectations of securities analysts and shareholders. In such
event, the price of the Company's Common Stock could be materially adversely
affected. See "Risk Factors-- Unpredictability of Future Revenues; Potential
Fluctuations in Quarterly Operating Results; Seasonality."
RESULTS OF OPERATIONS
The following is a discussion of the results of operations from the date of
inception through July 31, 1997. The Company is not providing any comparisons
of its results of operations because the Company was in an early stage of
development, and such comparisons would not be meaningful.
Net Sales
Although the Company commenced operations in February 1996, it did not begin
selling products and services on its Web site until July 11, 1997 prior to
which time it was still in the process of evaluating the technical features of
its Web site. From the date of inception through July 31, 1997, the Company
has generated limited sales. The Company records sales at the time products
are shipped to customers which includes the retail sales price of the product
and any shipping and handling charges billed to its customers. The Company
estimates its sales return and allowance at the end of each reporting period
based on historical amounts of product returns. The sole source of funds for
the Company from the date of inception through July 31, 1997, other than the
sale of equity and debt securities, has been from sales of products in the
amount of $55,541. See "Risk Factors--Limited Operating History; Accumulated
Deficit; Anticipated Losses; Ability to Continue as a Going Concern."
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Cost of Sales
Cost of sales include the actual cost the Company pays its vendors for the
products and the actual shipping and handling charges incurred by the Company
to ship products to its customers. The cost of sales from the date of
inception through July 31, 1997 was $50,509, or approximately 90.9% of net
sales. The Company's gross profit margin was approximately 9.1% of net sales
from the date of inception through July 31, 1997. The failure to generate
sales with sufficient margins to cover its operating expenses will result in
losses and could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
Advertising and Marketing Expenses
Advertising and marketing expenses consist primarily of public relations,
media advertising, travel and costs of marketing literature. Advertising and
marketing expenses incurred by the Company from the date of inception through
July 31, 1997 were $11,603, or approximately 20.9% of net sales. The Company
intends to significantly increase its advertising and marketing expenses in
future periods. See "Use of Proceeds."
Product Development Expenses
Product development expenses consist primarily of expenses incurred by the
Company during the initial development and creation of its Web site. Product
development expenses include compensation and related expenses, depreciation
and amortization of computer hardware and software, and the cost of acquiring,
designing, developing and editing Web site content. All of the costs from the
date of inception through July 31, 1997 in connection with the development of
the Company's Web site have been expensed. Product development expenses
incurred by the Company from the date of inception through July 31, 1997 were
approximately $348,050 or approximately 627% of net sales. The Company
believes that significant investments in enhancing its Web site will be
necessary to become and remain competitive. As a result, the Company may
continue to incur, or increase the level of, product development expenses. See
"Use of Proceeds."
General and Administrative Expenses
General and administrative expenses not otherwise attributable to product
development and advertising and marketing expenses consist primarily of
compensation, rent expense, fees for professional services and other general
corporate purposes. General and administrative expenses incurred by the
Company from the date of inception through July 31, 1997 were $912,252, or
approximately 1,642% of net sales. The Company expects general and
administrative expenses to significantly increase in future periods as a
result of, among other things, increased hiring and expansion of facilities.
See "Use of Proceeds."
Interest Expense
Interest expense from the date of inception through July 31, 1997 was
$6,538, or 11.8% of net sales and is primarily attributable to the Promissory
Notes issued by the Company in May through July 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity were cash and cash equivalents
derived from private sales of the Company's equity and debt securities. See
"Use of Proceeds," "Certain Transactions" and "Description of Securities."
Capital expenditures from the date of inception through July 31, 1997 were
approximately $735,862. The Company has no material commitments for capital
expenditures other than a capital lease obligation for certain office
equipment as of July 31, 1997, the aggregate amount of which is $90,193. The
Company anticipates a substantial increase in its capital expenditures in 1998
consistent with its anticipated growth. See "Use of Proceeds."
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The Company currently believes that available funds, cash flows (if any)
expected to be generated from operations and the net proceeds of this offering
will be sufficient to fund its working capital requirements for the 15 months
following completion of this offering. Thereafter, the Company may need to
raise additional funds. The Company's ability to grow will depend in part on
the Company's ability to expand and improve its Internet user support
capabilities and develop new Web site content material. In connection
therewith, the Company may need to raise additional capital in the foreseeable
future from public or private equity or debt sources in order to finance such
possible growth. In addition, the Company may need to raise additional funds
in order to avail itself of unanticipated opportunities (such as more rapid
expansion, acquisitions of complementary businesses or the development of new
products or services), to react to unforeseen difficulties (such as the loss
of key personnel or the rejection by Internet users of the Company's Web site
content) or to otherwise respond to unanticipated competitive pressures. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the Company's then existing shareholders will be
reduced. Moreover, shareholders may experience additional and significant
dilution, and such equity securities may have rights, preferences or
privileges senior to those of the Company's Common Stock. There can be no
assurance that additional financing will be available on terms acceptable to
the Company. The Company may be unable to implement its business, sales or
marketing plan, respond to competitive forces or take advantage of perceived
business opportunities, which inability could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations. See "Risk Factors--Possible Need for Additional Capital;
Allocation of Funds."
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BUSINESS
GENERAL
Shopping.com is an innovative Internet-based electronic wholetailer
specializing in retail marketing a broad range of products and services at
wholesale prices to both consumer and trade customers. Utilizing proprietary
technology, the Company has designed a fully-scalable systems architecture for
the Internet shopping marketplace. Shopping.com's system is designed to fully
integrate all aspects of retail transaction processing including, order
placement, secure payment verification, inventory control, order fulfillment
and vendor invoicing, in one seamless and automated process. The Company
believes that the principal competitive factors in its market are price, speed
of fulfillment, brand name recognition, wide selection, personalized services,
ease of use, 24-hour accessibility, customer service, convenience,
reliability, quality of search engine tools, and quality of editorial and
other site content. The Company has developed a creative wholetailing format
on the Web that combines a highly automated infrastructure with a user-
friendly interface designed to enhance the convenience and ease of online
shopping.
The Company employs specialized information systems to provide its customers
with access to an automated marketplace of products and services, which
consist of the inventories of multiple manufacturers and distributors, price
comparisons, detailed product descriptions, product availability, available
delivery times, delivery status of products ordered and back-order
information. Product categories currently available on the Company's Web site
include: automotive, books, cigars, collectibles, computer hardware and
software, consumer electronics, cutlery, fragrances, furniture, gifts, gourmet
foods, health and beauty care, home improvements, marine supplies, music CDs,
sporting goods and watches. The Company has, and will continue to enter into,
arrangements with a number of manufacturers and distributors who will ship
their products directly to its customers, avoiding the expense and delay of
inventory maintenance. Although the Company only commenced selling on the
Internet on July 11, 1997, Shopping.com currently offers more than 900,000
Stock Keeping Units ("SKUs") and expects the number of SKUs to increase to
over 2,000,000 by March 1998.
Shopping.com generates revenues similar to a retail store when its customers
purchase goods from its Web site. When a product is purchased by a customer on
the Company's Web site, the Company receives payment from the customer's
credit card through a financial institution intermediary usually within two to
four business days. The amount received is net of any credit card transaction
fees deducted by the financial institution intermediary. In turn, the Company
then pays its vendors for the cost of goods sold. Shopping.com's vendors are
paid within five to thirty business days. Additionally, the Company generates
revenues from the shipping and handling charges added to each customer's
order.
Customers order products and services on Shopping.com's Web site and provide
secure payment by either credit card over the Internet through Verisign or by
calling 1-888-LOVE-2-SHOP. Shipments are then made by the manufacturer or
distributor directly to the customer after verification by Shopping.com that
the payment has been properly credited. Because transactions are accomplished
without the need to maintain either inventory, warehouse facilities, retail
store space or attendant personnel, the Company believes it will be able to
obtain market share by passing cost savings along to its customers as a result
of selling its products and services at a discount to typical retail and
warehouse/discount prices. For the same reasons, the Company is also able to
provide a broader merchandise mix than retail stores, warehouse/discount
stores and mail order catalogue operators.
The Company intentionally has not entered into any exclusive supplier
contracts with its vendors except for En Pointe who is the Company's exclusive
vendor for computer hardware, software and network peripherals for the next
five years. The strategic advantage by not entering into exclusive supplier
agreements is that the Company retains its position to source several of the
same products from different vendors who offer the same products in order to
offer the lowest price possible for its customers.
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Shopping.com's strategy is to become a dominant low-price leader in
wholetailing on the Internet by utilizing the warehousing, purchasing and
distribution strengths of multiple manufacturers and distributors, rather than
to assume those roles for itself. The Company believes this approach allows
Shopping.com to eliminate many of the risks and costs associated with
maintaining inventory, including the cost of leasing warehouse space,
inventory obsolescence, inventory tracking systems, and the increased costs
associated with employing large numbers of personnel for stocking and shipping
duties. By having access to the inventories of multiple manufacturers and
distributors, Shopping.com believes it is able to offer its customers a
competitive combination of price, product availability, order fulfillment and
delivery services and still obtain profitability. Beyond the benefits of a
wide selection, purchasing from Shopping.com can be done conveniently, 24
hours a day, without requiring a trip to a store.
INDUSTRY BACKGROUND
IDC estimates that the number of users accessing the Web will grow from 28
million in 1996 to 175 million in 2001 and that the amount of commerce
conducted over the Web will increase from approximately $2.6 billion in 1996
to $220 billion in 2001. Growth in Internet usage has been fueled by a number
of factors, including the large and growing base of personal computers
installed in the workplace and home, advances in the performance and speed of
personal computers and modems, improvements in network infrastructure, easier
and cheaper access to the Internet and increased awareness of the Internet
among consumer and trade customers.
The emergence of the Internet as a significant communications medium is
driving the development and adoption of Web content and commerce applications
that offer both convenience and value to consumers, as well as unique
marketing opportunities and reduced operating costs to businesses. A growing
number of consumer and trade customers have begun to conduct business on the
Internet including paying bills, booking airline tickets, trading securities
and purchasing consumer goods (e.g., personal computers, consumer electronics,
compact disks, books, groceries and vehicles). Moreover, online transactions
can be faster, less expensive and more convenient than transactions conducted
through a human intermediary.
THE SHOPPING.COM SOLUTION
Shopping.com focuses on exploiting an existing and expanding customer base
that is and will become Internet connected. The Shopping.com solution is based
on eliminating the retail store intermediary and passing along associated cost
savings to both consumer and trade customers in the form of lower pricing on
comparable goods and services. The Company provides its solution because
transactions are accomplished without the need to maintain inventory,
warehouse establishments, retail or discount store buildings and attendant
personnel.
Key to the success of Shopping.com will be the rapid implementation of an
advertising and marketing program that will introduce the availability of
Shopping.com as an entertaining, intelligent and cost-effective alternative to
traditional shopping venues. Selection of initial product offerings, pricing,
delivery mechanisms, customer service philosophy and a number of other factors
are integrally related to the success of the Company. Unlike other retail and
warehouse/discount stores which risk showcasing new products which may not
achieve market acceptance, the Company is not as much "at risk" when
introducing new products and services or when creating consumer demand because
it is able to do so without maintaining expensive inventory. Further, the
Company is able to create increased consumer demand by showcasing related
products and services to its customers and more accurately gauging their
market acceptance. Shopping.com will base its success on its commitment to
providing excellence at all operating levels and aggressively bringing its
advantages to the attention of the consumer and vendor.
BUSINESS STRATEGY
The Company's objective is to become a dominant wholetailer on the Internet
by pursuing the following key strategies:
Increase Market Awareness and Brand Recognition. The Company believes that
Shopping.com is well positioned to become a leading brand name in Internet
commerce due to its management team's strong
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background and experience operating large retail and discount store formats
combined with its expertise in information systems programming. The Company
operates in a market in which its brand name franchise is critical to
attracting high quality vendors and a high level of customer traffic.
Accordingly, the Company's strategy is to promote, advertise and increase its
visibility through a variety of marketing and promotional techniques,
including advertising on leading Internet sites and in printed media,
conducting an ongoing public relations campaign and obtaining links from other
Web sites.
Provide Compelling Wholetailing Experience for Customers. The Company
believes buyers are attracted by bargain prices and desired merchandise in a
user-friendly and entertaining environment. Accordingly, the Company intends
to continue offering its customers a wide array of opportunities to buy
desired merchandise at low prices through a visually stimulating and user-
friendly interface which is rich in both product SKUs and product description
content.
Expand and Strengthen Long-Term Vendor Relationships. The Company's ability
to attract, secure and obtain large quantities of branded merchandise for its
Web site is key to its success. The Company is aggressively building its
merchandising staff to facilitate securing long-term relationships with a
variety of vendors. The Company intends to strengthen its vendor relationships
by offering better purchasing terms and more convenient services through
automated order processing and superior logistics. The Internet provides a
low-cost venue to test new products and concepts, which the Company believes
will appeal to vendors who may wish to showcase new products via the Internet.
Relationships with such vendors for showcasing and introducing new product
lines may offer Shopping.com additional revenue opportunities, and may provide
an innovative and entertaining aspect to its merchandise mix that can
potentially enhance general consumer appeal and help to differentiate
Shopping.com from its competitors.
Leverage Low Cost Structure. The Company is not required to pay the expenses
necessary to support a traditional retail operation which requires inventory,
warehouse facilities, retail store space and attendant personnel. The Company
establishes its vendor relationships where it acts as a principal and arranges
the order fulfillment, payment verification, shipping functions and customer
support, which enables it to take advantage of the savings from eliminating
those traditional retail expenses. By purchasing merchandise and undertaking
these functions, the Company believes it will be able to control its gross
margins, monitor its customer service and reduce its costs.
Develop Incremental Revenue Opportunities. The Company believes that a
significant opportunity exists to develop incremental revenue opportunities,
including expanding its product mix with other products and enabling vendors
to showcase new products that are well suited for its Web site. The Company
also believes that the anticipated high level of traffic on its Web site will
provide an attractive alternative for other companies advertising on its Web
site. In addition, the Company is considering expanding its sales to
international customers.
Build on Leading Technology. The Company believes that one of its
competitive advantages is its internally developed proprietary technology,
which enables the Company to conduct automated sales with thousands of
customers simultaneously, process orders, record payments, coordinate order
fulfillment and provide customer support functions integrated with the
Company's accounting and financial systems. The Company intends to further
enhance its proprietary technology to provide an even more compelling shopping
experience, as well as to streamline its order processing, distribution, and
customer support functions as new technology develops.
MERCHANDISING STRATEGY
Shopping.com's merchandise strategy is designed to appeal to all classes of
consumer and trade customers. Shopping.com intends to become a one-stop
shopping service by virtue of its broad merchandise mix and expects to provide
the Internet shopper with a selection of variety and pricing unmatched by
other current retail leaders. With effective user-friendly search engine
tools, the Shopping.com customer enjoys a wide array of categories and
specialty products and services not typically offered to the general public
under one store roof, while at the same time allowing its customers the
virtual ease of shopping from either home or office, as well as substantial
price discounts.
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Shopping.com's merchandise strategy also emphasizes what the Company
believes to be a competitive advantage--the combination of identifiably low
pricing with broad product selection. The Shopping.com merchandise strategy
builds upon the proven-as-effective broader selection/lower price method of
retailing initiated in the warehouse/discount market of the 1980's and early
1990's. Shopping.com's strategy is designed to allow the Company to compete
with major retail leaders including warehouse/discount stores, traditional
retail chains, and mail order catalog operators by:
.offering lower prices;
.offering a broader merchandise mix;
. providing a low cost venue for vendors to test market acceptance of new
products and services; and
. eliminating the expenses of inventory, warehouse facilities, retail
store space and attendant personnel.
Shopping.com has made arrangements with a number of manufacturers and
distributors represented in its "Key Product Category List." Building upon the
previous business relationships of Shopping.com's management team, the
Company's vendors include those who can offer regional warehouse shipping
points to meet customers' shipping needs and thereby reduce long-haul shipping
costs. In addition to meeting the criteria of product selection within a
product category, any potential Shopping.com vendor must also meet stringent
standards for quality control, product selection, packaging and shipping
logistics.
The following represent Shopping.com's "Key Product Category List":
Current Product Categories available on Shopping.com's Web site:
<TABLE>
<S> <C> <C>
Automotive Cutlery Home Improvements
Books Fragrances Marine Supplies
Cigars Furniture Music CDs
Collectibles Gifts Sporting Goods
Computer Hardware & Software Gourmet Foods Watches
Consumer Electronics Health & Beauty Care
Future Product Categories expected to be offered on the Shopping.com's Web
site:
Appliances Medical Supplies Pet Supplies
Baby/Nursery Motorcycle Supplies Photography
Housewares Musical Instruments Tools/Equipment
Kitchen & Bath Office Supplies Videos
Lawn & Garden Outdoor Living Vitamins
</TABLE>
MARKETING AND PROMOTION
The Company believes that an immediate and rapidly expanding market
opportunity exists for Internet-based providers who can offer the consumer and
trade customer an almost limitless selection of products and services at low
prices via online venues. Although retail stores, warehouse/discount stores,
mail order catalogue operators and other providers using alternate forms of
media to sell products and services all represent significant market segments,
no single distribution channel of consumer products and services presently
dominates the entire market.
Shopping.com's marketing strategy is designed to promote the Shopping.com
brand name, increase customer traffic to its Web site, build strong customer
loyalty, maximize repeat purchases and develop incremental revenue
opportunities.
Shopping.com intends to build strong customer loyalty through the use of
customized offering to its customers through the use of extensive customer
preference and behavioral data obtained as a result of
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monitoring its customers' activities online. The Company's proprietary
technology allows for rapid product experimentation, customer buying pattern
analysis, instant user feedback and customized data-based marketing for each
of its customers, all of which the Company incorporates in its merchandising.
In contrast to traditional direct-marketing efforts, Shopping.com's
personalized notification services send customers information updating its
prices as well as its new product and service offerings. By offering customers
a compelling and personalized value proposition, the Company seeks to increase
the number of visitors who make a purchase, encourage repeat visits and
purchases and extend customer retention. Loyal, satisfied customers also
generate word-of-mouth advertising and awareness and are able to reach
thousands of other customers and potential customers because of the reach of
online communication.
The Company employs a variety of media, product development, business
development and promotional activities to achieve the following goals:
Online Service and Internet Advertising. The Company intends to place
advertisements on various high-profile and high-traffic Web sites. These
advertisements usually take the form of banners that encourage readers to
click through directly to Shopping.com's Web site.
Traditional Advertising and Public Relations. The Company will engage in a
coordinated program of print advertising in both specialized industry trade
magazines and general circulation newspapers and magazines including The New
York Times, Los Angeles Times, Chicago Tribune, and U.S.A. Today. In the
future, the Company may begin advertising in other media such as radio and
television.
Link Program. The Link Program is a hyperlink automatically connecting
another company's Web site to Shopping.com's Web site. The Company may extend
its market presence through the Link Program enabling other Web sites to offer
products and services for fulfillment by Shopping.com such as CitySearch's new
electronic commerce pilot program and En Pointe's Information Connection
system. See "Summary--Recent Developments."
Personalized Shopping Services. The Company offers personalized notification
and shopping services and intends to add a collaborative filtering service to
its personalized service offerings in the future.
Customer Gifts. The Company may in the future send gifts to its customers.
These gifts will be designed to increase customer loyalty and provide
customers with a continuing reminder of the Shopping.com Web site.
CUSTOMER SERVICE AND ORDER FULFILLMENT
Retail shopping as currently conducted requires significant investments of
time, effort and associated costs on the part of the consumer, generally
requiring the consumer to opt for either (1) limited selection/lower price or
(2) broad selection/higher price. The Company believes that the provider who
can offer the consumer a broad selection/lower price alternative should be
well positioned to capture a significant portion of the online shopping
market.
The Company believes that traditional retail concepts apply to online
retailing. Consumers expect online shopping to be entertaining, compelling and
enjoyable. To be successful, the Company believes that an online store must
also be fast, offer a wide product selection targeted to each individual
customer and provide excellent customer service.
The Company enjoys the cost benefits generally achieved by mail order
catalogue operators and other types of media providers, without the associated
limitations of narrow selection and product information. The Company enjoys a
significant cost advantage over typical retail providers by eliminating many
of the major costs associated with store facilities (including rent,
utilities, employees and inventory), requiring only a reliable and rapid
product delivery service that can closely approximate the consumer appeal of
the "carry-out" aspect of retail and discount store shopping.
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The Company believes that its ability to establish and maintain long-term
relationships with its customers and encourage repeat visits and purchases
depends, in part, on the strength of its customer support and service
operations and staff. Shopping.com encourages frequent communication with, and
feedback from, its customers in order to continually improve its product and
service offerings. Shopping.com offers an e-mail address to enable customers
to request information, and to encourage feedback and suggestions. The team of
customer support and service personnel are responsible for handling general
customer inquiries, answering customer questions about the ordering process,
and investigating the status of orders, shipments and payments. Shopping.com
also offers a toll-free line for customers (1-888-LOVE-2-SHOP) who are
reluctant to enter their credit card numbers over the Internet. The Company
has automated the tools used by its customer support and service staff and
intends to actively pursue enhancements to, and further the automation of, its
customer support and service systems and operations.
Shopping.com's immediate goal is to exploit the market opportunity for
online shopping by establishing itself as a dominant low-price leader
providing a broad range of products and services over the Internet prior to
the arrival of competitors marketing similar offerings. While the Internet
presently offers an increasing amount of products, these offerings are
generally limited to specialty providers offering limited product and service
categories (e.g., airline tickets, books, music CDs, flowers and groceries).
In addition, the Company believes that its proprietary technology will afford
a major advantage over existing and potential Internet providers. Once
established, the Company will seek to dominate online shopping by being
"first" in price, selection, delivery and service, thus making future
competitor market entry more difficult. See "Risk Factors--Competition."
The transmission, data presentation and shipping of the vast merchandise
categories wholetailed by the Company involves the maintenance, continued
development and efficient use of the Company's proprietary technology and well
trained customer service associates. Since the delivery of merchandise sold to
the customer is not within the direct control of the Company, logistics in
securing, transmitting and finalizing information necessary for delivery in a
manner which will satisfy the Shopping.com customer is important to the
success of the Company. The Company utilizes automated interfaces for sorting
and organizing its orders to enable it to achieve the most rapid and economic
purchase and delivery terms possible. The Company's proprietary systems
architecture selects the orders that can be filled quickly via electronic
interfaces with vendors. Under the Company's arrangements with its
manufacturers and distributors, electronically ordered products often are
shipped by the vendor within days and sometimes within hours of receipt of an
order from Shopping.com. The Company has also developed customized information
systems and dedicated ordering personnel that specialize in searching special
orders for customers.
TECHNOLOGY
Shopping.com brings to the Internet commerce industry a combination of (i)
strong retail management experience and (ii) computer and information systems
design, development, implementation and operation expertise.
Shopping.com's operating system offers the Internet shopper the ability to
browse dynamically, securely select and purchase a number of products and
services offered in Shopping.com's Key Product Category List. Management has
also addressed any anticipated or potential systems downtime by developing and
implementing a back-up response to all of its information systems. The
developed and designed systems architecture accommodates peak transaction
loads and will "scale up" appropriately as transaction volume increases with
the expected growth in online shopping. The system possesses a sophisticated
back-end system which processes and tracks orders quickly and efficiently with
a minimum of human intervention. Receipt confirmation logic is built into all
its modules to ensure delivery of all transactions. In addition, the database-
oriented design allows for new media technologies to be quickly introduced
into the system without the need for extensive programming.
Shopping.com's database engines search the database for items that meet an
individual customer's search criteria, and then builds a Web page "on the fly"
to present the desired products. The information systems allow for the
capturing and storing of the Company's online customer activity for the
purpose of monitoring such activity.
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Shopping.com employs a client/server based suite of financial systems to
perform the functions of accounts receivable, accounts payable, general ledger
and fixed assets. Interfaces exist from the transaction server to track all
sales by individual vendor and produce the necessary settlement documents and
reports as well as required financial documents.
The technology and systems are protected by sophisticated methods
specifically designed to assure continuity of operation in the event of
natural catastrophes or local shutdown of power or communications. Internally
the Shopping.com employs protective equipment for its systems. In addition,
on-site back-up and redundancy is provided. A disaster plan has been
formulated. Daily, the information is downloaded and stored in locked
containers off-site. For security, a firewall with special protection has been
created to avoid invasion by hackers or competitors. Security is also afforded
the customers through the use of a Secured Socket Layer (S.S.L.) key with
Verisign to protect credit card information. See "Risks--Capacity Constraints;
Reliance or Internally Develops Systems; System Development Risks"; "--Risk of
System Failure; Single Site and Order Interface"; "--Online Commerce Security
Risks."
INTELLECTUAL PROPERTY
The Company regards its Shopping.com brand name and related software as
proprietary and relies primarily on a combination of copyright, trademark,
trade secret and confidential information laws and employee and third-party
non-disclosure agreements and other methods to protect its proprietary rights.
There can be no assurance that these protections will be adequate to protect
against technologies that are substantially equivalent or superior to the
Company's technologies. The Company does not currently hold any patents or
have any patent applications pending for itself or its products and has not
obtained Federal registration for any of its trademarks. The Company enters
into non-disclosure and invention assignment agreements with certain of its
employees and enters into non-disclosure agreements with certain of its
consultants and subcontractors. However, there can be no assurance that such
measures will protect the Company's proprietary technology, or that its
competitors will not develop software with features based upon, or otherwise
similar to, the Company's software or that the Company will be able to prevent
competitors from developing similar software.
The Company believes that its products, trademarks and other proprietary
rights do not infringe on the proprietary rights of third parties. The Company
has been displaying its Web site on the Internet without receiving claims from
third parties that its products or names infringe on any proprietary rights of
other parties. However, the Company is a recent entrant in the sale of
merchandise on the Internet, and 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, trademarks or other Company works. Such
assertion may require the Company to enter into royalty arrangements or result
in costly litigation. The Company is also dependent upon obtaining existing
technology related to its operations. To the extent new technological
developments are unavailable to the Company on terms acceptable to it, or at
all, the Company may be unable to continue to implement its business which
would have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. See "Risk Factors--Limited
Protection of Intellectual Property and Proprietary Rights."
