As filed with the Securities and Exchange Commission on December 19, 1997
REGISTRATION NO 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CYBERSHOP INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 7375 13-3979226
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
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CYBERSHOP INTERNATIONAL, INC., 130 MADISON AVENUE
NEW YORK, NEW YORK 10016, (212) 532-3553
(Address, including ZIP Code, and Telephone Number, including
Area Code, of Registrant's Principal Executive Offices)
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JEFFREY S. TAUBER, CHAIRMAN OF THE BOARD
CYBERSHOP INTERNATIONAL, INC., 130 MADISON AVENUE
NEW YORK, NEW YORK 10016, (212) 532-3553
(Name, Address, including ZIP Code, and Telephone
Number, including Area Code, of Agent for Service)
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Copies of all communications should be sent to:
Walter M. Epstein, Esq., Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza, New York, New York 10112, (212) 698-7700
Robert Rosenman, Esq., Cravath, Swaine & Moore
Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, (212) 474-1000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act") 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT PRICE(1)(2) REGISTRATION FEE(1)
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Common Stock, par value $.001 per share ...... 2,300,000 $8.00 $18,400,000 $5,428
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(1) Includes 300,000 shares which the Underwriter has an option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(a) under the Securities Act.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED DECEMBER 19, 1997
P R O S P E C T U S
2,000,000 SHARES
[GRAPHIC OMITTED]
CYBERSHOP INTERNATIONAL, INC.
COMMON STOCK
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All the shares of Common Stock offered hereby are being sold by CyberShop
International, Inc. ("CyberShop" or the "Company"). Prior to this offering (the
"Offering"), there has been no public market for the Common Stock. It is
currently estimated that the initial public offering price will be between $6.00
and $8.00 per share. See "Underwriting" for certain factors considered in
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on The Nasdaq SmallCap Market/SM/ under the symbol
"CYSP."
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share ...... $ $ $
Total(3) ...... $ $ $
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(1) Excludes warrants sold to C.E. Unterberg, Towbin (the "Underwriter") to
purchase 200,000 shares of Common Stock at an exercise price equal to 110%
of the initial public offering price (the "Underwriter's Warrants"). The
Company has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted the Underwriter an option, exercisable within 30
days of the date hereof, to purchase up to 300,000 additional shares of
Common Stock, on the same terms as set forth above, for the purpose of
covering over-allotments, if any. If such option is exercised in full, the
total price to public, underwriting discount and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriter, subject to
receipt and acceptance of such shares by it. The Underwriter reserves the right
to reject any order in whole or in part. It is expected that the shares of
Common Stock will be ready for delivery on or about ____________, 1998.
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C.E. UNTERBERG, TOWBIN
_________, 1998
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.
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[DESCRIPTION OF CYBERSHOP HOME PAGE
The Home page contains direct links, both in graphic and text formats, to
CyberShop's feature departments (Gourmet Collection, Gift Emporium, Home Style,
and Electronics Plus), the store directory, the store's search engine, as well
as to featured products and brands within the store. The Home page also serves
to help direct users to customer service and the sign-in/sign-up registration
area.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS,
AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
FORWARD LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical facts
are forward-looking statements. Such forward-looking statements may be
identified by, among other things, the use of forward-looking terminology such
as "believes," "expects," "may," "will," "should" or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. From time to time,
the Company or its representatives have made or may make forward-looking
statements, orally or in writing. Such forward-looking statements may be
included in various filings made by the Company with the Securities and Exchange
Commission (the "Commission"), or press releases or oral statements made by or
with the approval of an authorized executive officer of the Company. These
forward-looking statements involve predictions. The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. Potential risks and
uncertainties that could affect the Company's future operating results include,
but are not limited to, the factors set forth under "Risk Factors" herein, and
economic conditions, including economic conditions related to the online
commerce industry.