COMPETITION
The online commerce industry, particularly on the Internet, is new, rapidly
evolving and intensely competitive, which the Company expects to intensify in
the future. Barriers to entry are minimal, allowing current and new
competitors to launch new Web sites at a relatively low cost. The Company
currently or potentially competes with a variety of other companies. These
competitors include: (i) various online vendors of other consumer and trade
products and services including CUC International, Amazon.com., ONSALE,
Peapod, NetGrocer, iMALL, Internet Shopping Network, Micro Warehouse, CD Now,
QVC and Home Shopping Network, (ii) a number of indirect competitors that
specialize in online commerce or derive a substantial portion of their
revenues from online commerce, including America Online, Microsoft Network,
Prodigy and Compuserve, (iii) mail order catalogue operators such as Speigel,
Lands End, and Sharper Image, (iv) retail and
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warehouse/discount store operators such as Wal-Mart, Home Depot, Target and
Price/Costco, and (v) other international retail or catalogue companies which
may enter the online commerce industry. Both Wal-Mart and Home Depot have
announced their intention to devote substantial resources to online commerce
at discount prices, which if successful, could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations. However, the Company believes that retail and warehouse/discount
operators will be somewhat restricted in their ability to lower prices by the
need to protect their own pricing strategy to avoid cannibalizing their store
margins.
The Company believes that the principal competitive factors in its market
are price, speed of fulfillment, brand name recognition, wide selection,
personalized services, ease of use, 24-hour accessibility, customer service,
convenience, reliability, quality of search engine tools, and quality of
editorial and other site content. Many of the Company's current and potential
competitors have longer operating histories, larger customer bases, greater
brand name recognition and significantly greater financial, marketing and
other resources than the Company. In addition, online retailers may be
acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Certain of the Company's
competitors may be able to secure merchandise from vendors on more favorable
terms, devote greater resources to marketing and promotional campaigns, adopt
more aggressive pricing or inventory availability policies and devote
substantially more resources to Web site and systems development than the
Company. Increased competition may result in reduced operating margins, loss
of market share and a diminished franchise value. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors, and competitive pressures faced by the Company may have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to
changes in the competitive environment, the Company may, from time to time,
make certain pricing, service or marketing decisions or acquisitions that
could have a material adverse effect on its business, prospects, financial
condition and results of operations. New technologies and the expansion of
existing technologies may increase the competitive pressures on the Company.
In addition, companies that control access to transactions through network
access or web browsers could promote the Company's competitors or charge the
Company a substantial fee for inclusion. See "Risk Factors--Competition."
GOVERNMENTAL REGULATION
The Company is not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access to online
commerce. However, due to the increasing popularity and use of the Internet
and other online services, it is possible that a number of laws and
regulations may be adopted with respect to the Internet or other online
services covering issues such as user privacy, pricing, content, copyrights,
distribution and characteristics and quality of products and services.
Furthermore, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations may decrease the growth of the Internet
or other online services, which could, in turn, decrease the demand for the
Company's products and services and increase the Company's cost of doing
business, or otherwise have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. Moreover,
the applicability to the Internet and other online services of existing laws
in various jurisdictions governing issues such as property ownership, sales
and other taxes, libel and personal privacy is uncertain and may take years to
resolve. Any such new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to the
Company's business, or the application of existing laws and regulations to the
Internet and other online services could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Permits or licenses may be required from federal, state or local government
authorities to operate or to sell certain products on the Internet. No
assurances can be made that such permits or licenses will be obtainable. The
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<PAGE>
Company may be required to comply with future national and/or international
legislation and statutes regarding conducting commerce on the Internet in all
or specific countries throughout the world. No assurances can be made that the
Company will be able to comply with such legislation or statutes. See "Risk
Factors--Governmental Regulation and Legal Uncertainties."
FACILITIES
The Company's principal administrative, engineering, marketing and customer
service facilities are located in an office building in Corona del Mar,
California encompassing approximately 8,000 square feet. The Company expects
to outgrow its current space within the next two years. In such event, the
Company expects it will be able to find suitable facilities at commercially
reasonable prices, although no assurances can be given. The space occupied by
the Company is under a triple net lease which will expire on February 28,
2002. The lease provides for monthly rental of approximately $9,690 for the
first year with annual increases.
EMPLOYEES
As of July 31, 1997, the Company employed 34 full time and 10 part time
employees, including nine in Management Information Systems and Research and
Development, two in Marketing and five in Accounting and Administration. Two
employees hold doctorate degrees in science, engineering or other disciplines.
Two additional employees hold masters degrees. The Company believes that its
future success will depend in part on its ability to attract hire and maintain
qualified personnel. Competition for such personnel in the on line industry is
intense. None of the Company's employees is represented by a labor union, and
the Company has never experienced a work stoppage. The Company believes its
relationship with its employees to be good. See "Risk Factors--Dependence on
Key Personnel; Need for Additional Personnel."
LEGAL PROCEEDINGS
In July 1997, a former consultant filed a lawsuit seeking damages for
termination of an alleged contractual relationship. The complaint against the
Company and a senior manager alleges breach of consulting agreement, breach of
employment agreement, breach of implied covenant of good faith and fair
dealing, violation of the California Labor Code and prays for economic damages
in the amount of $592,500. The Company intends to cause certain claims for
damages to be stricken and to vigorously defend against the remaining claims.
The Company commenced an action in the Superior Court for Orange County,
California on July 1997 against C-Systems, Inc., a software consulting firm
for breach of contract, fraud and damages. The Company's complaint seeks
economic damages of $1.6 million and punitive damages against C-Systems, Inc.
Thereafter, in August 1997, C-Systems, Inc. filed a lawsuit in federal court
in Massachusetts for breach of contract, copyright infringement and fraud. The
complaint seeks injunctive relief and damages in an amount to be determined at
trial. The amount in dispute on the contract claim is alleged to be $74,500.
The Company's attorneys are moving to remove the Massachusetts case to
California. In October 1997 Platinum Software Corporation, a computer software
company, filed suit against the Company alleging breach of contract to provide
a software accounting package. The Company rejected the package for failure to
perform and breach of contract. The complaint prays for damages in the amount
of $103,670.38. The Company and the Company's senior management may in the
future be involved in other suits and actions incidental to the Company's
business. The Company does not believe that the resolution of the current
suits will result in any material adverse effect on the financial condition,
results of operations or cash flows of the Company.
35
<PAGE>
MANAGEMENT
The following table sets forth the names, ages and positions of the
executive officers, directors, and certain significant employees of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
EXECUTIVE OFFICERS AND
DIRECTORS:
Bill Gross(1)(2)............... 38 Chairman of the Board
Robert J. McNulty.............. 51 President, Chief Executive Officer and
Director
Kristine E. Webster............ 28 Senior Vice President, Chief Financial
Officer and Secretary
Mark S. Winkler................ 38 Chief Information and Technology
Officer
Douglas Hay.................... 43 Executive Vice President and Director
Paul J. Hill(1)................ 51 Director
Edward F. Bradley(2)........... 57 Director
CERTAIN SIGNIFICANT EMPLOYEE:
Ogden M. Forbes, Ed.D. ........ 40 Chief of Knowledge and Research
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
BILL GROSS. Mr. Gross joined Shopping.com on February 1, 1997 as its
Chairman of the Board. He is also Founder and Chairman of Bill Gross' idealab!
("idealab!"), an incubator established to start, fund and build innovative,
cutting-edge Internet technology companies. From October 1991 to January 1997,
he was Chairman of the Board of Knowledge Adventure, an educational software
company which was sold to CUC International in January 1997. In October 1995,
Mr. Gross co-founded CitySearch, a web-based city directory which operates in
eight cities, and has served on its Board since such time. Since December 1994
Mr. Gross has also founded various software companies and serves on the Board
of many of them. In 1995, Mr. Gross was elected to the Board of Trustees of
the California Institute of Technology as the first Young Alumni Trustee. He
received a Bachelor of Science degree in Engineering and Applied Science from
the California Institute of Technology in 1981.
ROBERT J. MCNULTY. In November 1996 Mr. McNulty founded Shopping.com and has
been its President, Chief Executive Officer and a member of its Board of
Directors since its inception, and devotes substantially all of his business
time to the Company. Mr. McNulty founded Cyber Depot, Shopping.com's
predecessor of Internet shopping, in February 1996, and is currently its
President and Chief Executive Officer. From September 1992 until November
1994, Mr. McNulty held senior management positions with Auto Expo Inc., a
privately held corporation which operated retail auto parts stores in
California and Nevada. After his resignation in June of 1994, until March
1995, he continued in an advisory position as a consultant to that company.
The subsequent management, which did not include Mr. McNulty and was
unassociated with Mr. McNulty, filed an assignment for the benefit of
creditors in California on November 22, 1995. In 1983 Mr. McNulty founded and
served as Chief Executive Officer of HomeClub (now known as Home Base), until
its merger with Zayre Corp. in 1986. He also serves as Chairman of the Board
of Directors of U.S. Forest Industries, Inc., a forest products company. Mr.
McNulty has also founded and been involved with several other retail
companies, both public and private, in a broad range of merchandise categories
including sporting goods, home improvement, hardware, office products and
automotive. Without admitting or denying the allegations of a complaint, Mr.
McNulty consented to an entry of a final decree in the U.S. District Court on
October 10, 1995, instructing him to not violate certain provisions of the
federal securities laws. See "Certain Transactions--Previous Legal
Proceedings."
KRISTINE E. WEBSTER. Ms. Webster joined the Company in July 1997 as its
Senior Vice President, Chief Financial Officer and Secretary. From July 1995
to August 1997, Ms. Webster served as an Assistant
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<PAGE>
Professor of Accounting at La Sierra University, a private four year
university and as an adjunct professor at California State University, San
Bernardino. From April 1993 to July 1995 Ms. Webster served as the Controller
of National Xpress Logistics, a transportation logistics brokerage company and
a wholly-owned subsidiary of US Xpress Enterprises, Inc. Prior to that she was
with Ernst & Young LLP from January 1988 to April 1992. From May 1992 to March
1993, she was a consultant and contract professor. In addition, since December
1990 Ms. Webster has owned Plaza Travel, a travel agency specializing in group
travel. Ms. Webster received her Bachelor of Business Administration degree,
summa cum laude, from Loma Linda University in 1989 and her Master of Business
Administration degree from La Sierra University in 1991. She is a Certified
Public Accountant in the State of California.
MARK S. WINKLER. Mr. Winkler joined the Company in May 1997 as its Chief
Information and Technology Officer. From 1978 to April 1997, Mr. Winkler
founded and served as Chief Executive Officer of Winkler & Associates, a
software consulting company which provided consulting services for various
companies including Warner Brothers, IBM, Inc.--Broadcast Solutions Division,
Pacificare HMO, American Express Company, Los Angeles Times, Air Freight
Forwarding Company, Inc., Jefferies & Company, Inc., Alliance Logistics
Resources Inc., Bank of America State Trust Company, TRW, Inc. and Jet
Propulsion Laboratory. Mr. Winkler received his Bachelor of Science degree in
Computer Science from the University of California, Santa Barbara in 1981.
DOUGLAS HAY. Mr. Hay joined the Company in May 1997 as its Executive Vice
President and was elected as a member of its Board of Directors in July 1997.
Mr. Hay has spent over 25 years in the field of marketing consumer products
and services. From 1990 to April 1997, Mr. Hay was General Manager of Projects
Et Al Inc., a business consulting firm that developed marketing and
merchandising programs for some of the nations leading retail companies. Mr.
Hay has also served as Vice President of Marketing for Northern Automotive,
Inc., an automotive parts retail company.
EDWARD F. BRADLEY. Mr. Bradley joined the Company as a member of its Board
of Directors in April 1997. From December 1996 to the present, Mr. Bradley has
been President and Chairman of Cannon Industries, Inc., a business development
and venture capital firm. Prior to joining Cannon Industries, Inc., from
January 1993 to December 1996, Mr. Bradley was the Corporate Director of
Quality of Geneva Steel Corp., an integrated steel manufacturer. From 1985 to
January 1993, Mr. Bradley carried on a management consulting business. From
1972 to 1985, Mr. Bradley was President of his environmental consulting
company with regional offices in New York, Washington D.C., Chicago, Detroit
and Milwaukee. Mr. Bradley has also functioned as a Special Consultant to the
U.S. Environmental Protection Agency in Washington, D.C. Mr. Bradley received
both a Bachelor of Science degree in Civil Engineering in 1961 and a Master of
Science degree in Civil Engineering in 1964 from the University of Notre Dame,
and is a Registered Professional Engineer. From 1988 to June 1996, Mr. Bradley
was a Adjunct Professor in Engineering Economics at the University of Utah.
PAUL J. HILL. Mr. Hill joined the Company as a member of its Board of
Directors in April 1997. He brings over 25 years of experience in managing
diversified integrated companies operating in areas such as insurance, real
estate, communications, resources and manufacturing. From June 1994 to the
present, Mr. Hill has served as Chairman of Crown Life Insurance Company. Mr.
Hill has participated as a board member and co-officer of many public and
private companies in both the United States and Canada. From 1978 to the
present Mr. Hill has also been President of McCallum Hill Companies, a
diversified company with operations in real estate, oil and gas and brokerage.
Mr. Hill received both a Bachelor of Science and Bachelor of Arts degree from
Georgetown University in 1967 and a Master of Business Administration degree
from the University of Western Ontario in 1969.
OGDEN M. FORBES, ED.D. Dr. Forbes brings to the Company an extensive
background and a significant level of experience in Internet research,
analysis, development, testing and marketing. From 1994 to 1997, Dr. Forbes
was Vice President of Research for Logon Data Corp., an Internet software
company and an Information Specialist at Pepperdine University. Dr. Forbes'
responsibilities have included identification of specific Internet markets,
trends, tracking competition, authoring of technical documents, specific and
general
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<PAGE>
Internet research, and executive advisement. Dr. Forbes received a Bachelor of
Arts degree in English from the University of California, Davis in 1979, a
Master of Arts degree in English from the Claremont Graduate School in 1985, a
Master of Arts degree in Education from the University of San Francisco in
1995 and a Doctorate in Education from the University of San Francisco in
1995.
SPECIAL BY-LAW PROVISIONS REGARDING NUMBER AND QUALIFICATION OF DIRECTORS
The authorized number of directors of the Company is seven. There are
currently two vacancies on the Board, and the Company does not intend to fill
such vacancies. Further, the Company's By-laws provide that, when the Company
becomes a "listed corporation," the Company's Board will be divided into two
classes to serve for terms of two years and to eliminate cumulative voting.
Pursuant to Section 301.5 of the California Corporations Code a listed
corporation is one with (i) outstanding shares listed on the New York Stock
Exchange or America Stock Exchange or (ii) outstanding securities designated
as qualified for trading as a national market system security on NASDAQ. After
completion of this offering the Company will not be a listed corporation as
such term is defined.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established a Compensation Committee
and an Audit Committee. The Compensation Committee reviews and recommends the
compensation arrangements for all officers, approves such arrangements for
other senior level employees and administers and takes such other action as
may be required in connection with certain compensation and incentive plans of
the Company (including the grant of stock options). The Audit Committee
recommends the independent accounting firm to audit the Company's financial
statements and to perform services related to the audit, reviews the scope and
results of the audit with the independent accountants, reviews with management
and the independent accountants the Company's year-end operating results and
considers the adequacy of the internal accounting procedures.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Mr. Gross and Mr. Bradley.
In April 1997, idealab!, a company controlled by Mr. Gross, purchased 500,000
shares of the Company's Series A Preferred Stock at $0.40 per share and
100,000 shares of the Company's Common Stock at $0.02 per share.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their services
as directors or members of committees of the Board of Directors, but are
reimbursed for their reasonable expenses incurred in connection with attending
meetings of the Board of Directors. In July 1997, the Company granted each of
the directors a stock option to purchase 25,000 shares of Common Stock at an
exercise price of $3.00 per share. For Messrs. Gross, Hill and Bradley, the
options were nonqualified stock options while for Messrs. McNulty and Hay the
options were qualified stock options. The qualified stock options are
"incentive stock options," which are generally available only to employees
(such as Messrs. McNulty and Hay), and pursuant to which, provided certain
conditions are met, the employee recognizes capital gain only when the stock
acquired pursuant to the option is sold. By contrast, a non-qualified stock
option is available to non-employees (such as Messrs. Gross, Hill and Bradley,
who are outside directors), who, in general, will recognize ordinary income
when the option is exercised (while the Company is entitled to a concomitant
deduction) to the extent the then fair market value of the stock exceeds the
option exercise price. All of the options were granted pursuant to the Plan
and vested immediately. The Company currently intends to make comparable
option grants to directors in the future. See "Certain Transactions."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Articles of Incorporation limit the liability of
directors to the full extent permitted by California law. California law
provides that a corporation's articles of incorporation may contain a
provision eliminating or limiting the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors, except for
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and
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<PAGE>
culpable violation of law, (ii) for acts or omissions that a director believes
to be contrary to the best interests of the corporation or its shareholders or
that involve the absence of good faith on the part of the director, (iii) for
any transaction from which a director derived an improper personal benefit,
(iv) for acts or omissions that show a reckless disregard for the director's
duty to the corporation or its shareholders, (v) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication
of the director's duty, (vi) for certain transactions between the director and
the corporation or for certain distributions, loans or guarantees. The
Company's Bylaws provide that the Company shall indemnify its directors and
officers and may indemnify its employees and agents to the fullest extent
permitted by law.
The Company has entered into agreements to indemnify its directors and
executive officers. These agreements, among other things, indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such persons in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company,
any subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and officers. The Company has obtained a policy insuring
the directors and officers for the liability described above.
At present, the only pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted is the lawsuit by the former consultant. See
"Business--Legal Proceedings."
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
received for the fiscal year ended January 31, 1997 for services rendered to
the Company in all capacities by the Company's executives. No executive
officer of the Company who held office at January 31, 1997 met the definition
of "highly compensated" within the meaning of the Commission's executive
compensation disclosure rules.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION TABLE
--------------------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)
------------------ --------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Robert J. McNulty,
President and Chief
Executive Officer...... $53,883 -- -- --
</TABLE>
- --------
(1) All other compensation in the form of perquisites and other personal
benefits has been omitted because the aggregate amount of such perquisites
and other personal benefits constituted the lesser of $50,000 or 10% of
the total annual salary and bonus of the Named Executive for such year.
EMPLOYMENT AGREEMENTS
Mr. McNulty's employment agreement requires him to perform the duties of
President and Chief Executive Officer at an initial annual salary of $75,000
and a review by the Compensation Committee to adjust his salary to an industry
standard, but in no event less than his current annual salary, as well as a
bonus to be determined by the Compensation Committee and the Board of
Directors. The employment agreement also provides that if he is terminated
without cause he would receive severance pay in the amount of two years,
11 months and 28 days of compensation. He is also entitled to participate in
the Plan and to receive the same benefits afforded to other executives. Mr.
McNulty's employment agreement terminates on May 1, 2002 with a rolling five
year term.
Mr. Winkler's employment agreement requires him to perform duties of Chief
Information and Technology Officer at an initial annual salary of $200,000 and
a bonus to be determined by the Compensation Committee and the Board of
Directors. The employment agreement also provides that if he is terminated
without cause he would receive severance pay in the amount of 18 months of
compensation. Mr. Winkler holds 25,000 shares of Common Stock of the Company.
He has signed a Shareholder's Agreement under which his stock is subject to
repurchase pursuant to a vesting schedule as follows: 100% at the first
anniversary of his employment, 66 2/3% up to the second anniversary, 33 1/3%
up to the third anniversary and thereafter 0%.
39
<PAGE>
EMPLOYEE BENEFIT PLANS
Stock Option Plan of 1997 (the "Plan"). The Company's Board of Directors has
adopted the Plan and reserved an aggregate of 250,000 shares of Common Stock
for grants of stock options under the Plan. The purpose of the Plan is to
enhance the long-term shareholder value of the Company by offering
opportunities to employees, directors, officers, consultants, agents, advisors
and independent contractors of the Company to participate in the Company's
growth and success, and to encourage them to remain in the service of the
Company and acquire and maintain stock ownership in the Company.
As of July 31, 1997, options to purchase 178,000 shares of Common Stock were
outstanding under the Plan with an exercise price of $3.00 per share, options
to purchase 72,000 shares were available for grant and no options had been
exercised.
The Plan is administered by the Compensation Committee, which has the
authority to select individuals who are to receive options under the Plan and
to specify the terms and conditions of each option so granted (qualified or
nonqualified), the vesting provisions, the option term and the exercise price.
Unless otherwise provided by the Compensation Committee, an option granted
under the Plan expires 10 years from the date of grant (five years in the case
of a qualified Stock option granted to a holder of 10% or more of the shares
of the Company's outstanding capital stock) or, if earlier, three months after
the optionee's termination of employment or service other than termination for
cause, one year after the optionee's retirement, early retirement at the
Company's request, death or disability, or immediately upon notification to an
optionee of termination for cause. Non-qualified options granted to non-
employee directors or consultants will not have the limitations and
restrictions described in the previous sentence. Options granted under the
Plan are not generally transferable by the optionee except by will or the laws
of descent and distribution and generally are exercisable during the lifetime
of the optionee only by such optionee. The Plan is subject to the approval of
the shareholders within 12 months from the date of its adoption.
In the event of (i) a merger or consolidation of the Company in which it is
not the surviving corporation, or pursuant to which shares of Common Stock are
converted into cash, securities or other property (other than a merger in
which holders of Common Stock immediately before a merger have the same
proportionate ownership of the capital stock of the surviving corporation
immediately after a merger), (ii) the sale, lease, exchange or other transfer
of all or substantially all of the Company's assets (other than a transfer to
a majority-owned subsidiary), or (iii) the approval by the holders of Common
Stock of any plan or proposal for the Company's liquidation or dissolution
(each, a "Corporate Transaction"), the Compensation Committee will determine
whether provision will be made in connection with the Corporate Transactions
for assumption of the options under the Plan or substitution of appropriate
new options covering the stock of the successor corporation, or an affiliate
of the successor corporation. If the Compensation Committee determines that no
such assumption or substitution will be made, each outstanding option under
the Plan shall automatically accelerate so that it will become 100% vested and
exercisable immediately before the Corporate Transaction, except that
acceleration will not occur if, in the option of the Company's accountants, it
would render unavailable "pooling of interest" accounting for the Corporate
Transaction.
Repurchase Rights Under the Plan. With respect to the Plan, the Compensation
Committee has the discretion to authorize the issuance of unvested shares of
Common Stock pursuant to the exercise of a stock option. If the optionee
ceases to be employed by or provide services to the Company, all shares of
Common Stock issued on exercise of a stock option which are unvested at the
time of cessation shall be subject to repurchase by the Company at the
exercise price paid for such shares. The terms and conditions upon which the
repurchase rights are exercisable by the Company are determined by the
Compensation Committee and set forth in the agreement evidencing such right.
The Compensation Committee has discretionary authority to cancel the Company's
outstanding repurchase rights with respect to one or more shares purchased or
purchasable under an option granted pursuant to the Plan. In the event of a
terminating event or a Corporate Transaction under the Plan, if vesting of the
options accelerates, the repurchase rights of the Company with respect to
shares previously acquired on exercise of options granted under the Plan shall
terminate.
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<PAGE>
CERTAIN TRANSACTIONS
In November 1996, Mr. McNulty subscribed to purchase 1,150,000 shares of the
Common Stock at $0.02 per share. In March 1997, the Company issued 250,000
shares of its Series A Preferred Stock to Cyber Depot, Inc., in exchange for
certain assets and liabilities of Cyber Depot, Inc., relating to Internet
shopping including hardware, software and certain furniture and fixtures. Mr.
McNulty is the controlling shareholder of Cyber Depot, Inc. and is also the
President, Chief Executive Officer and a Director of the Company. In
connection with such transaction, Mr. McNulty was issued five year warrants to
purchase 187,500 shares of Common Stock with an excise price of $3.00 per
share, as well as registration rights providing for one demand and unlimited
piggy-back registration rights. See "Description of Securities--Warrants" and
"--Registration Rights."
In April 1997, in a private placement, the Company sold 500,000 shares of
its Series A Preferred Stock at a price of $0.40 per share and 100,000 shares
of its Common Stock at $0.02 per share to idealab!, a corporation of which
Bill Gross, the Company's Chairman of the Board, is a director. In connection
therewith, idealab! was issued five year warrants to purchase 187,500 shares
of Common Stock with an exercise price of $3.00 per share, as well as
registration rights providing for one demand and unlimited piggy-back
registration rights. See "Description of Securities--Warrants" and "--
Registration Rights."
In May 1997, the Company sold 66,667 shares of its Series B Preferred Stock
in a private placement at a price of $3.00 per share to Kipling Isle, Ltd., a
company controlled by Paul J. Hill, a Director of the Company. In connection
therewith, Kipling Isle, Ltd. was issued five year warrants to purchase 33,333
shares of Common Stock with an exercise price of $3.00 per share as well as
registration rights providing for one demand and unlimited piggy-back
registration rights. See "Description of Securities--Warrants" and "--
Registration Rights."
In May 1997, the Company sold 100,000 shares of Series B Preferred Stock in
a private placement at a price of $3.00 per share to Christopher B. Cannon who
controls Cannon Industries, Inc., in which Edward Bradley, a Director of the
Company, is an executive officer. Mr. Cannon was issued five-year warrants to
purchase 50,000 shares of Common Stock with an exercise price of $3.00, as
well as registration rights providing for one demand and unlimited piggy-back
registration rights. See "Description of Securities--Warrants" and "--
Registration Rights."
In June 1997, the Company, through idealab!, purchased its domain name,
Shopping.com, from Magdalena Yesil. As consideration, Ms. Yesil received
30,000 shares of the common stock of idealab!, 30,000 shares of Common Stock
of the Company and $30,000 from the Company.
In August 1997, the Company sold 8,333 shares of its Series B Preferred
Stock in a private placement at a price of $3.00 per share to Ms. Webster, the
Company's Chief Financial Officer and Secretary. In connection therewith, Ms.
Webster was issued five year warrants to purchase 4,166 shares of Common Stock
with an exercise price of $3.00 per share as well as registration rights
providing for one demand and unlimited piggy-back registration rights. See
"Description of Securities--Warrants" and "--Registration Rights."