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CyberShop- (and its related logo) is a United States service mark of the
Company. The Company has filed intent to use applications with the United States
Patent and Trademark Office for the following trademarks and/or service marks:
CyberGift, the @home department store and Gifts Wrapped & Ready. All other trade
names, trademarks or service marks appearing in this Prospectus are the property
of their respective owners and are not the property of the Company.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements and notes thereto included elsewhere in this Prospectus. The Company
was incorporated in Delaware in October 1997 and is the parent company of
CyberShop, L.L.C., a New Jersey limited liability corporation that was
established on December 1, 1994. In ____________, 1998 the members of CyberShop,
L.L.C. contributed all of their membership interests in exchange for 5,000,000
shares of the Common Stock of the Company (the "Contribution"). Except as
otherwise specified, all information in this Prospectus: (i) assumes no exercise
of the Underwriter's over-allotment option or the Underwriter's Warrants and
(ii) gives effect to the Contribution. The term "Company" includes, unless the
context otherwise requires, CyberShop International, Inc.
and CyberShop, L.L.C.
THE COMPANY
CyberShop is an online retailer that offers over 40,000 products from more
than 400 manufacturers through its online stores on the Internet and America
Online, Inc. ("AOL"). The Company seeks to provide an online shopping experience
that incorporates traditional department store and mail-order features into an
interactive, easy-to-use and compelling online environment.
The Company believes that online technology, and the Internet in
particular, is an advantageous medium for the selling of merchandise relative to
traditional retail stores and mail-order catalogs. Leveraging online technology
and the global reach of the Internet, the online retailing model provides
CyberShop with virtually unlimited online shelf space and the ability to reach a
geographically unlimited consumer base, without the costs associated with
constructing traditional retail stores and distributing mail-order catalogs. The
Company's strategy is to offer quality merchandise, provide effective customer
service, and capitalize on the inherent economies of the online retailing model.
The Company, which launched its Internet store in September 1995, is still in
early stages of development. The Company believes that its ability to achieve
profitability will depend primarily on its ability to increase revenues
generated by transactions relating to sales of merchandise through its online
stores. CyberShop's management team has experience in a broad range of retailing
environments, including department stores, specialty retailing stores,
television merchandising and direct mail.
CyberShop's online stores are accessed at CYBERSHOP.COM on the Internet and
in the Department Store and Gift areas of the AOL Shopping Channel. CyberShop's
online stores provide high quality color pictures and detailed information
relating to products that are conveniently organized into departments by brand
and category such as housewares, consumer electronics, gifts and gourmet food,
similar to those of traditional department stores. Shoppers can search for,
browse and select products throughout the store and place selected merchandise
in a virtual shopping bag that facilitates the process of collecting items,
subtotaling purchases and reaching the purchase decision. Furthermore, CyberShop
has established strategic relationships with manufacturers which allow most
products to be rapidly shipped directly from the manufacturer. Manufacturer
direct shipping enables the Company to avoid inventory related risks, limit
overhead costs and provide prompt delivery.
As part of its marketing strategy, the Company has formed a strategic
alliance with AOL pursuant to a marketing agreement. This agreement provides for
CyberShop to be featured on the AOL Shopping Channel as one of three anchor
tenants within the Department Store area and to be prominently featured in the
Gift area. In addition, the Company plans to establish strategic alliances with
other online companies and begin a targeted advertising campaign to attract
additional customers to the its online stores. The Company believes both online
and traditional media exposure are critical to maximizing brand recognition and
driving traffic to its online stores.
International Data Corporation ("IDC"), an independent market research
organization, estimates that the total value of goods and services purchased on
the Internet was $296 million in 1995, $2.6 billion in 1996 and will increase to
$220 billion by the year 2001. The number of Company customers grew from
approximately 2,250 at December 31, 1996 to approximately 8,900 at December 1,
1997. The Company believes it has positioned itself to capitalize on the
potential growth of online commerce by selectively targeting manufacturers and
other online companies with which to establish strategic relationships.
The Company's office is located at 130 Madison Avenue, New York, New York
10016 and its telephone number is 212-532-3553.
3
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THE OFFERING
Common Stock offered hereby ................. 2,000,000 shares
Common Stock outstanding after the Offering .. 7,000,000 shares (1)
Use of proceeds ............................. The net proceeds from the
Offering will be used by the
Company to expand marketing
and advertising efforts and
potential strategic alliances
with Internet search engines
and guides, to develop and
market an online gift
registry, to fund payments due
to AOL, and for working
capital and other general
corpo- rate purposes,
including expansion of the
Com- pany's technical
infrastructure and possible
future strategic alliances and
acquisitions. See "Use of
Proceeds."