On August 19, 1997 Shopping.com signed an agreement with CitySearch, a
market innovator in providing community-based online information services for
the Web, to provide necessary back office transactions support for
CitySearch's new electronic commerce pilot program. According to the
agreement, Shopping.com will provide "shopping cart" tools, customer credit
authentication and verification, coordination with the merchant that an order
has been placed, communication with the customer when the order will be
shipped, collection of payment from the user and disbursement of payments to
the merchant. CitySearch plans to develop, manage, and monitor the electronic
commerce program, select customers for participation in the pilot program, as
well as market the program through its Austin CitySearch Web site. The pilot
program will be launched in early September and will run for a minimum of two
months. In October 1995, Mr. Gross co-founded CitySearch, a web-based city
directory which operates in eight cities, and has served on its Board since
such time.
41
<PAGE>
The Company has entered into employment agreements with Robert J. McNulty
and Mark S. Winkler. See "Management--Employment Agreements."
See "Management--Directors Compensation" for a description of certain
options granted members of the Company's Board.
Certain employees of the Company have entered into shareholder agreements
with Mr. McNulty and the Company and have given irrevocable proxies to Mr.
McNulty. See "Description of Securities--Shareholder Agreements."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained on an
arms-length basis from unaffiliated third parties. The Company has adopted a
policy pursuant to which all transactions (including, without limitation, the
borrowing of money) between the Company and its officers, directors and
affiliates will be on terms no less favorable for the Company than could be
obtained on an arms-length basis from unrelated third parties and will be
approved by a majority of the independent and disinterested members of the
Company's Board of Directors.
Previous Legal Proceedings. On September 30, 1994, the Securities and
Exchange Commission (the "SEC") filed a complaint arising out of actions taken
in 1989 by officers of four public corporations, AG Automotive Warehouses,
Inc., Auto Depot, Inc., HQ Office Supplies Warehouse, Inc., and HQ Office
International Inc. (collectively, the "Corporations"), in which Mr. McNulty
was Chairman of the Board but not an officer. Funds from two of the
Corporations were used to purchase securities of other companies from the
Corporations' market-maker, who threatened to abandon the market if this were
not done. The Corporations failed to disclose properly the transactions in
filings, on such Corporations' Quarterly Report on Form 10-Q for September
1990 which were filed in November 1990. The transactions were subsequent to
the end of such Corporations' fiscal quarters. After Mr. McNulty was advised
that such transactions were not properly disclosed, the filings were amended
in January 1991. The improper and amended filings were disclosed in the
subsequent filings on such Corporations' Annual Report on Form 10-K in May
1991. Such Corporations also made inter-company loans not disclosed in the
filings. Mr. McNulty resigned as a director of all of the Corporations in
April 1991.
The complaint alleged that, with the knowledge of Mr. McNulty, officers of
said Corporations had failed to disclose certain inter-company transactions,
loans and use of proceeds and loans or transfers to the underwriter and
market-maker for the Corporations and failed to make required filings with the
SEC. Mr. McNulty personally met with the enforcement division of the SEC, and,
without admitting or denying the allegations, consented to a judgment. Mr.
McNulty also consented to the repayment of $70,000 which was a loan to a
company controlled by him.
On October 10, 1995, the United States District Court for the Southern
District of New York entered a consent judgment in which Mr. McNulty, neither
admitted nor denied the allegations of the complaint. The judgment enjoined
Mr. McNulty from violating section 17(a) of the Securities Act of 1933, as
amended, and sections 10(b), 13(a), 13(b), 13(b)(2)(a) and 13(d) and Rules
10b-5, 12(b)-20 13a-1, 13a-13, 13b2-1, 13b2-2 and 13d-1 of the Securities
Exchange Act of 1934, as amended. The SEC waived the disgorgement order,
prejudgment interest and a civil penalty contingent upon the accuracy and
completeness of Mr. McNulty's statement of financial condition. See
"Management--Robert J. McNulty."
42
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 19, 1997 and as
adjusted to reflect the sale of 1,400,000 shares of Common Stock offered
hereby, (i) by each person who is known to the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) by each director
and executive officer of the Company and (iii) by all directors and executive
officers of the Company as a group. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERING(1) OFFERING(2)
NAME AND ADDRESS OF BENEFICIAL --------------------------------------------
OWNER(3) NUMBER PERCENT NUMBER PERCENT
------------------------------ ----------- --------------------- ----------
<S> <C> <C> <C> <C>
Robert J. McNulty(4)............... 1,325,000 49.04% 1,110,000 27.06%
idealab! .......................... 600,000 22.21 600,000 14.63
Bill Gross(5)...................... 600,000 22.21 600,000 14.63
Douglas Hay........................ 70,000 2.59 70,000 1.71
Kipling Isle, Ltd. ................ 66,667 2.47 66,667 1.63
Paul J. Hill(6).................... 66,667 2.47 66,667 1.63
Mark S. Winkler.................... 25,000 * 25,000 *
Kristine E. Webster................ 28,333 1.05 28,333 *
Edward F. Bradley(7)............... 0 * 0 *
En Pointe Technologies, Inc. ...... 125,000 4.63 125,000 3.05
----------- -----------
All directors and executive
officers as a group (7 persons)... 2,240,000 82.90% 2,025,000 49.37%
</TABLE>
- --------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options held by that person that are currently exercisable, or
become exercisable within 60 days from the date hereof, are deemed
outstanding. However, such shares are not deemed outstanding for purposes
of computing the percentage ownership of any other person. Percentage
ownership is based on 2,702,000 shares of Common Stock outstanding prior
to this offering (giving effect to the conversion of the Company's Series
A and Series B Preferred Stock into shares of Common Stock) and 4,102,000
shares of Common Stock outstanding after this offering.
(2) Assumes no exercise of any portion of the Underwriters' Over-Allotment
Option to purchase up to an aggregate of 210,000 shares of Common Stock.
Assumes no exercise of warrants issued and outstanding to purchase
1,226,000 shares of Common Stock which warrants are not exercisable for a
period of 90 days following the date of this Prospectus. See "Description
of Securities--Warrants."
(3) The address of each of the Beneficial Owners is 2101 East Coast Highway,
Garden Level, Corona del Mar, CA 92625 except for En Pointe Technologies,
Inc. whose address is 100 North Sepulveda Blvd., 19th Floor, El Segundo,
CA 90245.
(4) Includes the 250,000 shares of Common Stock which are subject to
irrevocable proxies held by Mr. McNulty, and includes 250,000 shares of
Series A Preferred Stock owned by Cyber Depot, Inc. Proxies representing
215,000 shares of Common Stock terminate upon the closing of this
offering. See "Description of Securities--Shareholder Agreements."
(5) Includes 600,000 shares of Common Stock held by idealab!, a California
corporation of which Mr. Gross is a director, as to which shares Mr. Gross
disclaims beneficial ownership, except to the extent of his derivative
ownership interest in idealab!.
(6) Includes 66,667 shares of Common Stock held by Kipling Isle, Ltd., a
corporation controlled by Paul J. Hill.
(7) Does not include shares of Common Stock held by Christopher B. Cannon in
which stock, Mr. Bradley claims no beneficial interest.
43
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Amended and Restated Articles of Incorporation currently
authorizes 8,000,000 shares of which 1,415,500 shares are currently issued and
outstanding without giving effect to the conversion of Preferred Stock,
1,158,000 shares of which have been issued to employees and consultants of the
Company. The holders of Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders, except
that, upon giving notice required by law, shareholders may cumulate their
votes in the election of directors. Under cumulative voting, each shareholder
may give any one candidate whose name is placed in nomination prior to the
commencement of voting a number of votes equal to the number of directors to
be elected, multiplied by the number of votes to which the shareholder's
shares are normally entitled, or distribute such number of votes among as many
candidates as the shareholder sees fit. The effect of cumulative voting is
that the holders of a majority of the outstanding shares of Common Stock may
not be able to elect all of the Company's directors. Holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding senior
securities. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, when issued, validly issued, fully paid and nonassessable.
After completion of this offering, the Company will file a new Amended and
Restated Articles of Incorporation which will authorize 20,000,000 shares of
Common Stock, of which 4,102,000 shares of Common Stock will be issued and
outstanding (assuming no exercise of the Over-Allotment Option and the
Representative's Warrants), with all of the rights discussed above.
PREFERRED STOCK
The Company is authorized to issue 5,500,000 shares of Preferred Stock.
1,500,000 shares of Series A Convertible Preferred Stock are authorized of
which 750,000 shares of the Series A Preferred Stock have been issued and are
outstanding. 4,000,000 shares of the Series B Preferred Stock are authorized
of which 536,500 shares are issued and outstanding. The Preferred Stock
carries certain rights, preferences and privileges including liquidation,
conversion and dividend preferences. However, upon the effective date of this
offering, all of the issued and outstanding Preferred Stock will be
automatically converted to Common Stock on a one share of Preferred Stock for
one share of Common Stock basis. After the completion of this offering, the
Amended and Restated Articles of Incorporation will not authorize the issuance
of any shares of Preferred Stock.
WARRANTS
In the private placements of the Company's Series A and Series B Preferred
Stock, one warrant exercisable until May 31, 2002 at an exercise price of
$3.00 for one share of Common Stock was issued with each two shares of
preferred stock purchased for an aggregate of 643,250 shares. In the private
placement of the Promissory Notes, warrants to purchase 33,300 were issued for
each $100,000 principal of a Promissory Note, which warrants are exercisable
until May 31, 2002 at an exercise price of $6.00 per share of Common Stock,
for an aggregate of 382,950 shares. In connection with the Company's agreement
with En Pointe, the Company issued warrants exercisable for a five year term
at an exercise price of $4.50 per share of Common Stock, for an aggregate of
199,800 shares. The warrants are transferable separately from the Series A and
Series B Preferred Stock and the Promissory Notes, but the warrants are not
exercisable for a period equal to the earlier of 90 days following the date of
this Prospectus or June 30, 1998.
The warrants may be exercised for the shares of Common Stock which is not
registered and the transfer of which is restricted, unless registered upon
surrender of the certificate(s) therefor on or prior to the expiration or the
redemption date (as explained above) at the offices of the Company's warrant
agent (the "Warrant Agent")
44
<PAGE>
with the form of "Election to Purchase" completed and executed as indicated,
accompanied by payment (in the form of certified or cashier's check payable to
the order of the Company or assignment of certain securities) of the full
exercise price or value for the number of warrants being exercised.
The warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price per share and the number of
shares issuable upon exercise thereof upon the occurrence of certain events,
including issuances of Common Stock (or securities convertible, exchangeable
or exercisable into Common Stock) at less than market value, stock dividends,
stock splits, mergers, a sale of substantially all of the Company's assets,
and for other extraordinary events; provided, however, that no such adjustment
shall be made upon among other things, (i) the issuance or exercise of options
or other securities under the Company's Plan or other employee benefit plans,
or (ii) the sale or exercise of outstanding options or warrants.
The Company is not required to issue fractional shares of Common Stock, and
in lieu thereof, will make a cash payment based upon the current market value
of such fractional shares. A holder of Warrants will not possess any rights as
a stockholder of the Company unless and until the Warrants are exercised.
See "Underwriting" for a description of the Representative's Warrants.
PROMISSORY NOTES
The Company has issued $1,750,000 of Promissory Notes, which have a due date
of nine months from the date of issuance or on the closing of this offering,
whichever is earlier. The Promissory Notes are unsecured, subordinated and
carry an interest rate of 10% per annum.
REGISTRATIONS RIGHTS
Registration Rights for Common Stock Shareholders
The shareholders of the existing Common Stock have piggyback registration
rights pursuant to a registration rights agreement. The piggyback registration
rights will be permitted only on registrations following this offering and
then subject to the determination by the underwriter or the Company of the
registration as to the appropriateness of the amount of the registration of
the Common Stock to be registered thereby.
Registration Rights for the Existing Series A and Series B Preferred Stock
Shareholders and Holders of the Warrants
The shareholders of Series A and Series B Preferred Stock and holders of the
warrants have registration rights pursuant to registration rights agreement
which allows at least fifty percent of the holders of said Preferred Stock and
warrants to make one demand for registration of the Common Stock held by them
after conversion of their Preferred Stock or exercise of their warrants, as
applicable, only after this offering and then subject to certain limitations
in connection with the approval of an underwriter. The registration rights
agreements also provide for piggyback rights on subsequent registration of
securities of the Company following this offering and subject to the approval
of the underwriter or the Company.
See "Certain Transactions" for a description of Registration Rights granted
to the Company's officers and directors.
SHAREHOLDER AGREEMENTS
Certain of the employees of the Company who are holders of the Common Stock
of the Company have entered into shareholder agreements in which they have
agreed to be subject to repurchase covenants by the Company and Mr. McNulty in
the event of, among other situations, their death, disability and termination
of employment. There are vesting provisions, which vary for each shareholder,
pursuant to which Mr. McNulty may purchase their stock at a price set by the
Board of Directors. The shareholder agreements also provides for a right of
first refusal in favor of the Company and Mr. McNulty in the event that the
holder of the Common Stock desires to sell or transfer the Common Stock. The
shareholder agreements are terminated after the effective date of this
offering. Certain of the employees who are also shareholders of the Company
have given to Mr. McNulty
45
<PAGE>
irrevocable proxies to vote their shares which proxies terminate on the
earlier of 10 years from their date of grant or on the date of this
Prospectus. Of such proxies, proxies representing 215,000 shares terminate on
the date of this Prospectus and proxies representing 35,000 shares do not
terminate.
TRANSFER AGENT AND REGISTRAR
The Transfer agent and Registrar for the Common Stock and the Warrants of
the company is U.S. Stock Transfer Company, Glendale, California.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of this offering, 4,102,000 shares of Common Stock will be
issued and outstanding after giving effect to the automatic conversion of the
Preferred Stock and assuming no exercise of (i) the Underwriters' Over-
Allotment Option or (ii) the Representative's Warrant. The 1,400,000 shares of
Common Stock sold in this offering registered on the Registration Statement of
which this Prospectus forms a part will be freely transferable without
restriction or further registration under the Securities Act by persons other
than "affiliates" of the Company (as that term is defined in Rule 144 under
the Securities Act). The remaining 2,702,000 shares of Common Stock issued by
the Company prior to this offering will be "restricted securities," as that
term is defined under Rule 144 promulgated under the Securities Act, and may
be publicly sold only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration such as Rule 144.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least one year, but less than
two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Common Stock (approximately 41,020 shares immediately after
completion of this offering) or (ii) the average weekly trading volume during
the four calendar weeks immediately preceding the date on which notice of the
sale is filed with the Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned his or her shares for at least two years would be
entitled to sell such shares pursuant to Rule 144(k) without regard to the
volume limitation, manner of sale provisions, notice or other requirements of
Rule 144.
In addition, restricted securities issued and sold by the Company in
reliance on Rule 701 of the Securities Act may be resold under Rule 144
without compliance with certain of Rule 144's requirements. Subject to certain
limitations on the aggregate offering price of a transaction and other
conditions, Rule 701 may be relied upon by the Company with respect to certain
sales of shares of Common Stock by the Company to its employees, directors,
officers, consultants or advisors, pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons, such
as the Plan. Securities issued in reliance on Rule 701 are restricted
securities and, beginning 90 days after the effective date of this Prospectus,
may be sold pursuant to Rule 144 by persons other than affiliates of the
Company subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its two-year minimum holding
period requirements. Rule 701 will not be available to the Company once it
becomes subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended.
Each holder of Common Stock who is an officer, director or key employee of
the Company and each holder of Preferred Stock has entered into a "lock-up"
agreement providing that such shareholder will not offer, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of the Company's Common Stock or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of the Company's Common Stock for a period of 12
months from the date of this
46
<PAGE>
Prospectus without the prior written consent of the Representative. 1,400,000
shares of Common Stock will be eligible for sale after the effective date of
this offering, an additional 802,000 shares of Common Stock will be eligible
for sale 12 months from the date of this Prospectus and an additional
1,900,000 shares of Common Stock will be eligible for sale from April 1999
through August 1999, subject to satisfaction of the applicable conditions of
Rule 144.
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made of the effect, if any, that
future sales of restricted shares or the availability of restricted shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the restricted shares of Common Stock in the
public market could adversely affect the then prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
47
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through the Representative, Waldron & Co., Inc. have
severally agreed to purchase from the Company the following respective number
of shares at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus and the Company has
agreed to sell to the Underwriters named below 1,400,000 shares of Common
Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Waldron & Co., Inc...............................................
---------
Total ....................................................... 1,400,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all Shares offered hereby, if any of such Shares are purchased. The
Company has been advised by the Representative that (i) the Underwriters
propose to offer the Shares purchased by them directly to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers at a price that represents a concession of per Share, or % per
Share and (ii) none of the Underwriters intends to sell any Shares to accounts
for which such Underwriter exercises discretionary authority. After the
initial public offering of the Shares, the offering price and the selling
terms may be changed by the Underwriters.
The Company has granted the Underwriters the Over-Allotment Option,
exercisable for 45 days from the effective date of this offering, to purchase
up to 210,000 Shares at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of Shares to be purchased by it shown in
the above table represents to the total shown, and the Company will be
obligated, pursuant to the option, to sell such Shares to the Underwriters.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of the Shares offered hereby. If purchased, such
additional Shares will be sold by the Underwriters on the same terms as those
on which the 1,400,000 Shares are being offered.
The Company has agreed to pay the Representative a non-accountable expense
allowance in the amount of 3% of the offering proceeds received from the sale
of the Shares, which is estimated at $357,000 or $410,550 if the Over-
Allotment Option is exercised.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act. Insofar as indemnification for
liabilities arises under the Securities Act that may be permitted to
directors, officers, and controlling persons of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
At the closing of this offering, the Company will issue as to the
Representative, for $100, a warrant (the "Representative's Warrants") to
purchase a number of shares (the "Representative's Shares") equal to 10% of
the Shares sold in the offering, excluding any Shares sold upon exercise of
the Over-Allotment Option. The Representative's Warrants will be exercisable
for a four-year period commencing one year from the date of this
48
<PAGE>
Prospectus at an exercise price equal to 155% of the price per Share in this
offering. The Representative's Warrants does not entitle the Representative to
any rights as a shareholder of the Company until such warrant is exercised.
The Representative's Warrants may not be transferred, sold, assigned or
hypothecated for a period of one year from the date of this Prospectus except
to officers or partners of the Representative and members of the selling group
and their officers or partners, or by will or operation of law. After one year
from the date of this Prospectus, if a transfer of the Representative's
Warrant occurs to a party not an officer or partner of the Representative or
selling group member, then the Representative's Warrants so transferred must
be immediately exercised.
For the period during which the Representative's Warrant is exercisable, the
holder(s) will have the opportunity to profit from a rise in the market value
of the Common Stock, with a resulting dilution in the interests of the other
shareholders of the Company. The holder(s) of the Representative's Warrant can
be expected to exercise it at a time when the Company would, in all
likelihood, be able to obtain any needed capital from an offering of its
unissued Common Stock on terms more favorable to the Company than those
provided for in the Representative's Warrants. Such facts may adversely affect
the terms on which the Company can obtain additional financing.
The Company must file all necessary undertakings required by the Commission
in connection with the registration of the shares issuable upon exercise of
the Representative's Warrants. Upon the Representative's demand, the Company
will file a registration statement or post-effective amendment so as to permit
the Representative to sell publicly the shares issuable upon exercise of the
Representative's Warrants. The Company has agreed to register the securities
issuable upon exercise of the Representative's Warrants under the Act on two
occasions at any time within five (5) years from the date of this Prospectus
(the first at the Company's expense and the second at the expense of the
holders of the Representative's Warrants). The Representative's Warrants
includes a provision permitting the holder to elect a cashless exercise
pursuant to which the holder may exercise a portion of the Representative's
Warrants in exchange for a decrease in the total number of shares underlying
the Representative's Warrants. The Company has also granted certain piggy-back
registration rights to holders of the Representative's Warrants which expire
seven (7) years from the date of this Prospectus.
The Company has also agreed to appoint the Representative, for a period of
three years, as its exclusive advisor for the purpose of identifying and
developing future merger and acquisition candidates. If, during the term of
this appointment, the Company participates in any merger, acquisition or other
transaction, whether as acquiror or acquiree, including an acquisition of
assets or stock and in which it pays for the acquisition, in whole or in part,
with shares of the Company's Common Stock, then it will pay for the
Representative's services an amount equal to 5% of the first million dollars
of value involved in the transaction, 4% of the second million, 3% of the
third million, 2% of the fourth million and 1% of all such value above
$4,000,000.
The officers, directors and key employees of the Company have agreed not to
offer, sell or otherwise dispose of any shares of Common Stock owned or
hereafter acquired by them for one year following the date of this Prospectus
without the Representative's prior written consent. See "Shares Eligible For
Future Sale."
The Representative will have the right, for a period of three years
following the date of this Prospectus, to receive notice of, and to have an
observer present at, meetings of the Board of Directors and shareholders of
the Company and the Company is obligated to reimburse the Representative for
the costs and expenses reasonably incurred by such observer in attending such
meetings, but such observer will not otherwise be entitled to compensation
from the Company.
In connection with the private placement of securities by the Company, the
Company paid Waldron & Co., Inc., as placement agent, a commission in the
amount of $170,000 and a non-accountable expense allowance of $51,000.
Further, the Company owes Waldron & Co., Inc. an additional $60,000 in
commissions and $18,000 in non-accountable expenses. The Company also issued
to Waldron & Co., Inc. warrants (the "Placement Agent Warrants") to purchase
75,000 shares of Common Stock at an exercise price of $3.00 per share
exercisable for a period of five years. The Placement Agent Warrants will be
canceled prior to consummation of this offering.
49
<PAGE>
While Waldron & Co., Inc. has been in the investment banking business and a
registered NASD member since 1939, it has only recently participated as a
managing underwriter in its first public offering of securities. Prospective
purchasers of Common Stock in this offering should consider the lack of
experience of Waldron & Co., Inc. in evaluating an investment in the Company,
See "Risk Factors--Lack of Experience of Waldron & Co., Inc."
Prior to this offering, there has been no public market for any securities
of the Company. Consequently, the initial public offering price for the Shares
will be determined by negotiation between the Company and the Representative.
Among the factors considered in such negotiations will be prevailing market
conditions, the results of operations of the Company in recent periods, the
price-to-earnings ratios of publicly traded companies that the Company and the
Representative believe to be comparable to the Company, the revenues and
earnings of the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant. The offering price does not necessarily bear any direct relation to
current market price, asset value or net book value of the Company.
The Representative has indicated its intention to make a market in the
Company's Common Stock after the offering made hereby. In connection with that
activity, the Representative may, but shall not be required to, effect
transactions which stabilize or maintain the market price of the Common Stock
offered hereby at a level above that which might otherwise prevail in the open
market. Such stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon
for the Company by Lewis, D'Amato, Brisbois & Bisgaard LLP, Los Angeles,
California. Leon M. Cooper, a partner of Lewis, D'Amato, is the beneficial
owner of 20,000 shares of Common Stock of the Company and 100,000 shares (10%)
of the common stock in Cyber Depot, Inc., the controlling shareholder of which
is Robert J. McNulty and which holds 250,000 shares of the Company's Series A
Preferred Stock. Certain matters will be passed upon for the Underwriters by
Donahue, Mesereau & Leids LLP, Los Angeles, California.
EXPERTS
The balance sheet of the Company as of January 31, 1997 and the related
statements of operations, shareholders' equity (deficit) and cash flows for
the fiscal year ended January 31, 1997, included elsewhere in this Prospectus,
have been included in reliance on the report of Singer Lewak Greenbaum &
Goldstein LLP, independent certified public accountants, given on the
authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Washington, D.C. Office of the Commission, a
Registration Statement on Form SB-2 under the Securities Act, with respect to
the securities offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in
such Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding
the contents of any contract or any other document referred to are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission, each such statement being
qualified in all respects by such reference. The Registration Statement and
the exhibits and schedules thereto may be inspected, without charge, and
copies may be obtained at prescribed rates, at the public reference facility
maintained by the Commission at Judiciary Plaza, Room 1024,
50
<PAGE>
450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661,
and copies of all or any part thereof may be obtained from such offices upon
the payment of the fees prescribed by the Commission. Electronic filings made
by the Company through the Commission's Electronic Data Gathering, Analysis
and Retrieval ("EDGAR") System are publicly available through the Commission's
World Wide Web site (http://www.sec.gov), which contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Company is not subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
Upon completion of this offering, the Company will be subject to the
information requirements of the Exchange Act, and, in accordance therewith,
will file reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information may be inspected at the
public references facility of the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W. 20549, and at its regional offices located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Commission at such
address. Such reports, proxy statements and other information can also be
inspected at the Commission's regional offices at the addresses indicated
above.