Proposed Nasdaq SmallCap Market Symbol ........ CYSP
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(1) Excludes (i) an aggregate of 1,412,042 shares of Common Stock reserved for
issuance under the Company's stock option plans of which 342,042 shares are
issuable upon the exercise of stock options outstanding as of September 30,
1997 and (ii) 200,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants. The weighted average exercise price of all
outstanding options is $1.48 per share (assuming an initial public offering
price of $6.00 per share). See "Management," "Description of Capital Stock"
and "Underwriting."
RISK FACTORS
In connection with this Offering, prospective investors should carefully
consider the factors set forth under Risk Factors, including limited operating
history, accumulated deficit, anticipated losses, uncertainty of future results;
competition; dependence upon strategic alliances; reliance on certain suppliers;
Internet related risks; risk of capacity constraints, reliance on internally
developed transaction-processing systems, system development risks; management
of growth; dependence on key personnel, need for additional personnel; potential
fluctuations in quarterly operating results, seasonality; risk of system
failure; need for additional funds; potential inability to protect trademarks
and proprietary rights; sales and other taxes, control of the company;
antitakeover effect of certain charter provisions; shares eligible for future
sale; registration rights; absence of prior public market, possible volatility
of stock price; immediate and substantial dilution; absence of dividends; and no
specific use of certain proceeds.
4
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SUMMARY FINANCIAL INFORMATION
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INCEPTION
(DECEMBER 1,
1994) THROUGH FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
--------------- ------------------------------ -------------------------------
1994 1995 1996 1996 1997
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CONSOLIDATED STATEMENTS OF
OPERATIONS DATA
Revenues:
Net sales ........................ $ 0 $ 18,670 $ 272,560 $ 57,245 $ 496,150
Manufacturer set up fees ......... 0 417,365 74,325 68,325 82,435
Other revenues ................... 0 8,800 8,500 8,500 509
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Total revenues ................. 0 444,835 355,385 134,070 579,094
Cost of revenues .................. 0 13,769 155,274 30,680 355,602
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Gross profit ...................... 0 431,066 200,111 103,390 223,492
Selling, general and administrative
expenses ......................... 47,543 772,744 1,011,257 419,714 1,323,115
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Loss from operations .............. (47,543) (341,678) (811,146) (316,324) (1,099,623)
Net loss(1) ....................... $ (47,458) $ (335,656) $ (807,932) $ (315,597) $ (1,084,328)
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Net loss per share ................ $ (.17) $ (.21)
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Pro forma weighted average shares
outstanding ...................... 4,755,308 5,257,683
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AS OF SEPTEMBER 30, 1997
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ACTUAL AS ADJUSTED(2)
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CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents ....... $764,273 $11,399,273
Working capital ................. 733,484 11,368,484
Total assets .................... 968,009 11,603,009
Stockholders' equity ............ 864,069 11,499,069
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(1) The Company was an L.L.C. and as a result was treated as a partnership for
both Federal and state income tax purposes for all periods from December 1,
1994 through September 30, 1997. The net loss of the business for those
periods was included in the individual tax returns of the stockholders. Had
the Company been subject to Federal and state corporate tax rates as a C
Corporation, the pro forma benefit for income taxes would have been
($323,173) and ($433,731) for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively. The pro forma net loss per
share would have been ($.10) and ($.12) for the year ended December 31, 1996
and the nine months ended September 30, 1997, respectively.
(2) Adjusted to give effect to the sale by the Company of 2,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$6.00 per share and after deducting estimated Offering expenses, including
the underwriting discounts and commissions. See "The Company," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Use of Proceeds" and "Capitalization."
5
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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.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES; UNCERTAINTY
OF FUTURE RESULTS
The Company was in a test period from its inception in December 1994 until
it commenced its operations in September 1995 and is still in the early stages
of development. 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. To address these risks, the Company must, among other things, continue
to expand its manufacturer channels and buyer resources, manage pricing risks,
maintain its customer base and attract significant numbers of new customers,
respond to competitive developments, implement and successfully execute its
business and marketing strategy, continue to develop and upgrade its
technologies and retailing services and commercialize products and services
incorporating such technologies, continue to develop and upgrade its
transaction-processing systems, improve its website, provide superior customer
service and order fulfillment, 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. Since inception, the Company has incurred significant
losses, and as of September 30, 1997 had an accumulated deficit of $2,275,374.