51
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................... F-2
FINANCIAL HIGHLIGHTS
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Shareholders' Equity (Deficit)............................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Shopping.com
We have audited the accompanying balance sheet of Shopping.com (a
development stage company) as of January 31, 1997, and the related statements
of operations, shareholders' equity (deficit), and cash flows for the year
then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audit provides 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 Shopping.com as of January
31, 1997, and the results of its operations and cash flows for the year then
ended, 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 shown in the financial
statements, the Company incurred a net loss of $201,697 and had negative cash
flows from operations for the year ended January 31, 1997, and had a
shareholders' deficit at January 31, 1997. These factors, among others, as
discussed in Note 1 to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
June 17, 1997
F-2
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF JANUARY 31, 1997 AND JULY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1997 1997
----------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets
Cash (Note 2)............................................. $ 63 $ 289,392
Stock subscription receivable............................. 23,000 --
Prepaid expenses.......................................... -- 115,286
--------- -----------
Total current assets.................................... 23,063 404,678
Furniture and equipment, net (Note 3)....................... 12,165 800,931
Loan origination fees....................................... -- 109,778
Deferred offering costs..................................... -- 20,000
Other assets................................................ 3,956 107,814
--------- -----------
Total assets............................................ $ 39,184 $ 1,443,201
========= ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C>
Current liabilities
Notes payable (Note 6).................................... $ -- $ 950,000
Note payable--related party (Note 5)...................... 50,000 --
Current portion of capital lease obligation (Note 4)...... -- 15,993
Accounts payable.......................................... 35,986 322,259
Other accrued liabilities................................. 31,845 53,829
Deferred revenue.......................................... -- 52,500
--------- -----------
Total current liabilities............................... 117,831 1,394,581
Capital lease obligation, net of current portion (Note 4)... -- 74,200
--------- -----------
Total liabilities....................................... 117,831 1,468,781
--------- -----------
Commitments (Note 4 and 9)
Shareholders' equity (deficit) (Note 7)
Preferred stock, Series A convertible, no par value,
1,500,000 shares authorized, 0 and 1,500,000 shares
issued and outstanding................................... -- 300,000
Preferred stock, Series B convertible, no par value,
4,000,000 shares authorized, 0 and 686,666 shares issued
and outstanding.......................................... -- 916,781
Common stock, no par value, 8,000,000 shares authorized,
2,305,000 and 2,565,000 shares issued and outstanding.... 23,050 31,050
Additional paid-in capital................................ 100,000 --
Deficit accumulated during development stage.............. (201,697) (1,273,411)
--------- -----------
Total shareholders' equity (deficit).................... (78,647) (25,580)
--------- -----------
Total liabilities and shareholders' equity (deficit).. $ 39,184 $ 1,443,201
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1997 AND
THE SIX MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
INCEPTION
FOR THE SIX MONTHS SIX MONTHS (FEBRUARY
YEAR ENDED ENDED ENDED 1996) TO
JANUARY 31, JULY 31, JULY 31, JULY 31,
1997 1997 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 55,541 $ -- $ 55,541
Cost of sales........... -- 50,509 -- 50,509
--------- ----------- --------- -----------
Gross profit............ -- 5,032 -- 5,032
--------- ----------- --------- -----------
Operating Expenses...... 201,697 1,070,208 70,391 1,271,905
--------- ----------- --------- -----------
Loss from operations.... (201,697) (1,065,176) (70,391) (1,266,873)
Other expenses
Interest expense...... -- (6,538) -- (6,538)
--------- ----------- --------- -----------
Total other
expenses........... -- (6,538) -- (6,538)
--------- ----------- --------- -----------
Net loss................ $(201,697) $(1,071,714) $ (70,391) $(1,273,411)
========= =========== ========= ===========
Net loss per share...... $ (0.03) $ (0.16) $ (0.01) $ (0.19)
========= =========== ========= ===========
Weighted average shares
outstanding............ 6,809,588 6,809,588 6,809,588 6,809,588
========= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED JANUARY 31, 1997 AND
THE SIX MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK
------------------ ------------------ DEFICIT
SERIES A SERIES B ACCUMULATED
CONVERTIBLE CONVERTIBLE COMMON STOCK ADDITIONAL DURING
------------------ ------------------ ----------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
--------- -------- ------- ---------- --------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1,
1996................... -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common
stock.................. 2,305,000 23,050 23,050
Capital contributed by
Cyber Depot, Inc. to
purchase assets and
develop proprietary
software............... 100,000 100,000
Net loss................ (201,697) (201,697)
--------- -------- ------- ---------- --------- ------- --------- ----------- -----------
Balance, January 31,
1997................... -- -- -- -- 2,305,000 23,050 100,000 (201,697) (78,647)
Issuance of common
(unaudited)............ 260,000 8,000 8,000
Issuance of preferred
stock, Series A for
cash (unaudited)....... 1,000,000 200,000 200,000
Issuance of preferred
stock, Series A for
assets and proprietary
software of Cyber
Depot, Inc.
(unaudited)............ 500,000 100,000 (100,000) --
Issuance of preferred
stock, Series B for
cash (unaudited)....... 686,666 1,030,000 1,030,000
Offering costs
(unaudited)............ (113,219) (113,219)
Net loss (unaudited).... (1,071,714) (1,071,714)
--------- -------- ------- ---------- --------- ------- --------- ----------- -----------
Balance, July 31, 1997
(unaudited)............ 1,500,000 $300,000 686,666 $ 916,781 2,565,000 $31,050 $ -- $(1,273,411) $ (25,580)
========= ======== ======= ========== ========= ======= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 31, 1997 AND
THE SIX MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
INCEPTION
FOR THE YEAR SIX MONTHS SIX MONTHS (FEBRUARY
ENDED ENDED ENDED 1996) TO
JANUARY 31, JULY 31, JULY 31, JULY 31,
1997 1997 1996 1997
------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss.................. $(201,697) $(1,071,714) $(70,391) $(1,273,411)
Adjustments to reconcile
net loss to net cash used
in operating activities
Depreciation of
furniture and
equipment.............. 1,276 23,848 576 25,124
Amortization of loan
origination fees....... -- 13,722 -- 13,722
Expense recognized from
issuing common stock
below market value..... -- 6,000 -- 6,000
(Increase) in prepaid
expenses............... -- (115,286) -- (115,286)
(Increase) in other
assets................. (3,956) (103,858) (3,956) (107,814)
Increase in accounts
payable................ 35,986 271,273 -- 307,259
Increase in other
accrued liabilities.... 31,845 21,984 -- 53,829
Increase in deferred
revenue................ -- 52,500 -- 52,500
--------- ----------- -------- -----------
Net cash used in operating
activities................. (136,546) (901,531) (73,771) (1,038,077)
--------- ----------- -------- -----------
Cash flows from investing
activities
Purchase of furniture and
equipment................ (13,441) (722,421) (13,441) (735,862)
--------- ----------- -------- -----------
Net cash used in investing
activities................. $ (13,441) $ (722,421) $(13,441) $ (735,862)
========= =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND
THE SIX MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
INCEPTION
FOR THE SIX MONTHS SIX MONTHS (FEBRUARY
YEAR ENDED ENDED ENDED 1996) TO
JANUARY 31, JULY 31, JULY 31, JULY 31,
1997 1997 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from financing
activities
Issuance of note payable--
related party............... 50,000 -- -- 50,000
Payments on note payable--
related party............... -- (50,000) -- (50,000)
Issuance of notes payable.... -- 950,000 -- 950,000
Payment of loan origination
fees........................ -- (123,500) -- (123,500)
Proceeds from the issuance of
preferred stock, Series A... -- 200,000 -- 300,000
Proceeds from the issuance of
preferred stock, Series B... -- 1,030,000 -- 1,030,000
Payment of offering costs.... -- (118,219) -- (118,219)
Proceeds from the issuance of
common stock................ 50 25,000 -- 25,050
Capital contribution......... 100,000 -- 87,212 --
-------- ---------- ------- ----------
Net cash provided by financing
activities.................... 150,050 1,913,281 87,212 2,063,331
-------- ---------- ------- ----------
Net increase in cash........... 63 289,329 -- 289,392
Cash, beginning of period...... -- 63 -- --
-------- ---------- ------- ----------
Cash, end of period............ $ 63 $ 289,392 $ -- $ 289,392
======== ========== ======= ==========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During the six months ended July 31, 1997, the Company paid $1,000 (unaudited)
in interest.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended January 31, 1997, the Company issued common stock in the
amount of $23,000 for a subscription receivable.
During the six months ended July 31, 1997, the Company issued 500,000 shares
of Series A convertible preferred stock in exchange for certain assets and
software research and development of Cyber Depot, Inc. valued at $100,000
(unaudited). In addition, the Company entered into a capital lease obligation
of $90,193 (unaudited).
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND LINE OF BUSINESS
Shopping.com (the "Company") was incorporated in California on November 22,
1996. Cyber Depot, Inc. ("Cyber") was incorporated in California in January
1996 and among other business ventures commenced the design and development of
proprietary software for the Internet shopping marketplace in February 1996.
In March 1997, Cyber agreed to sell certain assets and liabilities and
proprietary software to Shopping.com for 500,000 shares of Series A
Convertible Preferred Stock, and Shopping.com continued the design and
development of the proprietary software. The operations of Cyber devoted to
the design and development of the proprietary software are considered to be
the predecessor operations of the Company and have been included with the
operations of the Company since February 1996. The propriety software acquired
by the Company in this transaction has been expensed as software research and
development. The Company is engaged in the design and development of
proprietary software for marketing a broad range of products and services to
retail customers on the Internet. On July 11, 1997, the Company commenced
selling products over the Internet through its website at
http://www.shopping.com.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of the
Company as a going concern. However, the Company has experienced net losses of
$201,697 and $1,071,714 (unaudited) for the year ended January 31, 1997 and
the six months ended July 31, 1997, respectively. In addition, the Company has
used, rather than provided, cash from its operations. In view of the matters
described above, recoverability of a major portion of the recorded asset
amounts shown in the accompanying balance sheets is dependent upon continued
operations of the Company, which in turn, is dependent upon the Company's
ability to continue to meet its financing requirements and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts,
or amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
Management has raised capital during 1997 through private placement
offerings of equity and debt securities and expects to complete an initial
public offering ("IPO") in the latter part of 1997, which management expects
will provide sufficient funding to continue present operations and support
future marketing and development activities.
INTERIM FINANCIAL INFORMATION
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management, are necessary to fairly state the Company's financial
position, the results of its operations and cash flows for the periods
presented. The results of operations for the six months ended July 31, 1997
are not necessarily indicative of results for the entire fiscal year ending
January 31, 1998.
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 the
disclosures 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.
F-8
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
REVENUE RECOGNITION
The Company recognizes revenue at the time the vendor ships the product to
the customer.
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common and
common equivalent shares outstanding during the period. In connection with the
Company's IPO, convertible preferred stock and warrants to purchase the
Company's common stock issued for consideration below the IPO per share price
(assuming an IPO price of $4.25 on a pre-split basis or $8.50 on a post-split
basis) during the twelve months before the filing of the registration
statement have been included in the calculation of common stock equivalent
shares using the treasury stock method as if they had been outstanding for all
periods presented.
STOCK SUBSCRIPTION RECEIVABLE
At January 31, 1997, the Company had subscriptions to purchase its common
stock of $23,000. This amount was collected subsequent to the balance sheet
date; therefore, the amount is shown as an asset in the accompanying balance
sheet.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three months
or less to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost less accumulated depreciation.
Depreciation and amortization are provided using the straight-line method over
estimated useful lives of three to fifteen years as follows:
<TABLE>
<S> <C>
Computer hardware........................................... 5 years
Computer software........................................... 3 years
Furniture and equipment..................................... 5 to 7 years
Leasehold improvement....................................... 15 years
</TABLE>
Maintenance and minor replacements are charged to expense as incurred. Gains
and losses on disposals are included in the results of operations.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs for
the year ended January 31, 1997 and for the six months ended July 31, 1997 and
1996 were $0, $11,603 (unaudited), and $0 (unaudited), respectively.
INCOME TAXES
The Company utilizes Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method,
F-9
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
INCOME TAXES (CONTINUED)
deferred income taxes are recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. The provision for income taxes represents the tax payable for the
period and the change during the period in deferred tax assets and
liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's
financial instruments, including cash, accounts payable, and other accrued
liabilities, the carrying amounts approximate fair value due to their short
maturities. The amounts shown for note payable also approximate fair value
because current interest rates offered to the Company for debt of similar
maturities are substantially the same.
DEFERRED OFFERING COSTS
Amounts paid for costs associated with an anticipated IPO are capitalized
and will be recorded as a reduction to common stock upon the completion of the
IPO. In the event that the IPO is not successful, the deferred offering costs
will be charged to expense.
LOAN ORIGINATION FEES
Loan origination fees are amounts paid to obtain the $950,000 in debt
financing. These fees are being amortized over the lives of the respective
notes payable (nine months). Any unamortized fees at the completion of the IPO
will be expensed immediately. The amortization of those fees for the six
months ended July 31, 1997 was $13,722 (unaudited).
STOCK SPILT
At the closing of the Company's IPO, the Company will effect a one for two
reverse stock split of its common stock. These financial statements do not
reflect this reverse stock split as it is contingent upon the closing of the
Company's IPO.
STOCK OPTIONS
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting
for Stock-Based Compensation," effective for fiscal years beginning after
December 15, 1995. SFAS 123 establishes and encourages the use of the fair
value based method of accounting for stock-based compensation arrangements
under which compensation cost is determined using the fair value of stock-
based compensation determined as of the date of grant and is recognized over
the periods in which the related services are rendered. The statement also
permits companies to elect to continue using the current implicit value
accounting method specified in Accounting Principles Bulletin ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," to account for stock-based
compensation. The Company will use the implicit value based method and will be
required to disclose the pro forma effect of using the fair value based method
to account for its stock-based compensation.
F-10
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
RISKS AND UNCERTAINTIES
The Company's future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet and other
online services as an effective medium of commerce by consumers. Rapid growth
in the use of an interest in the Web, the Internet, and other online services
is a recent phenomenon, and there can be no assurance that acceptance and use
will continue to develop or that a sufficiently broad base of consumers will
adopt, and continue to use, the Internet and other online services as a medium
of commerce.
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality, and features of the Shopping.com online store.
The Internet and the online commerce industry are characterized by rapid
technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies, and the emergence of new industry standards and practices that
could render the Company's existing Web site and proprietary technology and
systems obsolete. The Company's success will depend, in part, on its ability
to license leading technologies useful in its business, enhance its existing
services, develop new services and technology that address the increasingly
sophisticated and varied needs of its prospective customers, and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. The Company
relies on encryption and authentication technology licensed from third parties
to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card
numbers. There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments will
not result in a compromise or breach of the algorithms used by the Company to
protect customer transaction data.
The online commerce market, particularly over the Internet, is new, rapidly
evolving, and intensely competitive, which competition the Company expects to
intensify in the future. Barriers to entry are minimal, and current and new
competitors can launch new Web sites at a relatively low cost. The Company
currently or potentially competes with a variety of other companies.
The Company carries no inventory, has no warehouse employees or facilities,
and relies on rapid fulfillment from its vendors. To satisfy customer orders,
the Company has no long-term contracts or arrangements with any of its
manufacturers or distributors that guarantee the availability of merchandise,
the continuation of particular payment terms, the extension of credit limits,
or the shopping schedules.
The Company regards its Shopping.com brand name and related software as
proprietary and relies primarily on a combination of copyright, trademark,
trade secret and confidential information laws, and employee and third party
non-disclosure agreements and other methods to protect its proprietary rights.
There can be no assurance that these protections will be adequate to protect
against technologies that are substantially equivalent or superior to the
Company's technologies. The Company does not currently hold any patents or
have any patent applications pending for itself or its products and has not
obtained federal registration for any of its trademarks.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per
Share," which is effective for financial statements issued for periods ending
after December 31, 1997. SFAS No. 128 requires public companies to present
basic earnings per share and, if applicable, diluted earnings per share
instead of primary and fully-diluted earnings per share. The Company does not
believe that diluted earnings per share in accordance with SFAS No. 128 will
be materially different from the earnings per share previously reported.
F-11
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 2--CASH
The Company maintains cash balances at financial institutions located in
California. Accounts at each institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. Uninsured balances aggregated to
$137,004 (unaudited) at July 31, 1997. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.
NOTE 3--FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1997 1997
----------- --------
(UNAUDITED)
<S> <C> <C>
Computer hardware..................................... $12,761 $570,547
Computer software..................................... -- 49,174
Furniture and equipment............................... 680 162,993
Leasehold improvements................................ -- 43,341
------- --------
13,441 826,055
Less accumulated depreciation and amortization........ 1,276 25,124
------- --------
Total............................................... $12,165 $800,931
======= ========
</TABLE>
NOTE 4--COMMITMENTS
LITIGATION
The Company is involved in certain litigation in the normal course of
business. The Company does not believe that the resolution of any suit will
result in any material adverse effect on the Company's financial position,
results of operations or cash flows.
LEASES
The Company leases a facility for its corporate offices under a non-
cancelable operating lease agreement that expires in 2002. Future minimum
lease payments under this non-cancelable operating lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
-----------------------
<S> <C>
1998............................................................ $ 75,489
1999............................................................ 117,282
2000............................................................ 125,798
2001............................................................ 131,594
2002............................................................ 137,390
Thereafter...................................................... 40,565
--------
Total......................................................... $628,118
========
</TABLE>
Rent expense was $13,451 for the year ended January 31, 1997 and $29,422
(unaudited) and $6,594 (unaudited) for the six months ended July 31, 1997 and
1996, respectively.
F-12
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 4--COMMITMENTS (CONTINUED)
LEASES (CONTINUED)
The Company also leases certain office equipment under a non-cancelable
capital lease arrangement. Future minimum lease payments under this lease
agreement are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
-----------------------
<S> <C>
1998........................................................... $ 13,905
1999........................................................... 23,837
2000........................................................... 23,837
2001........................................................... 23,837
2002........................................................... 23,837
Thereafter..................................................... 9,933
--------
119,186
Less amount representing interest................................ 28,993
--------
90,193
Less current portion............................................. 15,993
--------
Long-term portion.............................................. $ 74,200
========
</TABLE>
Included in furniture and equipment at July 31, 1997 is capital lease
equipment of $90,193 (unaudited) with accumulated amortization of $0
(unaudited).
NOTE 5--NOTE PAYABLE--RELATED PARTY
The Company has a note payable to a related party which is personally
guaranteed by an officer of the Company. In addition, the note is personally
guaranteed by a vice president of the Company and secured by a second deed of
trust on a residence owned by the vice president. The note accrues interest at
the highest rate permitted by California law (approximately 11% at January 31,
1997) and is due 90 days from January 13, 1997.
Subsequent to year-end, $51,000 was repaid which includes accrued interest
of $1,000.
NOTE 6--NOTES PAYABLE
In June and July 1997, the Company issued $950,000 of subordinated notes.
The notes bear interest at 10% per annum and are unsecured. The notes are due
at the earlier of nine months from the date of issuance or closing of the IPO.
In connection with the note agreement, each note holder is entitled to
receive 666 warrants for each $1,000 loaned to purchase the Company's common
stock for $3.00 per share. There is a twelve month "lock-up" on the warrants
and the common stock underlying these warrants. Given the time between the
issuance of the notes and the completion of the IPO, the twelve-month "lock-
up" period for these warrants, and the financial condition of the Company at
the date of grant, the Company has determined that the fair value of the
Company's common stock is less than the exercise price of the warrants.
Accordingly, no additional financing expense has been recognized in connection
with the issuance of these warrants.
F-13
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 7--SHAREHOLDERS' EQUITY (DEFICIT)
SERIES A CONVERTIBLE PREFERRED STOCK
In March 1997, the Company issued 500,000 shares of Series A convertible
preferred stock ("Series A Preferred") in connection with the acquisition of
certain assets and liabilities, and proprietary software developed by Cyber
(see Note 1). The historical cost of the assets and liabilities, and
proprietary software acquired was approximately $100,000 which is the amount
used to value the 500,000 shares of Series A Preferred. In April 1997, the
Company sold 1,000,000 shares of Series A Preferred for a price of $0.20 per
share. The holders of the Series A Preferred are entitled to receive a non-
cumulative dividend of $0.02 per share per annum, payable in cash at the
option of the Company.
Each share of Series A Preferred is convertible into shares of common stock
at the option of the holder. In addition, Series A Preferred will be
automatically converted into shares of common stock based upon the effective
conversion price immediately upon the closing of an IPO of not less than
$6,000,000.
The Series A Preferred has a liquidation preference of $0.20 per share plus
all declared and unpaid dividends prior to the payment of any amount to the
holders of common stock.
Each holder of Series A Preferred was issued one warrant for every two
shares of Series A Preferred to purchase a share of the Company's common stock
for $1.50 per share resulting in 750,000 warrants being issued. Based on the
financial condition of the Company at the time the warrants were issued,
management estimates that the fair value of the Company's common stock was
less than the exercise price of the warrants.
SERIES B CONVERTIBLE PREFERRED STOCK
During May to July 1997, the Company sold 686,666 shares of Series B
convertible preferred stock ("Series B Preferred") for a price of $1.50 per
share. The holders of the Series B Preferred are entitled to receive a non-
cumulative dividend of $0.15 per share per annum, payable in cash at the
option of the Company.
Each share of Series B Preferred is convertible into shares of common stock
at the option of the holder. In addition, Series B Preferred will be
automatically converted into shares of common stock based upon the effective
conversion price immediately upon the closing of an IPO of not less than
$6,000,000.
The Series B Preferred has a liquidation preference of $1.50 per share plus
all declared and unpaid dividends prior to the payment of any amount to the
holders of common stock.
Each holder of Series B Preferred was issued one warrant for every two
shares of Series B Preferred to purchase a share of the Company's common stock
for $1.50 per share resulting in 343,333 warrants being issued. Based on the
financial condition of the Company at the time the warrants were issued,
management estimates that the fair value of the Company's common stock
approximates the exercise price of the warrants.
F-14
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 7--SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
STOCK OPTIONS (UNAUDITED)
The Company's board of directors adopted the 1997 Stock Option Plan (the
"Plan") and reserved 500,000 shares of common stock for grants of stock
options under the Plan. Generally, options granted under the Plan expire the
earlier of ten years from the date of grant (five years in the case of an
incentive stock option granted to a holder of 10% or more of the Company's
outstanding capital stock) or three months after the optionee's termination of
employment or service. The Company had not granted any stock options as of
January 31, 1997, therefore, the disclosures required by SFAS No. 123 are not
applicable. Listed below is information regarding stock options granted
subsequent to January 31, 1997.
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF AVERAGE
OPTIONS PRICE
------- --------
<S> <C> <C>
Balance, January 1, 1997................................. -- $ --
Granted.................................................. 356,000 1.50
Exercised................................................ -- --
Expired/terminated....................................... -- --
------- -----
Balance, July 31, 1997................................. 356,000 $1.50
======= =====
</TABLE>
Based on the financial condition of the Company at the time the stock
options were granted, management estimates that the fair value of the
Company's common stock approximates the exercise price of the stock options,
therefore, no compensation expense is being recognized.
NOTE 8--INCOME TAXES
For the year ended January 31, 1997 and the six months ended July 31, 1997,
the Company did not provide a provision for income taxes due to the net loss
incurred. At January 31, 1997, the Company has approximately $98,000 and
$49,000 in net operating loss carryforwards for federal and state income tax
purposes, respectively, that expire in 2012 and 2002, respectively. The
components of the Company's deferred tax assets and liabilities for income
taxes consist of a deferred tax asset relating to the net operating loss
carryforwards of approximately $36,000. The other components of the Company's
deferred tax assets and liabilities are immaterial. The Company has
established a valuation allowance of approximately $36,000 to fully offset its
deferred tax asset as the Company does not believe the recoverability of this
deferred tax asset is more likely than not.
NOTE 9--SUBSEQUENT EVENTS (UNAUDITED)
In August and September 1997, the Company sold an additional 386,334 shares
of Series B Preferred and issued 193,167 warrants to purchase the Company's
common stock at $1.50 per share.
Also, in August and September 1997, the Company issued an additional
$200,000 of subordinated notes. In connection therewith, the Company also
issued 133,200 warrants to purchase the Company's common stock at $3.00 per
share.
F-15
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 9--SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
In addition, on September 15, 1997 the Company entered into an agreement
with En Pointe Technologies, Inc. ("En Pointe") whereby:
. En Pointe made an investment in the Company by purchasing $600,000 of
subordinated notes. In connection therewith, the Company issued 399,600
warrants to purchase the Company's Common Stock at $2.25 per share. As a
result of these warrants being issued with an exercise price less than
the fair market value of similar warrants, the Company will recognize
additional financing cost of $299,700 over the nine month term of this
subordinated note with the unamortized portion at the closing of the IPO
being expensed immediately;
. En Pointe granted the Company a license to En Pointe's proprietary EPIC
Software for five years in exchange for 250,000 shares of the Company's
Common Stock valued at $3.00 per share. The Company has agreed to pay an
annual maintenance and upgrade fee of $100,000. The initial annual fee
is to be paid concurrent with the funding of the $600,000 subordinated
notes;
. En Pointe has also agreed to provide (i) consulting services to the
Company by customizing its EPIC Software and (ii) information system
services for a quarterly fee estimated to be $60,000 and $50,000,
respectively. The initial quarterly fees of $60,000 and $50,000 are to
be paid concurrent with the funding of the $600,000 subordinated notes;
. In the event that the Company does not complete its IPO within one year,
the Company is obligated to pay En Pointe $1,000,000 for the licensing
of the EPIC Software.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED BY THE COMPANY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESEN- TATIONS MAY NOT BE RELIED UPON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE ANY OF THE DATES AS OF WHICH INFORMATION IS
FURNISHED OR SINCE THE DATE OF THIS PROSPECTUS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 23
Business.................................................................. 27
Management................................................................ 36
Certain Transactions...................................................... 41
Principal Shareholders.................................................... 43
Description of Securities................................................. 44
Shares Eligible for Future Sale........................................... 46
Underwriting.............................................................. 48
Legal Matters............................................................. 50
Experts................................................................... 50
Additional Information.................................................... 50
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,400,000 SHARES
[LOGO OF SHOPPING.COM]
COMMON STOCK
---------------
PROSPECTUS
---------------
WALDRON & CO., INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Articles of Incorporation limits the liability of
directors to the full extent permitted by California law. California law
provides that a corporation's articles of incorporation may contain a
provision eliminating or limiting the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors, except for
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the corporation or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard
for the director's duty to the corporation or its shareholders, (v) for acts
or omissions that constitute an unexcused pattern of inattention that amounts
to an abdication of the director's duty, (vi) for certain transactions between
the director and the corporation or for certain distributions, loans or
guarantees. The Company's Bylaws provide that the Company shall indemnify its
directors and officers and may indemnify its employees and agents to the
fullest extent permitted by law.
The Company has entered into agreements to indemnify its directors and
executive officers. These agreements, among other things, indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such persons in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company,
any subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.
The Company has obtained a policy insuring the directors and officers for
the liability described above.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the offering, other than underwriting discounts and
commissions, are as follows:
<TABLE>
<S> <C> <C>
SEC Registration Fees............................... $ 4,390.91
Blue Sky Fees and Expenses.......................... $ 30,000.00 [estimate]
Transfer Agent Fees................................. $ 2,000.00 [estimate]
Costs of Printing and Engraving..................... $ 50,000.00 [estimate]
Legal Fees.......................................... $100,000.00 [estimate]
Accounting Fees..................................... $100,000.00 [estimate]
NASD Listing Fees................................... $ 10,000.00 [estimate]
Miscellaneous Fees and Expenses..................... $ 28,609.09 [estimate]
-----------
$325,000.00
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES(1)
The following are all securities sold by Registrant within the past three (3)
years without registering the securities under the Securities Act:
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<C> <C> <S> <C> <C>
(1) (a) March 1997-June 1997 Common Stock 1,282,500 Shares
</TABLE>
<TABLE>
<C> <C> <S>
(b) There were no underwriters used in connection with this offering.
1,150,000 shares of Common Stock were offered and sold to Robert J.