Achieving profitability given the Company's planned operations depends primarily
upon the Company's ability to generate and sustain substantially increased
revenue levels. As a result, the Company believes that it will incur substantial
operating losses for the foreseeable future. In view of the rapidly evolving
nature of the Company's business and its limited operating history, the Company
believes that period-to-period comparisons of its operating results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company's current and future expense levels are based largely on its
planned operations 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. Accordingly, any significant
shortfall in revenues in relation to the Company's planned expenditures would
have an immediate adverse effect on the Company. See "Business."
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive. The Company expects competition in the online commerce market to
intensify in the future. Barriers to entry are minimal, and current and new
competitors can launch new sites at a relatively low cost. In addition, the
retail shopping industry is intensely competitive. The Company currently or
potentially competes with a variety of other companies, including traditional
stores, non-traditional retailers, such as television retailers and mail order
catalogs, and other online retailers. Competitive pressures created by any one
of these companies, or by the Company's competitors collectively, could have a
material adverse effect on the Company.
The Company believes that the principal competitive factors in its market
are brand recognition, selection, personalized services, convenience, price,
accessibility, customer service, quality of search tools, quality of site
content, and reliability and speed of fulfillment. Many of the Company's current
and potential competitors have longer operating histories, larger customer
bases, greater brand 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 manufacturers 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
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website and systems development than the Company. Increased competition may
result in reduced operating margins, loss of market share and a diminished brand
franchise. 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. 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 the Company. New
technologies and the expansion of existing technologies may increase the
competitive pressures on the Company. See "Business --Competition."
DEPENDENCE UPON STRATEGIC ALLIANCES
The Company relies on certain strategic alliances to attract shoppers to
purchase its products. The Company has entered into a strategic alliance with
AOL pursuant to a marketing agreement. The Company's ability to generate
revenues from online commerce depends, among other things, upon the increased
traffic, purchases, advertising and sponsorships that the Company generates
through its strategic alliance with AOL. The Company's agreement with AOL
terminates on December 31, 1998. There can be no assurance that the Company's
relationship with AOL will be extended beyond its initial term or on what terms
such relationship will be extended. In addition, the Company is seeking to enter
into long-term exclusive marketing agreements with several of the largest
Internet search engines and guides, as well as entering into other strategic
alliances. There can also be no assurance that additional third-party alliances
will be available to the Company on acceptable commercial terms or at all. The
Company's inability to enter into new strategic alliances or to maintain its
existing strategic alliances could have a material adverse effect on the
Company. See "Business -- Strategic Alliances."
RELIANCE ON CERTAIN SUPPLIERS
Suppliers for the Company's online stores include manufacturers and a
limited number of distributors. The Company purchases the majority of its
products from 45 manufacturers, which accounted for 65% of the Company's
purchases during the nine months ended September 30, 1997. The Company
warehouses limited inventory during certain holiday and gift giving periods and
relies on rapid fulfillment from these manufacturers and warehouses. There can
be no assurance that the Company's current manufacturers will continue to sell
merchandise to the Company on current terms or that the Company will be able to
establish new or extend current manufacturer relationships to ensure acquisition
of merchandise in a timely and efficient manner and on acceptable commercial
terms. Loss of these relationships could have a material adverse effect on the
Company. The Company also relies on most of its manufacturers to process and
ship merchandise directly to customers. The Company has limited control over the
shipping procedures of its manufacturers, and shipments by these manufacturers
have at times been subject to delays. Although most merchandise sold by the
Company carries a warranty supplied by the manufacturer and the Company is not
obligated to accept merchandise returns, the Company provides a 30-day money
back guarantee. If the quality of service provided by such manufacturers falls
below a satisfactory standard or if the Company's level of returns exceeds its
expectations, the Company will be materially adversely affected. See "Business
- -- Manufacturer Relationships."
INTERNET RELATED RISKS
Dependence on Continued Growth of Online Commerce
The Company's future revenues and future profits are substantially
dependent upon the widespread acceptance and use of the Internet and online
services as an effective medium of commerce by consumers. Rapid growth in the
use of and interest in the Internet and online services like AOL 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 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. The Company relies on
consumers who have historically used traditional means of commerce to purchase
merchandise. For the Company to be
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successful, these consumers must accept and utilize novel ways of conducting
business and exchanging information. Moreover, critical issues concerning the
commercial use of the Internet, such as ease of access, security, reliability,
cost and quality of service, remain unresolved and may affect the growth of
Internet use or the attractiveness of conducting commerce online.
In addition, the Internet and 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 online services continue to experience significant growth,
there can be no assurance that the infrastructure of the Internet and online
services will prove adequate to support increased user demands. In addition, the
Internet or 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 online service activity. Changes in or
insufficient availability of telecommunications services to support the Internet
or online services also could result in slower response times and adversely
affect usage of the Internet and online services generally and the Company in
particular. If use of the Internet and online services does not continue to grow
or grows more slowly than expected, if the infrastructure for the Internet and
online services does not effectively support growth that may occur, or if the
Internet and online services do not become a viable commercial marketplace, the
Company would be materially adversely affected. See "Business -- Online Shopping
Industry."
Online Commerce Security Risks
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. Any compromise of the Company's security
could have a material adverse effect on the Company and its reputation. A party
who is able to circumvent the Company's security measures could misappropriate
proprietary 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. To the extent that activities of the Company or third-party
contractors involve the storage and transmission of proprietary information,
such as credit card numbers, security breaches could damage the Company's
reputation and expose the Company to a risk of loss or litigation and possible
liability which could have a material adverse effect on the Company. See
"Business -- Technology."
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 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 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 an adverse
effect on the Company. 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 and personal privacy is uncertain
and may take years to resolve. In addition, as the Company's service is
available over the Internet in multiple states and foreign countries, and as the
Company sells to numerous consumers residing in such states and foreign
countries, such jurisdictions may claim that the Company is required to qualify
to do business as a foreign corporation in each such state and foreign country.
The Company is qualified to do business in
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only two states, and failure by the Company to qualify as a foreign corporation
in a jurisdiction where it is required to do so could subject the Company to
taxes and penalties for the failure to qualify. 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.
Liability for Information Retrieved from the Internet
Due to the fact that material may be downloaded from websites and
subsequently distributed to others, there is a potential that claims will be
made against the Company for negligence, copyright or trademark infringement or
other theories based on the nature and content of such material. Although the
Company carries general liability insurance, the Company's insurance may not
cover potential claims of this type or may not be adequate to cover all costs
incurred in defense of potential claims or to indemnify the Company for all
liability that may be imposed. Any costs or imposition of liability that is not
covered by insurance or in excess of insurance coverage could have a material
adverse effect on the Company.
RISK OF CAPACITY CONSTRAINTS; RELIANCE ON INTERNALLY DEVELOPED
TRANSACTION-PROCESSING SYSTEMS; SYSTEM DEVELOPMENT RISKS
The satisfactory performance, reliability and availability of the Company's
store on the Internet, transaction-processing systems and network infrastructure
are critical to the Company's reputation and its ability to attract and retain
customers and maintain adequate customer service levels. The Company's revenues
depend on the number of visitors who shop at its store on the Internet and the
volume of orders it fulfills. Any system interruptions that result in the
unavailability of the Company's store on the Internet or reduced order
fulfillment performance would reduce the volume of goods sold and the
attractiveness of the Company's product offerings. The Company has experienced
periodic system interruptions, which it believes will continue to occur from
time to time.
There may be a significant need to upgrade the capacity of the Company's
store on the Internet in order to handle thousands of simultaneous shoppers. The
Company's inability to add additional software and hardware or to develop and
upgrade further its existing technology, transaction-processing systems or
network infrastructure to accommodate increased traffic on its store on the
Internet or increased sales volume through its transaction-processing systems
may cause unanticipated system disruptions, slower response times, degradation
in levels of customer service and impaired quality and speed of order
fulfillment, any of which could have a material adverse effect on the Company.
See "Business -- Technology."
RISK OF SYSTEM FAILURES
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. The Company's systems and operations are vulnerable to damage
or interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. The Company presently has very limited
redundant systems. It does not have a formal disaster recovery plan and carries
limited business interruption insurance to compensate it for losses that may
occur. Despite the implementation of network security measures by the Company,
its servers are 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. In addition, the Company
relies on transaction processing systems operated by AOL to receive and fulfill
orders in its AOL stores. Disruptions or failures in the AOL transaction
processing system could have a material adverse effect on the Company. The
Company's AOL stores are also vulnerable to AOL system-wide interruptions and
failures. The occurrence of any of the foregoing risks could have a material
adverse effect on the Company. See "Business -- Facilities" and "-- Technology."