McNulty, CEO of the Registrant. Subsequently, Mr. McNulty gifted an
aggregate of 325,000 of such shares to various employees of the
Company for no consideration. In addition, the Company offered and
sold 100,000 shares of Common Stock to Bill Gross' idealab!, a
company of which Bill Gross, Chairman of the Board of Registrant, is
a director; 2,500 shares to Alvin S. Morrow; and 30,000 shares to an
independent consultant who provided the Registrant's web site; all
of whom were accredited investors and residents of the State of
California.
(c) The securities were sold for two cents ($.02) per share for an
aggregate consideration of $25,050.
(d) The issuer relied on Section 4(2) and 3(a)(11) of the Securities Act
of 1933, as amended.
(e) Not Applicable.
</TABLE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<C> <C> <S> <C> <C>
(2) (a) March 1997-April 1997 Series A Preferred Stock 750,000 Shares
Warrants for Common Stock 375,000 Warrants
</TABLE>
<TABLE>
<C> <C> <S>
(b) There were no underwriters used in connection with this offering.
The securities were offered and sold only to two accredited
investors, Cyber Depot, Inc., a corporation controlled by Robert J.
McNulty, President and CEO of the issuer, and Bill Gross' idealab! a
corporation controlled by Bill Gross, a director of Registrant. One
Warrant was issued for each two shares.
(c) The securities were sold for forty cents ($.40) per share of Series
A Stock.
(d) The issuer relied on Rule 506 under Regulation D based on the fact
that all offerees were accredited investors under Rule 501.
(e) Not Applicable.
</TABLE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<C> <C> <S> <C> <C>
(3) (a) April 1997-September 1997 Series B Preferred Stock 536,500 Shares
Warrants for Common Stock 268,250 Warrants
</TABLE>
<TABLE>
<C> <C> <S>
(b) There were no underwriters used in connection with 303,167 shares of
this offering. Waldron & Co., Inc. acted as placement agents for
233,333 shares of this offering and received fees of $91,000. The
securities were offered and sold only to accredited investors. One
Warrant was issued for each two shares of Series B Stock.
(c) The securities were sold for Three Dollars ($3.00) per share for an
aggregate consideration of $1,609,500. The Warrants are exercisable
for five years for the purchase of one share of common stock at a
strike price of $3.00.
(d) The issuer relied on Rule 506 under Regulation D based on the fact
that all offerees were accredited investors under Rule 501.
(e) Not Applicable.
</TABLE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<C> <C> <S> <C> <C>
(4) (a) June 1997-September 1997 Promissory Notes $1,150,000
Warrants for Common Stock 382,950 Warrants
</TABLE>
<TABLE>
<C> <C> <S>
(b) No underwriters were used in connection with $150,000 principal
amount of such Notes. Waldron & Co., Inc., acted as placement agents
in connection with the placement of the $1,000,000 principal amount
of such Notes, and received fees of $130,000. The securities were
offered and sold only to qualified and accredited investors. 333
Warrants were issued for each $1,000 in principal amount of such
Notes.
</TABLE>
II-2
<PAGE>
(c) The Notes were sold for an aggregate consideration of $1,150,000.
The accompanying Warrants are exercisable for five years for the
purchase of one share of common stock at an exercise price of $6.00
per share.
(d) The issuer relied on Rule 506 under Regulation D based on the fact
that all offerees were accredited investors under Rule 501.
(e) Not Applicable.
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<S> <C> <C>
(5) (a) April 1997 Common Stock 8,000 Shares
</TABLE>
(b) There were no underwriters used in connection with this private
placement. The securities were offered and sold to Typhoon Capital
Consultants, LLC ("Typhoon") in exchange for public relations
consulting services.
(c) The securities were valued at $3.00 per share and were exchanged for
business consulting services, for an aggregate consideration valued
at $24,000.
(d) The issuer relied on Section 4(2) of the Securities Act of 1933, as
amended; on the basis that Typhoon is a sophisticated investor owned
and controlled by Sanjay Sabnani, who prior to forming Typhoon, was
a licensed securities broker who regularly engaged in that
profession, including advising clients on investments in both public
and private securities offerings.
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<S> <C> <C> <C>
(6) (a) September 1997 Common Stock 125,000 Shares
Promissory Note $600,000
Warrants for Common Stock 199,800 Shares
</TABLE>
(b) Waldron & Co., Inc. acted as placement agent in connection with this
private placement and is owed $78,000 in fees therefor. The
securities were issued to En Pointe Technologies, Inc., an
accredited investor.
(c) The Common Stock was valued at $6.00 per share and was issued as
consideration for a 5 year license to the Company to use En Pointe's
EPIC software. The Notes were issued at face value for a $600,000
loan to the Company. 333 Warrants were issued for each $1,000
principal amount of the Note. The Warrants are exercisable for five
years for the purchase of one share of stock at a strike price of
$4.50 per share.
(d) The issuer relied on Rule 506 under Regulation D based on the fact
that En Pointe is an accredited investor.
- --------
(1) All share amounts and related information reflect a one-for-two reverse
stock split effective upon the effective date of this offering.
II-3
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
1.01 Underwriting Agreement.
3.01 Amended and restated Articles of Incorporation(1)
3.02 By-Laws(1)
3.03 Proposed Amended and Restated Articles of Incorporation(1)
4.01 Stock Option Plan of 1997(1)
4.02 Form of Incentive Stock Option Agreement form under Stock Option Plan
of 1997 (McNulty)
4.03 Form of Incentive Stock Option Agreement form under Stock Option Plan
of 1997 (Hay)
4.04 Form of Incentive Stock Option Agreement form under Stock Option Plan
of 1997 (Non-Employee)
4.05 Form of Incentive Stock Option Agreement form under Stock Option Plan
of 1997 (Employee)(1)
4.06 Form of $3.00 Warrant Certificate(1)
4.07 Form of $1.50 Warrant Certificate(1)
4.08 Form of Underwriter's Warrant Certificate(1)
4.09 Form of Demand Registration Rights Agreement(1)
4.10 Form of Piggy Back Registration Rights Agreement(1)
4.11 Form of Irrevocable Proxy(1)
4.12 Form of Irrevocable Proxy(1)
4.13 Domain Name Transfer(1)
4.14 [Intentionally Omitted]
4.15 Form of Lock-up Agreement(1)
5.01 Form of Opinion re: Legality(1)
10.01 Employment Agreement between the Company and Robert J. McNulty(1)
10.02 Employment Agreement between the Company and Mark S. Winkler(1)
10.03 Form of Indemnification Agreement(1)
10.04 Form of Confidentiality and Non-Solicitation Agreement (independent
contractors/outside vendor)(1)
10.05 Asset Purchase Agreement and Bill of Sale dated March 31, 1997 in
which Cyber Depot., Inc. sells to Shoppers Source title and interest
in the hardware, software, customer lists and vendor lists in
connection with retail sales operations through the Internet(1)
10.06 Asset Purchase Agreement(1)
10.07 Office lease between Arai Corporation of American and the Shoppers
Source, and Amendment(1)
10.08 Assignment of Property Rights(1)
10.09 CitySearch Agreement(1)
10.10 Form of Subordinated Promissory Note(1)
10.11 Agreement with Typhoon Capital Consultants LLC
10.12 En Pointe Agreement--(Confidential Treatment requested for certain
portions)
23.01 Consent of counsel(1)
23.02 Consent of accountants
24.01 Power of Attorney contained in Securities and Exchange Commission Form
SB-2, page II-5(1)
27.01 Financial data schedule
</TABLE>
- --------
(1) Previously Submitted.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act:
(b) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-
effective amendment hereof) which individually, or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(6) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities act shall be deemed as part of this Registration
Statement as of the time it was declared effective.
(7) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona funds offering thereof.
(a) The 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.
(b) 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 such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, 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 Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, in the
City of Corona del Mar, State of California, on October 31, 1997.
Shopping.com
/s/ Robert J. McNulty
-------------------------------------
By: Robert J. McNulty
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act, this Amendment
No. 1 to Registration Statement has been signed by the following persons in
the capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* Chairman of the Board and October 31, 1997
____________________________________ Director
Bill Gross
/s/ Robert J. McNulty Chief Executive Officer, and October 31, 1997
____________________________________ President (Principal
Robert J. McNulty Executive Officer) and
Director
* Director October 31, 1997
____________________________________
Paul J. Hill
* Director October 31, 1997
____________________________________
Edward F. Bradley
/s/ Kristine E. Webster Chief Financial Officer October 31, 1997
____________________________________ (Principal Financial and
Kristine E. Webster Accounting Officer),
Secretary
* Executive Vice-President and October 31, 1997
____________________________________ Director
Douglas Hay
/s/ Kristine E. Webster
By: ________________________________
Kristine E. Webster
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
1.01 Underwriting Agreement
3.01 Amended and restated Articles of Incorporation(1)
3.02 By-Laws(1)
3.03 Proposed Amended and Restated Articles of
Incorporation(1)
4.01 Stock Option Plan of 1997(1)
4.02 Form of Incentive Stock Option Agreement form under
Stock Option Plan of 1997 (McNulty)
4.03 Form of Incentive Stock Option Agreement form under
Stock Option Plan of 1997 (Hay)
4.04 Form of Incentive Stock Option Agreement form under
Stock Option Plan of 1997 (Non-Employee)
4.05 Form of Incentive Stock Option Agreement form under
Stock Option Plan of 1997 (Employee)(1)
4.06 Form of $3.00 Warrant Certificate(1)
4.07 Form of $1.50 Warrant Certificate(1)
4.08 Form of Underwriter's Warrant Certificate(1)
4.09 Form of Demand Registration Rights Agreement(1)
4.10 Form of Piggy Back Registration Rights Agreement(1)
4.11 Form of Irrevocable Proxy(1)
4.12 Form of Irrevocable Proxy(1)
4.13 Domain Name Transfer(1)
4.14 [Intentionally Omitted]
4.15 Form of Lock-up Agreement(1)
5.01 Form of Opinion re: Legality(1)
10.01 Employment Agreement between the Company and Robert J.
McNulty(1)
10.02 Employment Agreement between the Company and Mark S.
Winkler(1)
10.03 Form of Indemnification Agreement(1)
10.04 Form of Confidentiality and Non-Solicitation Agreement
(independent contractors/outside vendor)(1)
10.05 Asset Purchase Agreement and Bill of Sale dated March
31, 1997 in which Cyber Depot., Inc. sells to
Shoppers Source title and interest in the hardware,
software, customer lists and vendor lists in
connection with retail sales operations through the
Internet(1)
10.06 Asset Purchase Agreement(1)
10.07 Office lease between Arai Corporation of American and
the Shoppers Source, and Amendment(1)
10.08 Assignment of Property Rights(1)
10.09 CitySearch Agreement(1)
10.10 Form of Subordinated Promissory Note(1)
10.11 Agreement with Typhoon Capital Consultants LLC
10.12 En Pointe Agreement--(Confidential Treatment requested
for certain portions)
23.01 Consent of counsel(1)
23.02 Consent of accountants
24.01 Power of Attorney contained in Securities and Exchange
Commission Form SB-2, page II-5(1)
27.01 Financial data schedule
</TABLE>
- --------
(1)Previously submitted
<PAGE>
EXHIBIT 1.01
SHOPPING.COM
_______ Shares
UNDERWRITING AGREEMENT
______, 1997
Waldron & Co., Inc.
(As Representative of the Several
Underwriters Named in Schedule 1 hereto)
19000 MacArthur, 8th Floor
Irvine, California 92715
Dear Sirs:
Shopping.Com, a California corporation (the "Company"), hereby confirms its
agreement (this "Agreement") with the several underwriters named in Schedule 1
hereto (the "Underwriters"), for whom Waldron & Co., Inc. has been duly
authorized to act as representative (in such capacity, the "Representative"), as
set forth below:
SECTION 1.
DESCRIPTION OF TRANSACTION
The Company proposes to issue and sell to the Underwriters on the Closing
Date (as defined below), pursuant to the terms and conditions of this Agreement,
an aggregate of ___________ shares ("Firm Shares") of the Company's Common Stock
("Common Stock") at a price of $_______ per Share on the terms as hereinafter
set forth. The Company also proposes to issue and sell to the several
Underwriters on or after the Closing Date not more than ___________ additional
Shares if requested by the Representative as provided in Section 3.2 of this
Agreement (the "Option Shares"). The Firm Shares and any Option Shares are
collectively referred to herein as the "Shares."
SECTION 2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Underwriters to enter into this Agreement, the
Company hereby represents and warrants to and agrees with the Underwriters that:
<PAGE>
2.1 Registration Statement and Prospectus. A registration statement
on Form SB-2 (File No. __________) with respect to the Shares, including the
related prospectus, copies of which have heretofore been delivered by the
Company to the Underwriters, has been filed by the Company in conformity with
the requirements of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(a) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective 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 as have been provided to and approved
by the Representative prior to the execution of this Agreement, or (b) 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 Representative prior to the execution of this
Agreement. As used in this Agreement, the term "Registration Statement" means
such registration statement on Form SB-2 and all amendments thereto, including
the prospectus, all exhibits and financial statements, as it becomes effective;
the term "Preliminary Prospectus" means each prospectus included in said
Registration Statement before it becomes effective; and the term "Prospectus"
means the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or, if no prospectus is required to be filed pursuant to said Rule
424(b), such term means the prospectus included in the Registration Statement
when it becomes effective.
2.2 Accuracy of Registration Statement and Prospectus. Neither the
Commission nor the "blue sky" or securities authority of any jurisdiction has
issued any order preventing or suspending the use of any Preliminary Prospectus.
When (a) any Preliminary Prospectus was filed with the Commission, (b) the
Registration Statement or any amendment thereto was or is declared effective,
and (c) the Prospectus or any amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b)(or, if the Prospectus or such amendment or
supplement is not required to be so filed, when the Registration Statement or
the amendment thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and on the Closing Date the Prospectus, as amended
or supplemented at any such time, such filing (i) contained or will contain all
statements required to be stated therein in accordance with, and complied or
will comply in all material respects with the requirements of, the Act and the
rules and regulations of the Commission promulgated thereunder (the "Rules and
Regulations") and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made. The foregoing representation does not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or any
amendment thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representative specifically for use
therein.
2.3 Incorporation and Standing. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of California and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the Company.
2
<PAGE>
2.4 Due Power and Authority. The Company has full corporate power to
own or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; and the Company has full
corporate power to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it. The execution and delivery of this
Agreement and consummation of the transactions contemplated herein have been
duly authorized by the Company and this Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with the terms
hereof, except as may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
general equitable principles, and as rights to indemnity and contribution
hereunder may be limited by applicable law.
2.5 Consents; No Defaults. The issuance, offering and sale of the
Shares to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (a) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained, or as may be
required under the Act or under the securities or blue sky laws of any
jurisdiction, or (b) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, lease or other material agreement or instrument to
which the Company is a party or by which the Company or any of its properties is
bound, or the charter documents or bylaws of the Company, or any statue or any
judgment, decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company.
2.6 No Breach or Default. The company is not in breach of any term
or provision of its Articles of Incorporation or Bylaws; no default exists, and
no event has occurred which with notice or lapse of time or both, would
constitute a default, in the Company's due performance and observance of any
term, covenant or condition of any indenture mortgage, deed of trust, lease,
note, bank loan or credit agreement or any other material agreement or
instrument to which the Company or its properties may be bound or affected in
any respect which would have a material adverse effect on the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company.
2.7 Licenses. The Company possesses all certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary for the conduct of its business, and the Company has not
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business,
prospectus, net worth or results of operations of the Company, except as
described in or contemplated by the Registration Statement. Each approval,
registration, qualification, license, permit, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body or agency necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions contemplated (except such additional actions as may be required by
the National Association of Securities Dealers, Inc. or may be necessary to
qualify the Common Stock for public offering under state securities or blue sky
laws) has been obtained or made and each is in full force and effect.
3
<PAGE>
2.8 Compliance with Laws. Except as disclosed in the Registration
Statement and in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), the Company is not in violation of any
laws, ordinances, governmental rules or regulations to which it is subject which
would have a material adverse effect on the condition (financial or otherwise),
business, properties, prospects, net worth or results of operations of the
Company.
2.9 Existing Capital Structure and Shareholder Rights. The Company
has an authorized, issued and outstanding capitalization as set forth in, and
capital stock conforms in all material respects to the description contained in,
the Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus. Except as described in the Registration Statement and in
the Prospectus there are no outstanding (a) securities or obligations of the
Company convertible into or exchangeable for any capital stock of the Company,
(b) warrants, rights or options to subscribe for or purchase from the Company,
any such capital stock or any such convertible or exchangeable securities or
obligations, or (c) obligations of the Company to issue such shares, any such
convertible or exchangeable securities or obligations, or any such warrants,
rights or obligations. All of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, and have been issued in compliance with all federal and state
securities laws. No preemptive rights of shareholders exist with respect to any
capital stock of the Company. No shareholder of the Company has any right
pursuant to any agreement which has not been waived or honored to require the
Company to register the sale of any securities owned by such shareholder under
the Act in the public offering contemplated herein except as disclosed in the
Registration Statement. The Company has no subsidiaries, and does not own any
shares of stock or any other equity interest in any firm, partnership,
association or other entity.
2.10 Authority for Issuance of Shares. The issuance of the Common
Stock issuable in connection with the Shares has been duly authorized and at any
Firm or Option Closing Date as defined herein after payment therefor in
accordance herewith, such Common Stock will be validly issued, fully paid and
nonassessable. The Shares will conform in material respects with all statements
with regard thereto in the Registration Statement and the Prospectus.
2.11 Title to Tangible Property. Except as otherwise set forth in or
contemplated by the Registration Statement and Prospectus. The Company has good
and marketable title to all items of personal property owned by the Company,
free and clear of any security interest, liens, encumbrances, equities, claims
and other defects, except such as do not materially and adversely affect the
value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company, and any real property and
buildings held under lease by the Company are held under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such property
and buildings by the Company.
2.12 Title to Intellectual Property. Except as described in the
Prospectus, the Company does not own any patents or trademarks. The Company owns
or possesses, or can acquire on reasonable terms, all material, service marks,
trade names, licenses, copyrights and propriety or other confidential
information currently employed by it in connection with its business, and the
Company has not received any notice of infringement of or conflict with asserted
rights of any third party with respect to any of the foregoing intellectual
property rights which, singly or in the aggregate, if the subject of any
unfavorable decision, ruling of finding would result in a material adverse
change in the condition (financial or otherwise), business, prospects, net worth
or results of operations of the Company, except as described in or contemplated
by the Prospectus.
4
<PAGE>
2.13 Contract Rights. The agreements to which the Company is a party
described in the Registration Statement and Prospectus are valid agreements,
enforceable by the Company in accordance with their terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditor's rights generally or by equitable principles, and, to the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any such agreements.
2.14 No Market Manipulation. The Company has not taken nor will it
take, directly or indirectly, any action designed to cause or result, or which
might reasonably be expected to cause or result, in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Stock.
2.15 No Other Sales or Commissions. The Company has not since the
filing of the Registration Statement (i) sold, bid for,purchased, attempted to
induce any person to purchase, or paid anyone any compensation for soliciting
purchases of, its capital stock or (ii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the Company
except for the sale of Shares by the Company under this Agreement.
2.16 Accuracy of Financial Statements. The financial statements and
schedules of the Company included in the Registration Statement and the
Prospectus, or if the Prospectus is not in existence, the most recent
Preliminary Prospectus, fairly present in all material respects the financial
position of the Company and the results of operations and changes in financial
condition as of the dates and periods therein specified. Such financial
statements and schedules have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as otherwise noted therein and include all financial information
required to be included by the Act. The selected financial data set forth under
the captions "PROSPECTUS SUMMARY--Summary Financial Information," "SELECTED
FINANCIAL DATA" and MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS and the information set forth under the captions
"CAPITALIZATION" and "DILUTION" in the Prospectus, or, if the Prospectus is not
in existence the most recent Preliminary Prospectus, fairly present in all
material respects, on the basis stated in the Prospectus or such Preliminary
Prospectus the information included therein .
2.17 Independent Public Accountant. Singer, Lewak, Greenbaum &
Goldstein LLP, which have certified or shall certify certain of the financial
statements of the Company filed or to be filed as part of the Registration
Statement and the Prospectus, are independent certified public accountants
within the meaning of the Act and the Rules and Regulations.
2.18 Internal Accounting. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (a)
transactions are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (c) access to assets is
permitted only in accordance with management's general or specific
authorization; and (d) the record accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.19 Litigation. Except as set forth in the Registration Statement
and Prospectus, there is and at the Closing Date there will be no action, suit
or proceeding before any court or governmental
5
<PAGE>
agency, authority or body pending or to the knowledge of the Company threatened
which might result in judgments against the Company not adequately covered by
insurance or which collectively might result in any material adverse change in
the condition (financial or otherwise), the business or the prospects of the
Company, or would have a material adverse effect on the properties or assets of
the Company. The Company is not subject to the provisions of any injunction,
judgement, decree or order of any court, regulatory body, administrative agency
or other governmental body or arbitral forum, which might result in a material
adverse change in the business, assets or condition of the Company.
2.20 No Material Adverse Change. Subsequent to the respective dates as
of which information is given in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), (a) the Company has not incurred any material adverse change in or
affecting the condition, financial or otherwise, of the Company or the earnings,
business affairs, management, or business prospects of the Company, whether or
not occurring in the ordinary course of business, (b) there has not been any
material transaction entered into by the Company, other than transactions in the
ordinary course of business or tranactions specifically described in the
Registration Statement as it may be amended or supplemented, (c) the Company has
not sustained any material loss or interference with its business or properties
from earthquake, fire, flood, windstrom, accident or other calamity, (d) the
Company has not paid or declared any dividends or other distribution with
respect to its capital stock and the Company is not in default in the payment of
principal or interest on any outstanding debt obligations, and (e) there has not
been any change in the capital stock (other than the sale of the Common Stock
hereunder or the exercise of outstanding stock options or warrants as described
in the Registration Statement) or material increase in indebtedness of the
Company. The Company does not have any known material contingent obligation
which is not disclosed in the Registration Statement (or contained in the
financial statements or related notes thereto), as such may be amended or
supplemented.
2.21 Transactions With Affiliates. 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 and
except as may otherwise be indicated or contemplated herein or therein, (a) the
Company has not entered into any transaction with an "affiliate" of the Company,
as defined in the Act and the Rules and Regulations, or (b) declared, paid or
made any dividend or distribution of any kind on or in connection with any class
of its capital stock, and (c) the Company has no knowledge of any transaction
between any affiliate of the Company and any significant customer or supplier of
the Company, except in its ordinary course of business.
2.22 Insurance. Except as otherwise set forth in or contemplated by
the Registration Statement and Prospectus, the Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the business in which it is engaged; the
Company has not been refused any insurance coverage sought or applied for; and
the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company.
2.23 Tax Returns. The Company has filed all foreign, federal, state
and local tax returns that are required to be filed or has requested extensions
thereof and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of the
foregoing is due
6
<PAGE>
and payable or adequate accruals have been set up to cover any such unpaid
taxes, except for any such assessment, fine or penalty is currently being
contested in good faith.
2.24 Political Contributions. The Company has not directly or
indirectly, (a) made any unlawful contribution to any candidate for public
office, or failed to disclose fully any contribution in violation of law, or (b)
made any payment to any federal, state, local, or foreign governmental officer
or official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any other such jurisdiction.
2.25 Investment Company Act. The Company conducts its operations in
a manner that does not subject it to registration as an investment Company under
the Investment Company Act of 1940, as amended, and the transactions
contemplated by this Agreement will not cause the Company to become an
investment Company subject to registration under the Investment Company Act of
1940, as amended.
2.26 Sales of Securities. No securities of the Company have been
sold by the Company or any predecessor of the Company, or by, or on behalf of,
or for the benefit of, any person or persons controlling, or controlled by, or
under common control with the Company within three years prior to the date
hereto, except as set forth in the Prospectus and in Item 26 of the Registration
Statement.
2.27 Finder's and Brokers. The Company and the Representative each
represent to the other that no person has acted as a finder in connection with
the transactions contemplated herein and each will indemnify the other party
with respect to any claim for finder's or broker's fees in connection herewith.
Except as set forth in the Registration Statement and in the Prospectus, the
Company further represents that it does not have any management or financial
consulting agreement with any person and that, except as set forth in the
Registration Statement and in the Prospectus or otherwise disclosed to the
Representative in writing prior to the date hereof, no promoter, officer,
director or five percent or greater shareholder of the Company is, directly or
indirectly, affiliated or associated with an NASD member-broker-dealer.
2.28 Use of Proceeds. The Company will apply the proceeds from the
sale of Shares in the manner set forth in the Prospectus under the caption "Use
of Proceeds."
7
<PAGE>
SECTION 3.
PURCHASE, SALE AND DELIVERY OF THE SHARES
3.1 Purchase of Firm Shares. On the basis of the representations,
warranties, agreements and covenants herein contained and subject to the terms
and conditions herein set forth, the Company agrees to issue and sell to each of
the Underwriters named in Schedule 1 hereto, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $___ per Share, the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto. The Company will make one or more
certificates for Common Stock constituting the Firm Shares, in definitive form
and in such denomination or denominations and registered in such name or names
as the Representative shall request upon notice to the Company at least 48 hours
prior to the Firm Closing Date, available for checking and packaging by the
Representative at the offices of the Company's transfer agent or registrar or
the correspondent or the agent of the Company transfer agent or registrar at
least 24 hours prior to the Firm Closing Date. Payment for the Firm Shares shall
be made by bank wire payable in same day funds to the order of the Company drawn
to the order of the Company for the Firm Shares, against delivery of
certificates therefor to the Representative. Delivery of the documents,
certificates and opinions described in Section 6 of this Agreement, the Firm
Shares and payment for the Firm Shares and the Option Shares shall be made at
the offices of Waldron & Co., Inc., 19000 MacArthur, 8th Floor, Irvine,
California 92715, at 9:00 a.m, Los Angeles time, on the third full business day
following the date hereof (on the fourth full business day if this Agreement is
executed after 12:30 p.m, California time), or at such other places, time or
date as the Representative and the Company may agree upon or as the
Representative may determine pursuant to Section 9 hereof, such time and date of
delivery against payment being herein referred to as the "Firm Closing Date."