MANAGEMENT OF GROWTH
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. Further, the
9
<PAGE>
Company will be required to maintain and expand its relationships with various
merchandise manufacturers, distributors, Internet and other online service
providers and other third parties necessary to the Company's business. If the
Company is unable to manage growth effectively, the Company will be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Employees."
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 Jeffrey S. Tauber, its President, Chief Executive
Officer and Chairman of the Board. 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. The Company does not have
long-term employment agreements with any of its key personnel. The Company's
future success also 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 or retain sufficiently qualified
personnel which could have a material adverse effect on the Company.
See "Business -- Employees" and "Management."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
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, without limitation, (i) the Company's
ability to retain existing customers, attract new customers at a steady rate and
maintain customer satisfaction, (ii) the mix of products sold by the Company,
(iii) the announcement or introduction of new sites, services and products by
the Company and its competitors, (iv) price competition in the industry, (v) the
level of use of the Internet and online services and increasing 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 website, (viii) technical difficulties, system 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) the implementation of strategic alliances, (xi) the level of
merchandise returns experienced by the Company, (xii) governmental regulation,
and (xiii) general economic conditions and economic conditions specific to the
Internet and online commerce.
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 fourth calendar
quarter of each year 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."
NEED FOR ADDITIONAL FUNDS
Based on current levels of operations and planned growth, the Company
anticipates that its existing capital resources, together with cash generated
from operations and the proceeds of this Offering, will enable it to maintain
its operations for at least 12 months from the date of this Prospectus. The
Company may require additional funds to sustain and expand its sales and
marketing activities and its strategic alliances, particularly if a
well-financed competitor emerges or if there is a shift in the type of Internet
services that are developed and ultimately receive customer acceptance. Adequate
funds for these and other purposes on terms acceptable to the Company, whether
through additional equity
10
<PAGE>
financing, debt financing or other sources, may not be available when needed or
may result in significant dilution to existing stockholders. The Company's lack
of tangible assets to pledge could prevent the Company from establishing a
source for additional financing. There can be no assurance that such financing
will be available in amounts or on terms acceptable to the Company, if at all.
The inability to obtain sufficient funds from operations and external sources
would have a material adverse effect on the Company. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
POTENTIAL INABILITY TO PROTECT TRADEMARKS AND PROPRIETARY RIGHTS
The Company's performance and ability to compete are dependent to a
significant degree on its proprietary technology. The Company regards its
copyrighted material, service marks, trademarks, trade secrets and similar
intellectual property as critical to its success, and relies on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with its employees, customers, partners and others to protect its
proprietary rights. The Company has the registered service mark CyberShop in the
United States. There can be no assurance that the Company will be able to secure
significant protection for these trademarks. It is possible that competitors of
the Company or others will adopt product or service names similar to "CyberShop"
and the Company's other trademarks, thereby impeding the Company's ability to
build brand identity and possibly leading to customer confusion. The inability
of the Company to protect the name "CyberShop" adequately would have a material
adverse effect on the Company. The Company generally has entered into agreements
containing confidentiality and non-disclosure provisions with its employees and
consultants and limits access to and distribution of its software, documentation
and other proprietary information. There can be no assurance that the steps
taken by the Company will prevent misappropriation of its technology or that
agreements entered into for that purpose will be enforceable. Notwithstanding
the precautions taken by the Company, it might be possible for a third party to
copy or otherwise obtain and use the Company's software or other proprietary
information without authorization or to develop similar software independently.
Policing unauthorized use of the Company's technology is difficult, particularly
because the global nature of the Internet makes it difficult to control the
ultimate destination or security of software or other data transmitted. The laws
of other countries may afford the Company little or no effective protection of
its intellectual property. Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which the
Company's products and services are made available online. In the future, the
Company may also need to file lawsuits to enforce the Company's intellectual
property rights, protect the Company's trade secrets, and determine the validity
and scope of the proprietary rights of others. Such litigation, whether
successful or unsuccessful, could result in substantial costs and diversion of
resources, which could have a material adverse effect on the Company.
The Company also relies on a variety of technology that it licenses from
third parties, including its database and Internet server software, which is
used in the Company's website to perform key functions. There can be no
assurance that these third party technology licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability of the Company to maintain or obtain upgrades to any of these
technology licenses could result in delays in completing its proprietary
software enhancements and new developments until equivalent technology could be
identified, licensed or developed and integrated. Any such delays would have a
material adverse effect on the Company. See "Business -- Technology
- --Proprietary Technology."
SALES AND OTHER TAXES
Except in certain limited cases, the Company does not currently collect
sales or other similar taxes for shipments of goods into states other than New
York and New Jersey. 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 of
New York and New Jersey 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.
11
<PAGE>
CONTROL OF THE COMPANY
Immediately upon completion of this Offering, approximately 49.4% of the
outstanding Common Stock will be beneficially owned by Jeffrey S. Tauber, the
Company's President, Chief Executive Officer and Chairman of the Board, and
members of Mr. Tauber's family (47.3% if the over-allotment option is exercised
in full). As a result, upon completion of this Offering, the Tauber family will
be able to elect the Company's directors, amend the Company's Certificate of
Incorporation or By-Laws, or effect a merger, sale of assets or other corporate
transaction. The extent of ownership by the Tauber family may also have the
effect of preventing a change in control of the Company or discouraging a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of the Company, which in turn could have an adverse effect on the market
price of the Common Stock. See "Management," "Certain Transactions" and
"Principal Stockholders."
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Company's Board of Directors will have the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the voting and other rights
of the holders of Common Stock. The Company has no present plans to issue shares
of Preferred Stock. Further, certain provisions of the Company's Certificate of
Incorporation and By-Laws and Delaware law could delay or make more difficult a
merger, tender offer or proxy contest involving the Company.
See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
After the completion of this Offering, 7,000,000 shares of Common Stock
will be outstanding. Of such shares, the 2,000,000 shares of Common Stock
offered hereby will be tradeable without restriction by persons other than
"affiliates" of the Company. The remaining 5,000,000 shares of Common Stock
which will be outstanding after this Offering are "restricted securities" within
the meaning of Rule 144 under the Securities Act, and may not be publicly
resold, except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption from registration, including that
provided by Rule 144 promulgated under the Securities Act. The Company, and all
of its directors, officers, existing stockholders and option holders have agreed
to "lock-up" arrangements under which they may not offer to sell, sell, contract
to sell, pledge, or otherwise dispose of any shares of Common Stock or
securities convertible into or exercisable or exchangeable for Common Stock
without the prior written consent of the Underwriter, subject to certain
exceptions, for a period of one year after the date of this Prospectus. Upon
expiration of the one year period, 1,545,134 shares held by non-affiliates will
be saleable pursuant to Rule 144(k) and 3,796,908 shares will be saleable
pursuant to Rule 144 and Rule 701 promulgated under the Securities Act. In
addition, certain stockholders of the Company are entitled to both demand and
piggyback registration rights with respect to 829,856 shares of Common Stock.
Upon completion of the Offering, the Company will sell to the Underwriter the
Underwriter's Warrants which are exercisable from ______, 1999 until _______,
2004 and which require that the Company register the Common Stock for which such
Underwriter's Warrants are exercisable within one year from the date hereof.
Sales of substantial amounts of Common Stock, or the perception that such sales
could occur, could adversely affect the prevailing market price of the Common
Stock. See "Description of Capital Stock -- Registration Rights," "Shares
Eligible for Future Sale" and "Underwriting."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock. The Company has applied for listing of the Common Stock on The Nasdaq
SmallCap Market under the trading symbol "CYSP". The initial public offering
price will be determined through negotiations between the Com-
12
<PAGE>
pany and the Underwriter, and may not be indicative of the market price for the
Common Stock after the completion of this Offering. Among the factors to be
considered in determining the initial public offering price will be the
Company's record of operations, its current financial condition, its future
prospects, the market for its products, the experience of its management, the
economic conditions of the Company's industry in general, the general condition
of the equity securities market, the demand for similar securities of companies
considered comparable to the Company and other relevant factors. See
"Underwriting."