3.2 Over-Allotment, Option Shares. For the purpose of covering any
over-allotments in connection with the distribution and sale of the Firm Shares
as contemplated by the Prospectus, the Company hereby grants to you on behalf of
the several Underwriters an option to purchase, severally and not jointly, the
Option Shares, The purchase price to be paid for any Option Shares shall be the
same price per share as the price per Share for the Firm Shares set forth above
in Section 3.1, plus, if the purchase and sale of any Option Share takes place
after the Firm Closing Date and after the Common Stock is trading "ex-dividend,
"an amount equal to the dividends payable on the Common Stock contained in such
Option Shares. The option granted hereby may be exercised in the manner
described below as to all or any part of the Option Shares from time to time
within forty-five days after the date of the Prospectus. The Underwriters shall
not be under any obligation to purchase any of the Option Shares prior to the
exercise of such option. The Representative may from time to time exercise the
option granted hereby by giving notice in writing or by telephone (confirmed in
writing) to the Company setting forth the aggregate number of Option Shares as
to which the several Underwriters are then exercising the option and the date
and time for delivery of and payment for such Option Shares. Any such date of
delivery shall be determined by the Representative but shall not be earlier than
two business days or later than seven business days after such exercise of the
option and, in any event, shall not be earlier than the Firm Closing Date. The
time and date set forth in such notice, or such other time on such other date as
the Representative and the Company may agree upon or as the Representative may
determine pursuant to Section 9 hereof, is herein called the "Option Closing
Date" with respect to such Option Shares. Upon each exercise of the option as
provided herein, subject to the terms and conditions herein set forth, the
Company shall become obligated to sell to each of the several Underwriters, and
each of the Underwriters (severally and not jointly) shall become obligated to
purchase from the Company, the same percentage of the total number of the Option
Shares as to which the several Underwriters are then exercising the option as
such Underwriter is obligated to purchase of the aggregate
8
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number of Firm Shares, as adjusted by the Representative in such manner as it
deems advisable to avoid fractional shares. If the option is exercised as to all
or any portion of the Option Shares, one or more certificates for Common Stock
contained in such Option Shares, in definitive form, and payment therefore,
shall be delivered on the related Option Closing Date in the manner, and upon
the terms and conditions, set forth in Section 3.1, except that reference
therein to the Firm Shares and Firm Closing Date shall be deemed, for purposes
of this Section 3.2, to refer to such Option Shares and Option Closing Date,
respectively. No Option Shares shall be required to be, or be, sold and
delivered unless the Firm Shares have been, or simultaneously are, sold and
delivered as provided in this Agreement.
3.3 Default by an Underwriter. It is understood that you,
individually and not as the Representative, may (but shall not be obligated to)
make payment on behalf of any Underwriter or Underwriters for any of the Shares
to be purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their obligations
hereunder.
SECTION 4.
OFFERING BY THE UNDERWRITERS
Upon payment by the Underwriters of the purchase price of $_______ per
Share and the Company's authorization of the release of the Firm Shares, the
several Underwriters shall offer the Firm Shares for sale to the public upon the
terms set forth in the Prospectus. The Representative may from time to time
thereafter change the public offering prices and other selling terms. If the
option set forth in Section 3.2 of this Agreement is exercised, then upon the
Company's authorization of the release of the Option Shares the several
Underwriters shall offer such Shares for sale to the public upon the foregoing
terms.
SECTION 5.
COVENANTS OF THE COMPANY
Except as otherwise stated below, the Company covenants and agrees
with each of the Underwriters that:
5.1 Company's Best Efforts to Cause Registration Statement to Become
Effective. The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto, to become effective as promptly as possible. If required,
the Company will file the Prospectus and any amendment or supplement thereto
with the Commission in the manner and within the time period required by Rule
424(b) under the Act. During any time when a prospectus relating to the Common
Stock is required to be delivered under the Act, the Company (a) will comply
with all requirements imposed upon it by the Act and the Rules and Regulations
to the extent necessary to permit the continuance of sales of or dealings in the
Common Stock in accordance with the provisions hereof and of the Prospectus, as
then amended or supplemented, and (b) will not file with the Commission the
prospectus or the amendment referred to in the second sentence of Section 2.1
hereof, any amendment or supplement to such prospectus or any amendment to the
Registration Statement unless and until the Representative have been advised of
such proposed filing, has been furnished with a copy for a reasonable period of
time prior to the proposed filing, and has given its consent to such filing,
which shall not be unreasonably withheld or delayed.
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5.2 Preparation and Filing of Amendments and Supplements. The Company
will prepare and file with the Commission, in accordance with the Rules and
Regulations of the Commission, promptly upon written request by the
Representative or counsel for the Representative, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be reasonably necessary or advisable in connection with the distribution of the
Shares by the several Underwriters, and the Company will use its best efforts to
cause any such amendment to the Registration Statement to be declared effective
by the Commission as promptly as possible. The Company will advise the
Representative, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Representative of each such
filing or effectiveness.
5.3 Notice of Stop Orders. The Company will advise the Representative
promptly after receiving notice or obtaining knowledge of: (a) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any amendment thereto, or any order preventing or
suspending the use of any Preliminary Prospectus of the Prospectus or any
amendment or supplement thereto; (b) the suspension of the qualification of the
Shares for offering or sale in any jurisdiction; (c) the institution,
threatening or contemplation of any proceeding for any such purpose; or (d) any
request made by the Commission for amending the Registration Statement for
amending or supplementing the Prospectus or for additional information. The
Company will use its best efforts to prevent the issuance of any such stop order
and, if any such stop order is issued to obtain the withdrawal thereof as
promptly as possible.
5.4 Blue Sky Qualification. The Company will arrange and cooperate
with counsel to the Representative for the qualification of the Shares for
offering and sale under the securities or blue sky laws of such jurisdictions as
the Representative may designate and will continue such qualifications in effect
for as long as may be necessary to complete the distribution of the Shares;
provided, however, that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction.
5.5 Post-Effective Amendments. If, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
occurs as a result of which the Prospectus, as then amended or supplemented,
would include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading,
in the light of the circumstances under which they were made, or if for any
other reason it is necessary at any time to amend or supplement the Prospectus
to comply with the Act or the Rules or Regulations, the Company will promptly
notify the Representative thereof and subject to Section 3 hereof, will prepare
and file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
5.6 Delivery of Prospectuses. The Company will, without charge,
provide (a) to the Representative and to counsel for the Representative a signed
copy of the Registration Statement originally filed with respect to the Shares
and each amendment thereto (in each case including exhibits thereto), (b) to
each other Underwriter so requesting in writing, a conformed copy of such
Registration Statement and each amendment thereto (in each case without exhibits
thereto) and (c) so long as a prospectus relating to the Shares is required to
be delivered under the Act, as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as the Representative may
reasonably request.
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5.7 Section 11(a) Financials. The Company will, as soon as
practicable but in any event not later that 90 days after the period covered
thereby, make generally available to its security holders and to the
Representative a consolidated earnings statement of the Company and its
subsidiaries that satisfies the provisions of Section 11(a) of the Act and Rule
158 thereunder covering a twelve-month period beginning not later than the first
day of the Company's fiscal quarter next following the effective date of the
Registration Statement.
5.8 Application of Proceeds. The Company will apply the net proceeds
from the sale of the Shares as set forth in the Prospectus and Registration
Statement and will not take any action that would cause it to become an
investment Company under the Investment Company Act of 1940, as amended.
5.9 Sales of Securities. Except as set forth in the Registration
Statement, the Company will not, directly or indirectly, without ten (10) days
prior written notice to the Representative, offer, sell, grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of any option
to purchase or other disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of two years after the date hereof, except (a) to the
Underwriters pursuant to this Agreement; and (b) up to _________ options to be
granted pursuant a stock option plan to be adopted by the Company provided that
such persons have delivered to the Representative the agreement described in
Section 7.7 of this Agreement.
5.10 Application to NASDAQ. The Company will cause the Shares to be
duly included for quotation on the Nasdaq SmallCap Market prior to the Closing
Date. If requested by the Representative, the Company will also cause the Shares
to be duly included for listing on the Pacific Stock Exchange. The Company will
use its best efforts to ensure that the Shares remain included for quotation on
the Nasdaq SmallCap Market and the Pacific Stock Exchange (if applicable)
following the Closing Date for a period of not less than three years.
5.11 Application for Secondary Market Exemptions. To the extent
necessary or appropriate, the Company will make such application, file such
documents, and furnish such information as may be necessary to list the Shares
in the securities listing manuals of Standard & Poor's Corporation or Moody's
Industrial Services contemporaneous with the filing of the Prospectus with the
Commission, and shall maintain listing in such manuals thereafter for a period
of no less than five years. As of the first date that the Company and its
securities are eligible, the Company will apply with the Department of
Corporations in the State of California to have the Shares listed as an
"Eligible Security" for purposes of secondary market exemptions in the State of
California. The Company will take such other similar steps as are reasonably
necessary to obtain exemptions for secondary trading of the Company's Shares in
various United States jurisdictions.
5.12 Reports to Shareholders. So long as any Common Stock is
outstanding until five years after the Closing Date, the Company will furnish to
the Representative (a) as soon as available a copy of each report of the Company
(i) mailed to shareholders and (ii) filed with the Commission and (b) from time
to time such other information concerning the Company as the Representative may
reasonably request.
5.13 Delivery of Documents. At or prior to the Closing, the Company
will deliver to the Representative true and correct copies of the Articles of
Incorporation of the Company and all amendments thereto, all such copies to be
certified by the Secretary of State of the State of California, a good standing
certificate from the Secretary of State of California, dated no more than five
business days prior to the
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Closing Date; true correct copies of the bylaws of the Company, as amended,
certified by the Secretary of the Company and true and correct copies of the
minutes of all meetings of the directors and shareholders of the Company held
prior to the Closing Date which in any way relate to the subject matter of this
Agreement.
5.14 Underwriters' Warrant. On or prior to the Closing Date, the
Company shall deliver to the Representative warrants (the "Underwriter's
Warrants"), at an aggregate purchase price of $100, to purchase Shares equal to
10% of the Firm Shares sold in the Offering, which Underwriter's Warrants shall
be exercisable for a per Share exercise price equal to 155% of the per Share
public offering price of the Firm Shares.
5.15 [Intentionally Omitted]
5.16 Merger; Sale of Assets of other Acquisition of or by the
Company. For a period of three (3) years from the date hereof the Company agrees
to consult with the Representative with respect to any merger, consolidation,
acquisition, or sale of substantially all of the Company's assets. The
Representative agrees to evaluate such merger, consolidation, acquisition, or
sale of substantially all of its assets, or proposal, consult with the officers
of the Company and perform such other financial advisory services with respect
to such proposal as the Company may request. In consideration of such services,
the Company agrees to pay the Representative at the closing of such merger,
consolidation, acquisition, or sale of substantially all of its assets a fee
equal to 5% of the first one million dollars of Aggregate Value of such
transaction, 4% of the second million dollars of Aggregate Value of such
transaction, 3% of the third million dollars of Aggregate Value of such
transaction, 2% of the fourth million dollars of Aggregate Value of such
transaction and 1% of the Aggregate Value of such transaction in excess of $4
Million. For purposes hereof, "Aggregate Value" would mean the fair market value
of all consideration (including without limitation cash, securities, other
assets and contingent payments such as earnouts) received or paid by the Company
and/or its shareholders, together with the fair market value of debt or
liabilities assumed or refinanced as part of such transaction.
5.17 Cooperation With Representative' Due Diligence. At all times
prior to the Closing Date, the Company will cooperate with the Representative in
such investigation as the Representative may make or cause to be made of all the
properties, business and operations of the Company in connection with
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the purchase and public offering of the Shares and the Company will make
available to the Representative in connection therewith such information in its
possession as the Representative may reasonably request.
5.18 Stock Transfer Agent. The Company has appointed U.S. Stock
Transfer, Glendale, California, as Transfer Agent for the Common Stock. The
Company will not change or terminate such appointment for a period of two years
from the effective date without first obtaining the written consent of the
Representative, which consent shall not be unreasonably withheld.
5.19 Publicity. Prior to the Firm Closing Date, or the Option
Closing Date, as the case may be, the Company shall not issue any press release
or other communication directly or indirectly and shall hold no press conference
with respect to the Company, its financial condition, results of operations,
business, properties, assets, liabilities and any of them, or this offering,
without the prior written consent of the Representative. If at any time during
the 90 day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in the opinion of the Representative the market price of the
Common Stock has been or is likely to be materially affected, regardless of
whether such rumor, publication of event necessitates a supplement to or
amendment of the Prospectus, the Company will, after written notice from the
Representative, evaluate the propriety of disseminating a press release or other
public statement reasonably acceptable to the Representative and their counsel,
commenting on such rumor, publication or event.
5.20 Board of Directors Meetings. The Company shall notify the
Representative of all meetings of the Board of Directors and shareholders of the
Company and shall have the right, for a period of three (3) years from the date
of the Prospectus to have an observer at such meetings. Such designee will also
be sent all communications which the Company sends to its directors at the same
time as such directors receive communications and shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings,
including, but not limited to, food, lodging, and transportation but shall not
be entitled to receive compensation therefor.
5.21 Forecasts and Projections. For a period of two years from the
effective date of the Registration Statement, the Company shall provide the
Representative with routine internal forecasts if any such reports are prepared
by the Company for dissemination to the public.
5.22 Key Man Insurance. The Company will maintain for a period of
at least five (5) years, Key Man Insurance on Robert J. McNulty in the amount of
$1,000,000. The Representative reserves the right to write the above policy at
the next renewal date thereof providing it can do so on terms no less favorable
to the Company.
SECTION 6.
EXPENSES
6.1 Offering Expenses. The Company will pay upon demand all costs
and expenses incident to the performance of the Company's obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 11 hereof, including all
costs and expenses incident to (a) the printing or other production of documents
with respect to the transactions, including any costs of printing the
Registration Statement originally filed with respect to the Shares and any
amendment thereto, any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement, the Agreement Among
Underwriters, the Selected Dealer
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Agreement, and any blue sky memoranda, (b) all arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, (c) the fees
and disbursements of counsel, accountants and any other experts or advisors
retained by the Company, (d) preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Common Stock, including
transfer agent's and registrar's fees, (e) the qualification of the Shares under
state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Representative relating thereto, (f) the filing
fees of the Commission and the National Association of Securities Dealers, Inc.
relating to the Shares, (g) any listing fees for the quotation of the Common
Stock on the Nasdaq SmallCap Market or listing on the Pacific Stock Exchange (if
applicable), (h) the cost of placing "tombstone advertisements" in any
publications which may be selected by the Representative (provided that any such
cost in excess of $5,000 shall require the consent of both the Company and the
Representative), and (i) all other advertising that has been approved in advance
by the Company relating to the offering of the Shares (other than as shall have
been specifically approved in writing by the Representative to be paid for by
the Underwriters). In addition to the foregoing the Company agrees to pay to the
Representative a non-accountable expense allowance of 3% of the gross amount to
be raised from the sale of the Shares hereunder, payable at the Closing(s), of
which $________ has already been paid by the Company in connection with this
offering. If the sale of the Shares provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 7 (other than Section 7.5) hereof is not satisfied, because this
Agreement is terminated pursuant to Section 11 hereof or because of any failure,
refusal or inability on the part of the Company to perform all obligations and
satisfy all conditions on its part to be satisfied hereunder other than by
reason of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
counsel fees and disbursements) that shall have been reasonably incurred by them
in connection with the proposed purchase and sale of the Shares, excluding any
costs in excess of $50,000. The Company shall in no event be liable to any of
the Underwriters for the loss of anticipated profits from the transactions
covered by this Agreement.
6.2 INTERIM INDEMNIFICATION. The Company agrees that as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8.1 hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall promptly
return such payment to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) listed from time to time in THE WALL
STREET JOURNAL which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
The Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim action, investigation, inquiry or other
proceeding described in Section 8.2 hereof, they will reimburse the Company on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigation or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Underwriters' obligation to reimburse
the Company for such expenses and the possibility that such payments
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might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment is so held to have
been improper, the Company shall promptly return such payment to the
Underwriters together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made to
the Company within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
SECTION 7.
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The obligations of the several Underwriters to purchase and pay for the
Firm Shares shall be subject, unless waived by the Representative in its sole
discretion, to the accuracy of the representations and warranties of the Company
contained herein as of the date hereof and as of the Firm Closing Date as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company of its covenants and agreements hereunder and to the
following additional conditions:
7.1 Effectiveness of Registration Statement. If the Registration
Statement or any amendment thereto filed prior to the Firm Closing Date has not
been declared effective as of the time of execution hereof, the Registration
Statement or such amendment shall have been declared effective not later than 11
a.m., California time, on the date on which the amendment to the Registration
Statement originally filed with respect to the Shares or to the Registration
Statement, as the case may be, containing information regarding the initial
public offering price of the Shares has been filed with the Commission, or such
later time and date as shall have been consented to by the Representative, if
required, the Prospectus and any amendment or supplement thereto shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to the
knowledge of the Company or the Representative, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) to the reasonable satisfaction of
counsel for the underwriters.
7.2 Opinion of Counsel. The Representative shall have received an
opinion, dated the Firm Closing Date, of Lewis, D'Amato, Brisbois & Bisgaard
LLP, Los Angeles, California counsel for the Company, substantially to the
effect that:
(a) the Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of California, and
duly qualified to transact business as a foreign corporation and is in good
standing under the laws of all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company;
(b) the Company has the corporate power to own or lease its
properties; to conduct its business as described in the Registration Statement
and the Prospectus; to enter into this Agreement and to carry out all of the
terms and provisions hereof to be carried out by it;
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(c) the Company has an authorized capital stock as set forth
under the heading "CAPITALIZATION" in the Prospectus; other than as disclosed
in the Registration Statement and the Prospectus, there are no outstanding
options, warrants, or other rights calling for the issuance of, and no
commitment, plan or arrangement to issue or register, any share of capital stock
of the Company; all of the shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable; the Shares
have been duly authorized by all necessary corporate action of the Company, and,
when issued and delivered to and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable; the shares of capital stock of the
Company have been duly authorized for quotation on the Nasdaq SmallCap Market;
no holders of outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the Shares; and
no holders of securities of the Company are entitled to have such securities
registered under the Registration Statement;
(d) the capital stock of the Company conforms, as to legal
matters, to the statements set forth under the heading "DESCRIPTION OF
SECURITIES" in the Prospectus in all material respects;
(e) the execution and delivery of each of this Agreement and the
agreement representing the Underwriter's Warrants have been duly authorized by
all necessary corporate action of the Company and each of this Agreement and the
agreement representing the Underwriter's Warrants is a valid and binding
obligation of the Company except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally and subject to general principles
of equity and, with respect to this Agreement, except as rights to indemnify and
contribution hereunder may be limited by applicable federal or state securities
laws.
(f) The Underwriter's Warrants will conform to the description
thereof in the Registration Statement and the Prospectus, and when issued and
paid for in accordance with the terms of the agreement representing the
Underwriter's Warrants, will constitute legal, valid and binding obligations of
the Company entitled to the rights and benefits of such agreement. The shares of
Common Stock of the Company issuable upon exercise of the Underwriter's Warrants
have been duly and validly authorized and reserved for issuance upon exercise of
the Underwriter's Warrants and when issued upon such exercise in accordance
with the terms of the agreement representing the Underwriter's Warrants at the
price therein provided, will be duly and validly issued, fully paid and non-
assessable and free of preemptive rights.
(g) no legal or governmental proceedings are pending to which
the Company is a party or to which the property of the Company is subject that
are required to be described in the Registration Statement or the Prospectus
and are not described therein, and, to the best knowledge of such counsel, no
such proceedings have been threatened against the Company or with respect to any
of its properties that can reasonably be expected to, or, if determined
adversely to the Company, would, in any individual case or in the aggregate,
result in any material adverse change in the business, prospects, financial
condition or results of operations of the Company;
(h) no contract or other document is required to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as required;
(i) the issuance, offering and sale of the Shares and the
Underwriter's Warrant by the Company pursuant to this Agreement, the compliance
by the Company with the other
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provisions of this Agreement and the agreement representing the Underwriter's
Warrants and the consummation of the other transactions herein and therein
contemplated do not require the consent, approval, authorization, registration
or qualification of or with any governmental authority, except such as have been
obtained and such as may be required under state securities or blue sky laws, or
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, lease or other agreement or instrument, known to such counsel, to which
the Company is a party or by which the Company or any of its properties are
bound, or the Articles of Incorporation or Bylaws of the Company, or any
statute or any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator known to such counsel and applicable to
the Company;
(j) the Registration Statement is effective under the Act, any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto has been issued by the Commission, and no proceedings for that purpose
have been instituted or, to the knowledge of such counsel, are threatened or
contemplated by the Commission;
(k) the Registration Statement and the Prospectus and each
amendment or supplement thereto (in each case, other than the financial
statements and other financial and statistical information contained therein, 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;
(l) the Company is not required, and, if the Company uses the
proceeds of the sale of the Firm Shares and the Option Shares solely as
described in the Prospectus, will not be required as a result of the sale of
such Shares to be registered as an investment Company within the meaning of the
Investment Company Act of 1940, as amended; and
(m) such counsel shall also state that they have no reason to
believe that the Registration Statement, as of its effective date, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of its date or the date of such opinion,
included or includes any untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided
that in each case such counsel need not express any opinion as to the financial
statements and other financial and statistical information contained therein.
In rendering any such opinion, such counsel may rely as to matters of fact, to
the extent such counsel deems proper, on certificates of responsible officers of
the Company and public officials. The foregoing opinion may be limited to the
laws of the United States, the laws of the State of California and the General
Corporation Law of the State of California. References to the Registration
Statement and the Prospectus in the Section 7.2 shall include any amendment or
supplement thereto at the date of such opinion. Such counsel shall permit
Donahue, Mesereau & Leids LLP to rely upon such opinion in rendering its opinion
in Section 7.3.
7.3 Review by and Opinion of Representative's Counsel. The
Representative shall have received an opinion, dated the Firm Closing Date, of
Donahue, Mesereau & Leids LLP, counsel for the Representative, with respect to
certain matters as the Representative may reasonably require, and the
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Company shall have furnished to such counsel such documents and certificates as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
7.4 Accountant's Letter. The Representative shall have received from
Singer, Lewak, Greenbaum & Goldstein LLP, a letter or letters dated,
respectively, the date hereof and the Closing Date, in form and substance
reasonably satisfactory to the Representative, substantially to the effect that:
(a) they are independent accountants with respect to the Company
within the meaning of the Act and the Rules and Regulations;
(b) in their opinion, the financial statements audited by them
and included in the Registration Statement and the Prospectus comply in form in
all material respects with the applicable accounting requirements of the Act and
the related published rules and regulations;
(c) on the basis of a reading of the audited financial
statements of the Company, for the year-ended January 31, 1997, and the
unaudited financial statements of the Company for the period ended July 31, 1997
and the notes thereto, carrying out certain specified procedures (which do not
constitute an audit made in accordance with generally accepted auditing
standards) that would not necessarily reveal matters of significance with
respect to the comments set forth in this paragraph, a reading of the minute
books of the shareholders, the board of directors and any committees thereof of
the Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters, nothing came to their
attention that caused them to believe that:
(i) the unaudited financial statements of the Company
included in the Registration Statement and the Prospectus do not comply in form
in all material respects with the applicable accounting requirements of the Act
and the related published rules and regulations thereunder or are not in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus; and
(ii) at a specific date not more than five business days
prior to the date of such letter, there were any changes in the capital stock or
long-term debt of the Company or any decreases in net current assets or
shareholders' equity of the Company, in each case compared with amounts shown on
the July 31, 1997 balance sheet included in the Registration Statement and the
Prospectus, or for the period from July 31, 1997 to such specified date there
were any decreases, as compared with the corresponding period in the preceding
year, in net sales, gross profit, selling, general and administrative expenses,
employee plans and bonuses, income (loss) from operations, interest expenses,
income (loss) before income taxes, provision (benefit) for income taxes, net
income (loss) or net income (loss) per share of the Company, except in all
instances for changes, decreases or increases set forth in such letter; and
(d) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting records of
the Company and are included in the Registration Statement and the Prospectus,
and have compared such amounts, percentages and financial information with such
records of the Company and with information derived from such records and have
found them to be in agreement, excluding any questions of legal interpretation.
18
<PAGE>
In the event that the letters referred to above set forth any such changes,
decreases or increases, it shall be a further condition to the obligations of
the Underwriters that such letters shall be accompanied by a written explanation
of the Company as to the significance thereof, unless the Representative deems
such explanation unnecessary, and such changes, decreases or increases do not,
in the sole judgment of the Representative, make it impractical or inadvisable
to proceed with the purchase and delivery of the Shares as contemplated by the
Registration Statement, as amended as of the date hereof.
References to the Registration Statement and the Prospectus in this Section
7.4 with respect to either letter referred to above shall include any amendment
or supplement thereto at the date of such letter.
7.5 Officer's Certificate. The Representative shall have received a
certificate, dated the Firm Closing Date, of the president and the principal
financial or accounting officer of the Company to the effect that:
(a) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing Date,
the Registration Statement, as amended as of the Firm Closing Date, does not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading, in light of the
circumstances in which they were made and the Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein not misleading, in the light of the circumstances under
which they were made; and the Company has in all material respects performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date;
(b) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the best
of their knowledge, are contemplated by the Commission; and
(c) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss or interference with its business or property from
fire, flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding,
and there has not been any material adverse change, or any development involving
a prospective material adverse change, in the condition (financial or
otherwise), business, prospects net worth or results of operations of the
Company, except in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto).
7.6 NASD Review. The NASD, upon review of the terms of the public
offering of the Firm Shares and Option Shares, shall not have objected to the
Underwriters' participation in such offering.
7.7 Lockups. The Representatives shall have received from each person
who owns Common Stock, or securities convertible into Common Stock, an agreement
to the effect that such person will not, directly or indirectly, without the
prior written consent of the Representative, offer, sell or grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of an option
to purchase or other disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock for a
period of twelve months.
19
<PAGE>
7.8 Due Diligence Examination. The counsel to the Representative and
other persons retained by the Representative to conduct a due diligence
investigation with respect to the offering, shall be reasonably satisfied with
the results of their respective due diligence investigations.
7.9 Blue Sky Qualification. The Shares shall be qualified in such
states as the Representative may reasonably request pursuant to Section 5.4, and
each such qualification shall be in effect and not subject to any stop order or
other proceeding on the Closing Date or Option Closing Date, as the case may be.
7.10 Other Documents. On or before the Firm Closing Date, the
Representative and counsel for the Representative shall have received such
further certificates, documents or other information as they may have reasonably
requested from the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representative. The
Company shall furnish to the Representative such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representative and the counsel to the Representative shall reasonably request.
The respective obligations of the several Underwriters to purchase and pay
for any Option Shares shall be subject, in the Representative discretion, to
each of the foregoing conditions to purchase the Firm Shares, except that all
references to the Firm Shares and the Firm Closing Date shall be deemed to refer
to such Option Shares and the related Option Closing Date, respectively.
SECTION 8.
INDEMNIFICATION AND CONTRIBUTION
8.1 Indemnification by Company. The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934 (the "Exchange Act") against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(a) any untrue statement or alleged untrue statement made by the
Company in Section 2 of this Agreement;
(b) any untrue statement or alleged untrue statement of any
material fact contained in (i) the Registration Statement or any amendment
thereto or any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (ii) any application or other document, or any amendment
or supplement thereto, executed by the Company and based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Shares under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities exchange
(each an "Application"); or
20
<PAGE>
(c) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they are made, and
will reimburse, as incurred, each Underwriter and each such controlling person
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with 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 any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representative specifically for use therein; and provided further
that the Company will not be liable to any Underwriter or any person controlling
such Underwriter with respect to any such untrue statement or omission made in
any Preliminary Prospectus that is corrected in the Prospectus (or any amendment
or supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Shares from such Underwriter but was not sent or given a
copy of the Prospectus (as amended or supplemented), other than the documents
incorporated by reference therein at or prior to the written confirmation of the
sale of such Shares to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless failure
to deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5.5 of this Agreement. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent each Underwriter
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out if such claim, action, suit or proceeding.
8.2 Indemnification by Underwriters. Each Underwriter will indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company, any such director or officer of the Company or any such controlling
person of the Company may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (a) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement to any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application or (b) the omission
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or necessary to make the statements therein not misleading in light
of the circumstances in which are made, 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 reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the COmpany or any
21
<PAGE>
director, officer or controlling person of the Company in connection with
investigation or defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or any action in respect
thereof. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have. No Underwriter will, without the prior
written consent of the Company, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not the
Company, any of its directors, any of its officers who signed the Registration
Statement or any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding), unless such settlement, compromise or consent
includes an unconditional release of the Company and each such director, officer
and controlling person from all liability arising out of such claim, action,
suit or proceeding.
8.3 Notice of Defense. Promptly after receipt by an indemnified party
under this Section 8 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 8, notify 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 8. 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
therein and, to the extent that it may wish, jointly with any other indemnifying
party and the indemnified party shall have reasonably concluded that there may
be one or more legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, the indemnifying party shall not have the right to direct the defense of
such action on behalf of such indemnified party or parties and such indemnified
party or parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party (which may not be unreasonably withheld or delayed under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (a) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel at any one time in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Representative in the case of
Section 8.1, representing the indemnified parties under such Section 8.1 who are
parties to such action or actions) or (b) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party, unless such indemnified party
waived its rights under this Section 8 in which case the indemnified party may
effect such a settlement without such consent.
8.4 Contribution. In circumstances in which the indemnity agreement
provided for in the proceeding paragraphs of this Section 8 is unavailable or
insufficient to hold harmless an indemnified party in respect to any losses,
claims, damages or liability (or actions in respect thereof), each indemnifying
party, in order to provide for just and equitable contribution, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in respect thereof) in
22
<PAGE>
such proportion as is appropriate to reflect (a) the relative benefits received
by the indemnifying party or parties on the one hand and the indemnified party
on the other from the offering of the Shares or (b) if the allocation provided
by the foregoing clause (a) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party in the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liability (or action in respect
thereof). The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (after deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by the
Underwriters. The relative fault of the parties shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or the Underwriters, the parties'
relative intents, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Underwriters agree that it
would not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable consideration referred to in the first sentence of
this Section 8.4. Notwithstanding any other provision of this Section 8.4. no
Underwriter shall be obligated to make contributions hereunder that in the
aggregate exceed the underwriter discount on the Shares purchased by such
Underwriter under this Agreement, less the aggregate amount of any damages that
such Underwriter has otherwise been required to pay in respect of the same or
any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Agreement Among Underwriters. For purposes of this Section 8.4, each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, shall have the same right to contribution as the Company
as the case may be.
SECTION 9.
DEFAULT OF UNDERWRITERS
If one or more Underwriters default in their obligations to purchase Firm
Shares, or Options Shares hereunder and the aggregate number of such Shares that
such defaulting Underwriter or Underwriters agreed but failed to purchase is ten
percent or less of the aggregate number of Firm Shares or Option Shares to be
purchased by all of the Underwriters at such time hereunder, the other
Underwriters may make arrangements satisfactory to the Representative for the
purchase of such Shares by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representative), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally in
proportion to their respective commitments hereunder to purchase the Firm
Shares, or Option Shares that such defaulting Underwriter or Underwriters agreed
but failed to purchase. In the event of any default by one or more Underwriters
as described in this Section 9, the Representative shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the
23
<PAGE>
case may be, established as provided in Section 3 hereof for not more than seven
business days in order that any necessary changes may be made in the
arrangements or documents for the purpose and delivery of the Firm Shares or
Option Shares, as the case may be. As used in this Agreement, the term
"Underwriter" includes any persons substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
SECTION 10.
SURVIVAL
The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers and directors and
the several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (a) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (b) delivery of and payment for the Shares.
The respective agreements, covenants, indemnities and other statements set forth
in Sections 5 and 8 hereof shall remain in full force and effect, regardless of
any termination or cancellation this Agreement.
24
<PAGE>
SECTION 11.
TERMINATION
11.1 By Representative. This Agreement may be terminated with
respect to the Firm Shares or any Option Shares in the sole discretion of the
Representative by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing date or such Option Closing Date,
respectively:
(a) the Company shall have sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding or there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including financial or otherwise), in the business, prospects
net worth or results of operations of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(b) trading in the Common Stock shall have been suspended
by the Commission or the National Association of Securities Dealers Automated
Quotation SmallCap Market or trading in securities generally on the New York
Stock Exchange or the American Stock Exchange shall have been suspended or
minimum or maximum prices shall have been established on any such exchange or
market system;
(c) a banking moratorium shall been declared by New York,
California, or United States authorities; or
(d) there shall have been (i) an outbreak or escalation of
hostilities between the United States and any foreign power, (ii) an outbreak or
escalation of any other insurrection or armed conflict involving the United
States or (iii) any other calamity or crisis having an effect on the financial
markets that, in the reasonable judgement of the Representative, makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares as contemplated by the Registration Statement, as amended as of
the date hereof.
11.2 Effect of Termination Hereunder. Termination of this Agreement
pursuant to this Section 11 shall be without liability of any party to any other
party, except as provided in Section 10 hereof.
25
<PAGE>
SECTION 12.
INFORMATION SUPPLIED BY UNDERWRITERS
The statements set forth in the last paragraph on the front cover page
and under the heading "Underwriting" in any Preliminary Prospectus or the
Prospectus, to the extent such statements relate to the Underwriters constitute
the only information furnished by any Underwriter through the Representative to
the Company for the purposes of Section 8 and 10 hereof. The Underwriters
represent and warrant to the Company that such statements, to such extent, are
correct as of the date hereof and at each Closing Date.
SECTION 13.
NOTICES
All communications hereunder shall be in writing and if sent to any of the
Underwriters, shall be mailed (certified or registered mail, postage prepaid,
return receipt requested) or delivered or sent by facsimile transmission and
confirmed in writing to Waldron & Co., Inc., 19000 MacArthur, 8th Floor, Irvine,
California 92715, Attention: Mr Jack Myers, with a copy to Asher M. Leids, Esq,
Donahue, Mesereau & Leids LLP, 1900 Avenue of the Stars, Suite 2700, Los
Angeles, California 90067), if sent to the Company, shall be mailed (certified
or registered mail, postage prepaid, return receipt requested), delivered or
telegraphed and confirmed in writing to the Company at 2101 East Coast Highway,
Garden Level, Corona del Mar, California 92625, Attention: Robert J. McNulty
(with copy to Leon Cooper, Esq., Lewis, D'Amato, Brisbois & Bisgaard LLP, 221
North Figueroa, Suite 1200, Los Angeles, California 90012). Notices shall be
effective if mailed, 48 hours after deposit in the mail properly addressed, sent
by facsimile, upon receipt and in any other instance, when delivered.
SECTION 14.
SUCCESSORS
This Agreement shall inure to the benefit of and shall be binding upon the
several Underwriters, the Company and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (a) the indemnities of the
Company contained in Section 8 of this Agreement shall also be for the benefit
of any person or persons who control any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and (b) the indemnities
of the Underwriters contained in Section 8 of this Agreement shall also be for
the benefit of the directors of the Company, the officers of the Company who
have signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Shares from any Underwriter shall be deemed a
successor because of such purchase.
26
<PAGE>
SECTION 15.
APPLICABLE LAW
The validity and interpretation of this Agreement, and the terms and
conditions set forth herein, shall be governed by and construed in accordance
with the laws of the State of California without giving effect to any provisions
relating to conflicts of laws.
SECTION 16.
COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company, and each of the
several Underwriters.
Very truly yours,
SHOPPING.COM
By:______________________________________
Robert J. McNulty
Chief Executive Officer and President
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Waldron & Co., Inc.
(As Representative of the several
Underwriters named in Schedule 1 hereto)
By:________________________________________
27
<PAGE>
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be purchased
- ----------- ---------------
<S> <C>
Waldron & Co., Inc.
Total __________
</TABLE>
<PAGE>
EXHIBIT 4.02
SHOPPING.COM
------------
a California corporation
INCENTIVE STOCK OPTION AGREEMENT
UNDER STOCK OPTION PLAN OF 1997
1. Grant of Option. SHOPPING.COM, a California corporation
---------------
("Company"), wishing to provide __________________________ ("Grantee") an
opportunity to purchase shares of the Company's Common Stock, no par value,
("Common Stock") and to provide Grantee with an added incentive as an employee
of the Company, hereby grants to Grantee and Grantee hereby accepts on this __
day of________, 199_, an option to purchase ___________ (___) shares of Common
Stock ("Option Shares") at a price of $____ per share on the terms and
conditions stated herein.
2. Option Dates, Term of Option.
----------------------------
2.1 This Option may be exercisable at any time after the earlier
of 90 days after the effective date of the Company's Initial Public Offering or
June 30, 1998 during the Term hereof.
2.2 Term of Option. This Option shall terminate on_________ ___,
--------------
200_ unless earlier terminated as provided in this Section 2.
2.3 Term for Ten Percent Shareholders. If on the date hereof,
---------------------------------
Grantee owns shares of the Company's outstanding capital stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its affiliates, this Option shall terminate on______ __ 200_.
2.4 Termination of Employment. If the Grantee's employment by
-------------------------
the Company or any of its affiliates is terminated for any reason other than
death or permanent disability (within the meaning of Section 105(d)(4) of the
Internal Revenue Code of 1986, as amended (the "Code")), this Option shall
become void and of no further force or effect thirty (30) days after the
termination of such employment; provided, however, that if such cessation of
employment shall be due to (i) Grantee's voluntary resignation with the consent
of the Board of Directors or a Committee thereof (the "Board") of the Company or
such affiliate, expressed in the form of a written resignation, or (ii)
Grantee's retirement under the provisions of any Pension or Retirement Plan of
the Company or such affiliate then in effect, this Option shall terminate three
(3) months after the date Grantee ceases to be an employee of the Company or
such affiliate. A leave of absence approved in writing by the Board, including
but not limited to, military service leave or other temporary employment with
the United States Government and sick leave, shall not be deemed a termination
of employment for the purposes of this Paragraph, but this Option may not be
exercised after the first three (3) months of such leave.
<PAGE>
2.5 Death or Permanent Disability. If the Grantee shall die or
-----------------------------
become permanently disabled while employed by the Company or one of its
affiliates, this Option shall expire one (1) year after the date of such death
or permanent disability. During such period after death, the Grantee's legal
representation or representatives, or the person or persons entitled to do so
under the Grantee's last will and testament or under applicable intestate laws,
shall have the right to exercise this Option as to only the number of shares to
which the Grantee was entitled to purchase on the date of his death.
2.6 Terminating Transactions. Upon the dissolution or
------------------------
liquidation of the Company, this Option shall terminate.
2.7 Assumption by Successor. Upon the reorganization, merger or
-----------------------
consolidation of the Company with one or more corporations as a result of which
the Company is not the surviving corporation, the Board shall cause the
surviving corporation to assume the Option by converting the Option into an
option to purchase the stock of such successor or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
prices, pursuant to the terms hereof.
3. Non-Transferability of Option. Except by will or the laws of
-----------------------------
descent and distribution, this Option shall not be transferred, or assigned,
pledged, hypothecated or otherwise disposed of in any way, whether by operation
of law of otherwise. During the Grantee's lifetime this Option is exercisable
only by the Grantee, regardless of any community property interest therein of
the spouse of the Grantee, or such spouse's successor-in-interest. If the
spouse of the Grantee shall have acquired a community property interest in this
Option, only the Grantee, or the Grantee's permitted successor-in-interest, may
exercise the Option on behalf of the spouse of the Grantee or such spouse's
successor-in-interest.
4. Adjustments. If the outstanding shares of the Common Stock are
-----------
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction, an appropriate and proportionate adjustment shall be made
in the maximum number and kind of shares subject to the unexercised portion of
this Option. Any such adjustment in the unexercised portion of this Option shall
be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option but with a corresponding adjustment and price
for each share or other unit of any security covered by the Option. Adjustments
shall be made by the Board, whose determination as to what adjustments shall be
2
<PAGE>
made and the extent thereof shall be final, binding and conclusive. No
fractional shares of stock shall be issued under this Option on any such
adjustment.
5. Mechanics. This Option may be exercised by the Grantee or other
---------
person then entitled to exercise it by giving ten (10) days' written notice of
exercise to the Company specifying the number of shares to be purchased and the
total purchase price, accompanied by payment of such purchase price, in cash or
by certified or cashier's check payable to Company.
6. Withholding Taxes. Company shall have the right to require
-----------------
Grantee or such other holder of the Option or the Option Shares to pay to
Company any and all sums equal to any taxes which Company may be required to
withhold by reason of the Option, the Option Shares or the disposition of the
Option or the Option Shares.
7. Rights Before Issuance and Delivery. Neither Grantee nor any
-----------------------------------
holder of the Option shall be entitled to the privileges of stock ownership with
respect to the Option Shares unless and until such shares have been issued to
such person as fully paid shares.
8. By accepting this Option, the Grantee represents and agrees for
himself and his transferees by will or the laws of descent and distribution
that, unless a registration statement under the Securities Act of 1933 is in
effect as to the Option Shares purchased upon any exercise of this Option, any
and all Option Shares so purchased shall be acquired for his personal account
and not for sale or for distribution, and each notice of the exercise of any
portion of this Option shall be accompanied by a representation and warranty in
writing, signed by the person entitled to exercise the same, that the Option
Shares are being so acquired in good faith for his personal account and not for
sale or distribution. In the event the Company's legal counsel shall advise it
that registration under the Securities Act of 1933 of the Option Shares as to
which this Option is at the time being exercised is required prior to delivery
thereof, the Company shall not be required to issue or deliver such shares
unless and until such legal counsel shall advise that such registration has been
completed or that it is not required.
9. All stock certificates representing shares of Option Shares, if
the Option is exercised, may bear three (3) legends in a form substantially
similar to the following:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE
3
<PAGE>
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
"THESE SECURITIES HAVE NOTE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE SUBJECT TO A
RIGHT OF REPURCHASE BY THE COMPANY."
10. Employment Obligation.
---------------------
10.1 In consideration for the granting of this Option, the
Grantee agrees that during the period of his employment by the Company or its
affiliates, he shall faithfully and to the best of his ability devote his time,
energy and skills during all normal working hours to the service of the Company
or its subsidiaries in the promotion of their interests.
10.2 Nothing in this Agreement shall be construed to confer
upon the Grantee any right to continued employment with the Company or its
affiliates or to restrict in any way the right of the Company or its affiliates
to terminate his employment or modify the terms and conditions thereof at any
time.
11. Stock Option Plan of 1997. This Option is subject to, and the
-------------------------
Company and the Grantee agree to be bound by, all of the terms and conditions of
the Company's Stock Option Plan of 1997 ("Plan") as the same may be amended from
time to time in accordance with the terms thereof. A copy of the Plan in its
present form is available for inspection during business hours by the Grantee or
other persons entitled to exercise the Option at the Company's principal office.
12. Notices. Any notice to be given to the Company shall be addressed
-------
to the Company at its principal office and any notice to be given to the Grantee
shall be addressed to him at the address given beneath the signature hereto or
at such other address as the Grantee may hereafter designate in writing to the
Company. Any such notice shall be deemed duly given when personally delivered or
deposited in the United States mail.
8. Applicable Law and Severability. This document shall, in all
-------------------------------
respects, be governed by the laws of the State of
4
<PAGE>
California applicable to agreements executed and to be wholly performed within
the State of California. Nothing contained herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
conflict between any provision contained herein and any present or future
statute, law, ordinance or regulation contrary to which the parties have no
legal right to contract, the latter shall prevail but the provision of this
document which is affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law.
IN WITNESS WHEREOF, the parties have entered into this Incentive Stock
Option Agreement on the day and year first written above.
GRANTEE: COMPANY:
SHOPPING.COM
a California corporation
_____________________________ By:_________________________
_____________________________
Street Address
_____________________________
City, State, Zip Code
5
<PAGE>
SPOUSE'S CONSENT
By his or her signature below, the spouse of Grantee agrees to be bound by all
of the terms and conditions of the foregoing Agreement.
____________________________
Spouse
6
<PAGE>
EXHIBIT 4.03
SHOPPING.COM
------------
a California corporation
INCENTIVE STOCK OPTION AGREEMENT
UNDER STOCK OPTION PLAN OF 1997
1. Grant of Option. SHOPPING.COM, a California corporation
---------------
("Company"), wishing to provide __________________________ ("Grantee") an
opportunity to purchase shares of the Company's Common Stock, no par value,
("Common Stock") and to provide Grantee with an added incentive as an employee
of the Company, hereby grants to Grantee and Grantee hereby accepts on this __
day of________, 199_, an option to purchase ___________ (___) shares of Common
Stock ("Option Shares") at a price of $____ per share on the terms and
conditions stated herein.
2. Option Dates, Term of Option.
----------------------------
2.1 This Option may be exercisable at any time after the earlier
of 90 days after the effective date of the Company's Initial Public Offering or
June 30, 1998 during the Term hereof.
2.2 Term of Option. This Option shall terminate on_________ ___,
--------------
200_ unless earlier terminated as provided in this Section 2.
2.3 Term for Ten Percent Shareholders. If on the date hereof,
---------------------------------
Grantee owns shares of the Company's outstanding capital stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its affiliates, this Option shall terminate on______ __ 200_.
2.4 Termination of Employment. If the Grantee's employment by
-------------------------
the Company or any of its affiliates is terminated for any reason other than
death or permanent disability (within the meaning of Section 105(d)(4) of the
Internal Revenue Code of 1986, as amended (the "Code")), this Option shall
become void and of no further force or effect thirty (30) days after the
termination of such employment; provided, however, that if such cessation of
employment shall be due to (i) Grantee's voluntary resignation with the consent
of the Board of Directors or a Committee thereof (the "Board") of the Company or
such affiliate, expressed in the form of a written resignation, or (ii)
Grantee's retirement under the provisions of any Pension or Retirement Plan of
the Company or such affiliate then in effect, this Option shall terminate three
(3) months after the date Grantee ceases to be an employee of the Company or
such affiliate. A leave of absence approved in writing by the Board, including
but not limited to, military service leave or other temporary employment with
the United States Government and sick leave, shall not be deemed a termination
of employment for the purposes of this Paragraph, but this Option may not be
exercised after the first three (3) months of such leave.
<PAGE>
2.5 Death or Permanent Disability. If the Grantee shall die or
-----------------------------
become permanently disabled while employed by the Company or one of its
affiliates, this Option shall expire one (1) year after the date of such death
or permanent disability. During such period after death, the Grantee's legal
representation or representatives, or the person or persons entitled to do so
under the Grantee's last will and testament or under applicable intestate laws,
shall have the right to exercise this Option as to only the number of shares to
which the Grantee was entitled to purchase on the date of his death.
2.6 Terminating Transactions. Upon the dissolution or
------------------------
liquidation of the Company, this Option shall terminate.
2.7 Assumption by Successor. Upon the reorganization, merger or
-----------------------
consolidation of the Company with one or more corporations as a result of which
the Company is not the surviving corporation, the Board shall cause the
surviving corporation to assume the Option by converting the Option into an
option to purchase the stock of such successor or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
prices, pursuant to the terms hereof.
3. Non-Transferability of Option. Except by will or the laws of
-----------------------------
descent and distribution, this Option shall not be transferred, or assigned,
pledged, hypothecated or otherwise disposed of in any way, whether by operation
of law of otherwise. During the Grantee's lifetime this Option is exercisable
only by the Grantee, regardless of any community property interest therein of
the spouse of the Grantee, or such spouse's successor-in-interest. If the
spouse of the Grantee shall have acquired a community property interest in this
Option, only the Grantee, or the Grantee's permitted successor-in-interest, may
exercise the Option on behalf of the spouse of the Grantee or such spouse's
successor-in-interest.
4. Adjustments. If the outstanding shares of the Common Stock are
-----------
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction, an appropriate and proportionate adjustment shall be made
in the maximum number and kind of shares subject to the unexercised portion of
this Option. Any such adjustment in the unexercised portion of this Option shall
be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option but with a corresponding adjustment and price
for each share or other unit of any security covered by the Option. Adjustments
shall be made by the Board, whose determination as to what adjustments shall be
2
<PAGE>
made and the extent thereof shall be final, binding and conclusive. No
fractional shares of stock shall be issued under this Option on any such
adjustment.
5. Mechanics. This Option may be exercised by the Grantee or other
---------
person then entitled to exercise it by giving ten (10) days' written notice of
exercise to the Company specifying the number of shares to be purchased and the
total purchase price, accompanied by payment of such purchase price, in cash or
by certified or cashier's check payable to Company.
6. Withholding Taxes. Company shall have the right to require
-----------------
Grantee or such other holder of the Option or the Option Shares to pay to
Company any and all sums equal to any taxes which Company may be required to
withhold by reason of the Option, the Option Shares or the disposition of the
Option or the Option Shares.
7. Company's Right of First Refusal Respecting Exercised Shares.
------------------------------------------------------------
7.1 Right of First Refusal. In the event that the Grantee
----------------------
proposes to sell, pledge, or otherwise transfer any Exercised Shares, the
Company shall have a right of first refusal (the "Right of First Refusal") with
respect to such Option Shares. If Grantee desires to transfer Exercised Shares
to any person or entity, Grantee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Exercised Shares proposed to be transferred, the proposed price and
the name and address of the proposed transferee. The Transfer Notice shall be
signed both by Grantee and by the proposed transferee and must constitute a
binding commitment of both such parties for the transfer of such Exercised
Shares. The Company shall have the right to purchase the Exercised Shares
subject to the Transfer Notice by delivery of a notice of exercise of the
Company's Right of First Refusal within 30 days after the date the Transfer
Notice is delivered to the Company. The purchase price paid by the Company
shall be at a price per share equal to the lower of (i) the proposed per share
transfer price or (ii) the fair market value of a share of Common Stock, as most
recently determined by the Board of Directors of the Company prior to delivery
of the Transfer Notice. The Company's right under this Section 7.1 shall be
freely assignable, in whole or in part.
7.2 Transfer of Exercised Shares. If the Company fails to
----------------------------
exercise the Right of First Refusal within 40 days from the date the Transfer
Notice is delivered to the Company, the Grantee may, not later than 75 days
following delivery to the Company of the Transfer Notice, conclude a transfer of
the Exercised Shares subject to the Transfer Notice on the terms and conditions
described in the Transfer Notice. Any proposed
3
<PAGE>
transfer on terms and conditions different from those described in the Transfer
Notice, as well as any subsequent proposed transfer by the Grantee, shall again
be subject to the Right of First Refusal and shall require compliance by the
Grantee with the procedure described in Section 7.1 of this Agreement. If the
Company exercises the Right of First Refusal, the parties shall consummate the
sale of exercised Shares on the terms, other than price, as applicable under
Section 7.1 set forth in the Transfer Notice; provided, however, in the event
the Transfer Notice provides for payment for the Exercised Shares other than in
cash, the Company shall have the option of paying for the Exercised Shares by he
discounted cash equivalent of the consideration described in the Transfer
Notice.
7.3 Binding Effect. The Right of First Refusal shall inure to
--------------
the benefit of the successors and assigns of the Company and shall be binding
upon any transferee of Exercised Shares other than a transferee acquiring
Exercised Shares in a transaction where the Company failed to exercise the Right
of First Refusal (a "Free Transferee") or a transferee of a Free Transferee.
7.4 Termination of Company's Right of First Refusal.
-----------------------------------------------
Notwithstanding anything in this Section 7, the Company shall have no Right of
First Refusal, and Grantee shall have no obligation to comply with the
procedures in Sections 7.1 through 7.3, after the earlier of (a) the closing of
the Company's initial registered public offering of Common Stock to the public
generally, or (b) the date ten years after the date set forth above.
8. Rights Before Issuance and Delivery. Neither Grantee nor any
-----------------------------------
holder of the Option shall be entitled to the privileges of stock ownership with
respect to the Option Shares unless and until such shares have been issued to
such person as fully paid shares.
9. Sale or Disposition of Option Shares.
------------------------------------
9.1 In the event Grantee is terminated by the Company for any
reason, or Grantee voluntarily terminates Grantee's employment with the Company,
prior to_______,_____, the Company shall have the right to repurchase
("Repurchase Option") the Option Shares ("Repurchase Shares") at either (1) the
higher of the original purchase price or fair value on the date of termination
of employment, if the right to repurchase must be exercised for cash or
cancellation of purchase money indebtedness for the shares within 90 days of
termination of employment, and the right terminates when the Company's
securities become publicly traded; or (2) the original purchase price, provided
that (A) the right to repurchase at the original purchase price lapses at the
rate of at least 20% per year over 5 years from the
4
<PAGE>
date the option is granted (without respect to the date the option was exercised
or became exercisable), which right must be exercised for cash or cancellation
of purchase money indebtedness for the shares within 90 days of termination of
employment, and (B), if the right is assignable, the assignee must pay the
Company upon assignment of the right, (unless the assignee is a 100% owned
subsidiary of the Company or is the parent of the Company owning 100% of the
Company) cash equal to the difference between the original purchase price and
fair value if the original purchase price is less than fair value ("Repurchase
Price").
9.2 The Company shall have the right, at any time within ninety
(90) days after the date of termination of Grantee's employment voluntarily by
Grantee or by the Company for cause, to purchase any and all Repurchase Shares
from Grantee or any Family Transferees (as defined below) as the case may be.
Any Repurchase Shares not purchased by the Company within such ninety (90) day
period shall no longer be subject to the Repurchase Option after the expiration
of such ninety (90) day period.
9.3 The Repurchase Option shall be exercised by written notice
(the "Repurchase Notice") signed by an officer of the Company and delivered or
mailed, within ninety (90) days after such termination date, to Grantee, or
Grantee's Family Transferees (if any), as the case may be. The Repurchase
Notice shall set forth the number of Repurchase Shares to be acquired from such
holder, the aggregate consideration to be paid for such shares and the time and
place for the settlement of such purchase, which must be made within ninety (90)
days of such termination date. The number of Repurchase Shares to be
repurchased by the Company shall first be satisfied to the extent possible from
the Repurchase Shares held by Grantee at the time of delivery of the Repurchase
Notice. The Company shall repurchase at least all of the Repurchase Shares held
by the Grantee. If the number of Repurchase Shares held by Grantee is less than
the total number of Repurchase Shares the Company has elected to purchase
hereunder, the Company shall purchase the remaining Repurchase Shares elected to
be purchased from the Family Transferees (if any) pro rata according to the
number of Repurchase Shares held at the time of delivery of such Repurchase
Notice (determined as nearly as practicable to the nearest share).
9.4 The closing of the repurchase shall take place on the date
designated by the Company in the Repurchase Notice, which date shall not be
greater than thirty (30) days from the date of termination of Grantee's
employment.
9.5 No Repurchase Shares may be sold, transferred or assigned
except to Grantee's family members ("Family
5
<PAGE>
Transferees"). A family member means an ancestor, descendant (whether natural or
adopted) or spouse and any trust solely for Grantee's benefit and/or the benefit
of Grantee's ancestors, spouse and/or descendants. Each Family Transferee will
succeed to all rights and obligations attributable to Grantee as a holder of
Repurchase Shares hereunder. The Repurchase Option with respect to the
Repurchase Shares transferred to the Family Transferee shall continue to be
applicable after such transfer and the Company may refuse to transfer on its
books any Repurchase Shares to a Family Transferee until the Company has
received such Family Transferee's written agreement to be bound by the
provisions of this agreement.
9.6 All Repurchase Shares shall bear a legend to the effect that
such shares are subject to the terms and provisions of this agreement,
including, the restrictions on transfer of such shares and the Company's
Repurchase Option.
9.7 For purposes of the Repurchase Option, the term Repurchase
Shares shall include any and all securities Grantee may receive with respect to
the Repurchase Shares as a result of stock dividends, stock splits,
reclassification, mergers, or reorganizations. In such events, the Repurchase
Price shall be appropriately adjusted.
9.8 By accepting this Option, the Grantee represents and agrees
for himself and his transferees by will or the laws of descent and distribution
that, unless a registration statement under the Securities Act of 1933 is in
effect as to the Option Shares purchased upon any exercise of this Option, any
and all Option Shares so purchased shall be acquired for his personal account
and not for sale or for distribution, and each notice of the exercise of any
portion of this Option shall be accompanied by a representation and warranty in
writing, signed by the person entitled to exercise the same, that the Option
Shares are being so acquired in good faith for his personal account and not for
sale or distribution. In the event the Company's legal counsel shall advise it
that registration under the Securities Act of 1933 of the Option Shares as to
which this Option is at the time being exercised is required prior to delivery
thereof, the Company shall not be required to issue or deliver such shares
unless and until such legal counsel shall advise that such registration has been
completed or that it is not required.
9.9 All stock certificates representing shares of Option
Shares, if the Option is exercised, may bear three (3) legends in a form
substantially similar to the following:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT
6
<PAGE>
OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES."
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE SUBJECT TO A
RIGHT OF REPURCHASE BY THE COMPANY."
10. Employment Obligation.
---------------------
10.1 In consideration for the granting of this Option, the
Grantee agrees that during the period of his employment by the Company or its
affiliates, he shall faithfully and to the best of his ability devote his time,
energy and skills during all normal working hours to the service of the Company
or its subsidiaries in the promotion of their interests.
10.2 Nothing in this Agreement shall be construed to confer
upon the Grantee any right to continued employment with the Company or its
affiliates or to restrict in any way the right of the Company or its affiliates
to terminate his employment or modify the terms and conditions thereof at any
time.
11. Stock Option Plan of 1997. This Option is subject to, and the
-------------------------
Company and the Grantee agree to be bound by, all of the terms and conditions of
the Company's Stock Option Plan of 1997 ("Plan") as the same may be amended from
time to time in accordance with the terms thereof. A copy of the Plan in its
present form is available for inspection during business hours by the Grantee or
other persons entitled to exercise the Option at the Company's principal office.
12. Notices. Any notice to be given to the Company shall be
-------
addressed to the Company at its principal office and any notice to be given to
the Grantee shall be addressed to him at the address given beneath the signature
hereto or at such other
7
<PAGE>
address as the Grantee may hereafter designate in writing to the Company. Any
such notice shall be deemed duly given when personally delivered or deposited in
the United States mail.
13. Applicable Law and Severability. This document shall, in all
-------------------------------
respects, be governed by the laws of the State of California applicable to
agreements executed and to be wholly performed within the State of California.
Nothing contained herein shall be construed so as to require the commission of
any act contrary to law, and wherever there is any conflict between any
provision contained herein and any present or future statute, law, ordinance or
regulation contrary to which the parties have no legal right to contract, the
latter shall prevail but the provision of this document which is affected shall
be curtailed and limited only to the extent necessary to bring it within the
requirements of the law.
IN WITNESS WHEREOF, the parties have entered into this Incentive Stock
Option Agreement on the day and year first written above.
GRANTEE: COMPANY:
SHOPPING.COM
a California corporation
_____________________________ By:_________________________
Robert J. McNulty
President
_____________________________
Street Address
_____________________________
City, State, Zip Code
8
<PAGE>
SPOUSE'S CONSENT
By his or her signature below, the spouse of Grantee agrees to be bound by all
of the terms and conditions of the foregoing Agreement.
____________________________
Spouse
9
<PAGE>
EXHIBIT 4.04
SHOPPING.COM
------------
a California corporation
INCENTIVE STOCK OPTION AGREEMENT
UNDER STOCK OPTION PLAN OF 1997
1. Grant of Option. SHOPPING.COM, a California corporation
---------------
("Company"), wishing to provide __________________________ ("Grantee") an
opportunity to purchase shares of the Company's Common Stock, no par value,
("Common Stock") and to provide Grantee with an added incentive as an employee
of the Company, hereby grants to Grantee and Grantee hereby accepts on this __
day of ________, 199_, an option to purchase ___________ (___) shares of Common
Stock ("Option Shares") at a price of $____ per share on the terms and
conditions stated herein.
2. Option Dates, Term of Option.
----------------------------
2.1 This Option may be exercisable at any time after the earlier
of 90 days after the effective date of the Company's Initial Public Offering or
June 30, 1998 during the Term hereof.
2.2 Term of Option. This Option shall terminate on_________ __,
--------------
200_ unless earlier terminated as provided in this Section 2.
2.3 Death or Permanent Disability. If the Grantee shall die or
-----------------------------
become permanently disabled, this Option shall expire one (1) year after the
date of such death or permanent disability. During such period after death, the
Grantee's legal representation or representatives, or the person or persons
entitled to do so under the Grantee's last will and testament or under
applicable intestate laws, shall have the right to exercise this Option as to
only the number of shares to which the Grantee was entitled to purchase on the
date of his death.
2.4 Terminating Transactions. Upon the dissolution or
------------------------
liquidation of the Company, this Option shall terminate.
2.5 Assumption by Successor. Upon the reorganization, merger or
-----------------------
consolidation of the Company with one or more corporations as a result of which
the Company is not the surviving corporation, the Board shall cause the
surviving corporation to assume the Option by converting the Option into an
option to purchase the stock of such successor or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
prices, pursuant to the terms hereof.
3. Non-Transferability of Option. Except by will or the laws of
-----------------------------
descent and distribution, this Option shall not be transferred, or assigned,
pledged, hypothecated or otherwise
<PAGE>
disposed of in any way, whether by operation of law of otherwise. During the
Grantee's lifetime this Option is exercisable only by the Grantee, regardless of
any community property interest therein of the spouse of the Grantee, or such
spouse's successor-in-interest. If the spouse of the Grantee shall have acquired
a community property interest in this Option, only the Grantee, or the Grantee's
permitted successor-in-interest, may exercise the Option on behalf of the spouse
of the Grantee or such spouse's successor-in-interest.
4. Adjustments. If the outstanding shares of the Common Stock
-----------
are increased, decreased, changed into or exchanged for a different number or
kind of shares or securities of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of shares subject to the
unexercised portion of this Option. Any such adjustment in the unexercised
portion of this Option shall be made without change in the aggregate purchase
price applicable to the unexercised portion of the Option but with a
corresponding adjustment and price for each share or other unit of any security
covered by the Option. Adjustments shall be made by the Board, whose
determination as to what adjustments shall be made and the extent thereof shall
be final, binding and conclusive. No fractional shares of stock shall be issued
under this Option on any such adjustment.
5. Mechanics. This Option may be exercised by the Grantee or
---------
other person then entitled to exercise it by giving ten (10) days' written
notice of exercise to the Company specifying the number of shares to be
purchased and the total purchase price, accompanied by payment of such purchase
price, in cash or by certified or cashier's check payable to Company.
6. Withholding Taxes. Company shall have the right to require
-----------------
Grantee or such other holder of the Option or the Option Shares to pay to
Company any and all sums equal to any taxes which Company may be required to
withhold by reason of the Option, the Option Shares or the disposition of the
Option or the Option Shares.
7. Rights Before Issuance and Delivery. Neither Grantee nor any
-----------------------------------
holder of the Option shall be entitled to the privileges of stock ownership with
respect to the Option Shares unless and until such shares have been issued to
such person as fully paid shares.
2
<PAGE>
8.1 All stock certificates representing shares of Option Shares, if
the Option is exercised, may bear three (3) legends in a form substantially
similar to the following:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES."
"THESE SECURITIES HAVE NOTE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE SUBJECT TO A
RIGHT OF REPURCHASE BY THE COMPANY."
9. Stock Option Plan of 1997. This Option is subject to, and
-------------------------
the Company and the Grantee agree to be bound by, all of the terms and
conditions of the Company's Stock Option Plan of 1997 ("Plan") as the same may
be amended from time to time in accordance with the terms thereof. A copy of the
Plan in its present form is available for inspection during business hours by
the Grantee or other persons entitled to exercise the Option at the Company's
principal office.
10. Notices. Any notice to be given to the Company shall be
-------
addressed to the Company at its principal office and any notice to be given to
the Grantee shall be addressed to him at the address given beneath the signature
hereto or at such other address as the Grantee may hereafter designate in
writing to the Company. Any such notice shall be deemed duly given when
personally delivered or deposited in the United States mail.
11. Applicable Law and Severability. This document shall, in all
-------------------------------
respects, be governed by the laws of the State of
3
<PAGE>
California applicable to agreements executed and to be wholly performed within
the State of California. Nothing contained herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
conflict between any provision contained herein and any present or future
statute, law, ordinance or regulation contrary to which the parties have no
legal right to contract, the latter shall prevail but the provision of this
document which is affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law.
IN WITNESS WHEREOF, the parties have entered into this Incentive Stock
Option Agreement on the day and year first written above.
GRANTEE: COMPANY:
SHOPPING.COM
a California corporation
_____________________________ By:_________________________
Robert J. McNulty
President
_____________________________
Street Address
_____________________________
City, State, Zip Code
4
<PAGE>
SPOUSE'S CONSENT
By his or her signature below, the spouse of Grantee agrees to be bound by all
of the terms and conditions of the foregoing Agreement.
____________________________
Spouse
5
<PAGE>
EXHIBIT 10.11
[LETTERHEAD OF TYPHOON CAPITAL CONSULTANTS, LLC.]
AGREEMENT
---------
THIS AGREEMENT is made this 25th day of April, 1997, by and between TYPHOON
CAPITAL CONSULTANTS, LLC. (hereinafter TYPHOON), and THE SHOPPERS SOURCE, INC.
(hereinafter CLIENT), with respect to the following facts:
A. TYPHOON is in business of providing investor relations, public
relations, and financial consulting services.
B. CLIENT wishes to avail itself of TYPHOON'S services in Investor
Relations and Financial Communications.
C. TYPHOON is desirous of providing its services to CLIENT.
NOW, THEREFORE, predicated on the recitals above and of the terms,
conditions, and covenants described below, the parties hereto agree as follows:
1. TYPHOON agrees to render CLIENT its services which will be about
60-70 hours per month on the average.
2. CLIENT authorizes TYPHOON to act on its behalf in performing
investor relations services on a non-exclusive basis for the term of this
agreement, which are ordinarily and customarily performed by an investor
relations firm on behalf of a corporate client; including, but not limited to,
the review of the non-financial portions of the quarterly and annual reports to
the shareholders of CLIENT (excluding forms filed with the Securities and
Exchange Commission and other regulatory agencies), the drafting and
distribution of financial and general press releases, the drafting of a
corporate profile for distribution to shareholders and the investing public, and
the general introduction of CLIENT to the financial brokerage community.
Releases and other information made available to TYPHOON for dissemination to
the public, to shareholders and to the financial community will be provided by a
principal officer of CLIENT, its attorneys, or auditors.
3. CLIENT authorizes TYPHOON to act on its behalf as its non-exclusive
public relations agent. TYPHOON shall use its best efforts in the performance
of its assignment contemplated herein. However, since outcomes are influenced
by many factors beyond the control of TYPHOON, CLIENT acknowledges and agrees
that TYPHOON does not and cannot guarantee specific, or overall results from its
efforts on behalf of CLIENT.
<PAGE>
4. CLIENT understands and agrees that TYPHOON shall not be required to
render services to CLIENT on an exclusive basis, or devote its entire time to
CLIENT's affairs. Nothing in this agreement shall be construed as limiting
TYPHOON's right to represent other persons and/or entities, except that TYPHOON
agrees not to represent any entity or product which is directly competitive with
a product marketed by client unless TYPHOON first obtains CLIENT's written
approval, which approval may be withheld.
5. The term of this agreement shall be twelve (12) months, commencing
May 1, 1997 and terminating on April 30, 1998.
Further, CLIENT understands and agrees that upon the effective termination
date of this Agreement, it shall remain solely liable for any and all
outstanding obligations incurred pursuant to this Agreement, including, but not
limited to all obligations to reimburse TYPHOON, or third parties. As a
material inducement to TYPHOON, CLIENT agrees to indemnify TYPHOON and hold it
free and harmless from any and all such obligations. Should any Judgement, or
assessment be made against TYPHOON for any such obligation of CLIENT arising
from TYPHOON's performance of its duties hereunder, CLIENT agrees to pay all
such Judgements or assessments immediately upon notice of their respective
existence.
6. CLIENT understands and agrees that in furnishing the company with
advice and other services as provided in this Agreement, neither TYPHOON nor any
officer, director or agent thereof shall be liable to CLIENT or its creditors
for errors of judgement or anything except willful malfeasance, bad faith or
gross negligence in the performance of its duties or the reckless disregard of
its obligations and duties under the terms of this Agreement.
7. CLIENT represents and warrants to TYPHOON that; CLIENT will not
cause or knowingly permit any action to be taken in connection with transactions
which violates the Securities Act of 1933, Securities Act of 1934, or any state
securities law. CLIENT agrees to indemnify and hold TYPHOON and its officers,
directors, and agents, free and harmless from any liability, cost and expense,
including attorneys' fees in the event of a breach of this representation and
warranty. CLIENT shall also assume responsibility for the Indemnitees' defense
in any such matters, except where a conflict exists such that they are required
to retain separate counsel, in which event, CLIENT shall pay the legal fees and
expenses, as and when incurred, of separate council retained by Indemnitees to
provide such defense.
8. CLIENT agrees to pay TYPHOON a monthly retainer of Three Thousand
Dollars ($3,000.00) per month for the term of the Agreement. The first
installment is due at the successful closing of CLIENT's Series B Preferred
Stock offering, or May 31, 1997 at the latest. Subsequent payments are due in
advance, payable on the 1st day of each month.
<PAGE>
9. CLIENT further agrees to compensate TYPHOON in stock by issuing a
total of 16,000 shares of Series B Preferred Stock along with the associated
dividend, liquidation, conversion, and anti-dilution provisions.
10. CLIENT agrees to reimburse TYPHOON for all out of pocket expenses
incurred by it in the performance of assignments on behalf of CLIENT. Such out
of pocket expenses shall include, but are not limited to costs of long-distance
telephone, facsimile services, mileage/travel, messenger services, printing,
copying, postage, and other such ancillary services. However, it is understood
by TYPHOON that any single expense in excess of Two Hundred Dollars ($200.00)
will be approved in advance by CLIENT in writing. Any disputed expense must be
made known to TYPHOON in writing within fifteen (15)days of receipt. Out of
pocket expenses will be billed on or about the fifteenth of each month and will
be due and payable within fifteen (15) days of receipt.
11. CLIENT or TYPHOON may cancel this agreement upon 30 days written
notice after 6 months unless CLIENT does not successfully close the current
offering of Series B Preferred Stock that is currently under progress, in such
case either CLIENT or TYPHOON may cancel this agreement upon 30 days written
notice. Notwithstanding anything to the contrary, CLIENT will remain obligated
to Pay TYPHOON pro-rata compensation for work done, according to this Agreement.
12. This Agreement shall be governed by and construed to be in accordance
with the laws of the State of California. The parties hereto shall deliver
notices to each other by personal delivery or by registered mail (return receipt
requested) addressed as follows:
TYPHOON: TYPHOON CAPITAL CONSULTANTS, LLC
11601 WILSHIRE BLVD. SUITE 500
LOS ANGELES, CA 90025
CLIENT: THE SHOPPERS SOURCE, INC.
3300 IRVINE AVE. SUITE 374
NEWPORT BEACH, CA 92660
13. All controversies between the parties hereto or arising out of or
relating to the business combination contemplated by the Agreement, shall be
resolved by arbitration in accordance with applicable rules of the American
Arbitration Association. The venue for any such arbitration Los Angeles
County, in the State of California.
14. The individual signing on behalf of CLIENT represents and warrants
that he is duly authorized to execute this agreement on its behalf.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement on the
day and date first above written.
"TYPHOON"
TYPHOON CAPITAL CONSULTANTS, LLC
By: /s/ Sanjay Sabnani
-------------------------------
Sanjay Sabnani, President
Date: 4-25-97
----------------------------
"CLIENT"
THE SHOPPERS SOURCE, INC.
By: /s/ Robert McNulty
--------------------------------
Robert McNulty, Chief Executive
Officer
Date:
-----------------------------
<PAGE>
EXHIBIT 10.12
[EN POINTE TECHNOLOGIES LETTERHEAD]
Writer's Direct Dial: (310) 725-9773
Writer's Direct Fax: (310) 725-5296
September 15, 1997
Mr. Robert J. McNulty, CEO
SHOPPING.COM
2101 East Coast Hwy.
Garden Level
Corona del Mar, California 92625
Re: SHOPPING.COM
------------
Dear Mr. McNulty:
This letter when executed in duplicate expresses the agreement of
Shopping.Com ("Shopping") and En Pointe Technologies, Inc. ("En Pointe") in
concluding a series of transactions, as follows:
1. En Pointe will make an investment in Shopping in the form of a loan.
The loan is a loan of six hundred thousand dollars ($600,000.00) due the earlier
of nine (9) months from the date of issuance or on the closing of the initial
public offering, and bearing interest at the rate of 10% per annum,
subordinated, linked to five (5) year warrants for the purchase of 399,600
shares of common stock at an exercise price of two dollars and twenty-five cents
($2.25) per share. The other terms of the loan and the warrants will be the same
as those for all other loan investors in Shopping.
2. En Pointe will grant Shopping a license to En Pointe's proprietary EPIC
software in the form in which the EPIC software exists as of the October 1, 1997
production date. This license will be an unlimited user, worldwide license for a
term of five (5) years. In exchange for this five (5) year license, Shopping
will pay En Pointe two hundred and fifty
<PAGE>
Mr. Robert J. McNulty, CEO
SHOPPING.COM
September 15, 1997
Page 2
thousand (250,000) shares valued at three dollars ($3.00) per share; half of
these shares would be subject to a twelve (12) month standstill, the other half
of the shares would be subject to a twenty-four (24) month standstill.
Additionally, at the end of the initial five (5) year license term, Shopping
will have a option to a renewed license for an additional five (5) year period
at fair market value for such license. In the event that the parties were not
able to agree on fair market value at the time of exercise of option, the fair
market value would be determined by binding arbitration to be completed within
thirty (30) days of either party's request for same. During the term of the
license, Shopping will pay En Pointe an annual maintenance and upgrades fee of
one hundred thousand dollars ($100,000.00). The initial annual fee is to be
paid concurrent with the funding of the initial loan by En Pointe, in the
form of certified funds.
3. [*]Gross profit margin for non-En Pointe manufactured hardware,
software or peripherals will be gross sales price less invoice costs to En
Pointe. For any En Pointe manufactured computer hardware, software, peripherals
gross profit margin is defined [*]. All payments for computer hardware, software
and peripherals will be paid in full by Shopping to En Pointe within [*] of the
date the product is shipped.
4. En Pointe will provide customization services to the EPIC software
including, but not limited to, customization for purchase order and invoice
modules, and the likes, [*] Shopping will have an unlimited license to such
customization for its own internal use; En Pointe will retain ownership to all
such customization. Shopping will pay En Pointe each quarter, in advance, an
estimate of the customization services to be rendered to it. Any shortfall will
be paid by Shopping to En Pointe within fifteen (15) days of the close of any
quarter; any excess will be refunded by En Pointe to Shopping within fifteen
(15) days of the close of any quarter. The initial quarterly estimate is sixty
thousand dollars ($60,000.00). Said initial estimate is to be paid concurrent
with the funding of the initial loan by En Pointe, in the form of certified
funds.
- ----------------------------
[*] Confidential Treatment Requested.
<PAGE>
Mr. Robert J. McNulty, CEO
SHOPPING.COM
September 15, 1997
Page 3
5. [*]Any shortfall would be paid by Shopping to En Pointe within fifteen
(15) days of the close of any quarter, any excess would be refunded by En Pointe
to Shopping within fifteen (15) days of the close of any quarter. The initial
quarterly estimate is fifty thousand dollars ($50,000.000). Said initial
estimate is to be paid concurrent with the funding of the initial loan by En
Pointe, in the form of certified funds.
6. [*]
7. Shopping may make no offer of employment to any En Pointe employee or
to the employee of any En Pointe subcontractor within three (3) years of the
last date of any employee's employment with En Pointe, or the En Pointe
subcontractor, absent written consent therefore from En Pointe. In the event
that Shopping does hire any such employee, Shopping will pay En Pointe, as
liquidated damages, eighteen (18) months of salary of said employee.
8. [*]
9. The parties agree that any information concerning the transactions
herein shall remain confidential, provided however that the parties may disclose
information concerning the proposed transactions to the public or governmental
agencies if written consent thereto from the other party has been obtained or,
if in the judgment of their respective legal counsel such disclosure is
necessary to comply with applicable law.
10. En pointe will not use any of Shopping's customer name databases or
information regarding Shopping's customers contained in any Shopping's customer
name databases, nor will En Pointe solicit any of Shopping's customers by using
any data culled from any of Shopping's customer name databases. All products
will be shipped under the name Shopping.Com, to the extent possible.
- ----------------------------
[*] Confidential Treatment Requested.
<PAGE>
Mr. Robert J. McNulty, CEO
SHOPPING.COM
September 15, 1997
Page 4
11. This agreement is subject to approval by En Pointe's Board of
Directors.
If you agree with the foregoing, please sign where indicated on each copy
of this letter and return one copy to us. Thank you. If you have any questions,
please contact me at (310) 725-9773 to discuss the matter further.
Sincerely,
/s/ JACOB J. STETTIN
Jacob J. Stettin
General Counsel
JJS/kmd
AGREED AGREED
SHOPPING.COM EN POINTE TECHNOLOGIES, INC.
BY /s/ ROBERT J. MCNULTY BY /s/ BOB DIN
--------------------- -------------------------
9/15/97 9/15/97
<PAGE>
EXHIBIT 23.02
[LETTERHEAD OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We have issued our report dated June 17, 1997, accompanying the financial
statements of Shopping.com contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
October 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1998
<PERIOD-START> FEB-01-1996 FEB-01-1997
<PERIOD-END> JAN-31-1997 JUL-31-1997
<CASH> 63 289,392
<SECURITIES> 0 0
<RECEIVABLES> 23,000 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 23,063 404,678
<PP&E> 13,441 826,055
<DEPRECIATION> 1,276 25,124
<TOTAL-ASSETS> 39,184 1,443,201
<CURRENT-LIABILITIES> 117,831 1,394,581
<BONDS> 0 0
0 0
0 1,216,781
<COMMON> 23,050 31,050
<OTHER-SE> (101,697) (1,273,441)
<TOTAL-LIABILITY-AND-EQUITY> 39,184 1,443,201
<SALES> 0 55,541
<TOTAL-REVENUES> 0 55,541
<CGS> 0 50,509
<TOTAL-COSTS> 201,697 1,070,208
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 6,538
<INCOME-PRETAX> (201,697) (1,071,714)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (201,697) (1,071,714)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (201,697) (1,071,714)
<EPS-PRIMARY> (0.03) (0.16)
<EPS-DILUTED> (0.03) (0.16)
</TABLE>