The trading price of the Common Stock is likely to be highly volatile and
could be subject to wide fluctuations in response to factors such as actual or
anticipated variations in quarterly operating results, announcements of
technological innovations, new sales formats or new products or services by the
Company or its competitors, changes in financial estimates by securities
analysts, conditions or trends in the Internet and online commerce industries,
changes in the market valuations of other Internet, online service or retail
companies, announcements by the Company of significant acquisitions, strategic
partnerships, joint ventures or capital commitments, additions or departures of
key personnel, sales of Common Stock and other events or factors, many of which
are beyond the Company's control. In addition, the stock market in general, and
The Nasdaq SmallCap Market and the market for Internet-related and technology
companies in particular, has experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of such companies. 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.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the 2,000,000 shares of Common Stock offered hereby will
experience immediate and substantial dilution in the net tangible book value per
share of $4.36 at an assumed initial public offering price of $6.00 per share
and after deducting estimated underwriting discounts and commissions and
Offering expenses. In addition, as of September 30, 1997, the Company has issued
options to purchase 342,042 shares of Common Stock. If such options are
exercised in full (assuming an initial public offering price of $6.00 per
share), there would be no change in the dilution in the net tangible book value
per share. See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never declared or paid any dividends on the Common Stock
and does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. See "Dividend Policy."
NO SPECIFIC USE OF CERTAIN PROCEEDS
Except for approximately $3,700,000, the Company has not designated any
specific use for the net proceeds from the sale by the Company of the 2,000,000
shares of Common Stock offered hereby. The Company expects to use the portion of
the net proceeds not designated for any specific use (approximately $6,935,000
million, or $8,609,000 million if the Underwriter's over-allotment option is
exercised in full (assuming an initial public offering price of $6.00 per share
and after deducting the estimated underwriting discount and Offering expenses)),
for general corporate purposes, including working capital to fund anticipated
operating losses and capital expenditures. The Company may use an unspecified
portion of the net proceeds to acquire or invest in complementary businesses,
products and technologies. The Company has no present understandings,
commitments or agreements with respect to any acquisition or investment.
Accordingly, management will have significant flexibility in applying the net
proceeds of this Offering. The failure of management to apply such funds
effectively could have a material adverse effect on the Company. See "Use of
Proceeds."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby, at an assumed initial public Offering price of
$6.00 per share and after deducting estimated underwriting discounts and
commissions and offering expenses, are estimated to be approximately $10,635,000
(approximately $12,309,000 if the Underwriter's over-allotment option is
exercised in full). The net proceeds from this Offering will be used by the
Company as follows: approximately $2,450,000 to expand marketing and advertising
efforts and potential strategic alliances with Internet search engines and
guides; approximately $750,000 to develop and market an online gift registry;
approximately $500,000 to fund payments due to AOL pursuant to a marketing
agreement with AOL; and the balance for working capital and other general
corporate purposes, including expansion of the Company's technical
infrastructure and possible future strategic alliances and acquisitions. See
"Risk Factors -- No Specific Use of Certain Proceeds" and "Business."
From time to time, in the ordinary course of business, the Company
evaluates possible acquisitions of, or investments in, businesses, products and
technologies that are complementary to those of the Company. A portion of the
net proceeds may therefore be used to fund acquisitions or investments. The
Company currently has no arrangements, agreements or understandings, and is not
engaged in active negotiations, with respect to any such acquisition or
investment.
Pending the application of the net proceeds from this Offering, the Company
intends to invest the net proceeds in short-term, investment-grade,
interest-bearing instruments or money market funds. To the extent necessary to
avoid being subject to the registration requirements of the Investment Company
Act of 1940, as amended, the Company would invest the balance in United States
Treasury obligations. Returns on such investments may be less than those that
might otherwise result if the Company were able to use such funds immediately in
its operations.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock.
The Company does not anticipate paying any dividends on the Common Stock in the
foreseeable future and intends to retain all available funds for use in the
operation and development of its business. The Board of Directors intends to
review the Company's dividend policy from time to time. Any payment of dividends
in the future will be at the discretion of the Board of Directors and will be
dependent on the earnings and financial requirements of the Company and other
factors, including restrictions imposed by the Delaware General Corporation Law
("GCL") on the payment of dividends, and such other factors as the Board of
Directors deems relevant.
14
<PAGE>
DILUTION
The net tangible book value of the Company at September 30, 1997 was
$864,069 or approximately $.17 per outstanding share of Common Stock. Net
tangible book value per share is determined by dividing the Company's tangible
net worth (tangible assets less total liabilities) by the number of shares of
Common Stock outstanding. After giving effect to the sale of the 2,000,000
shares of Common Stock offered by the Company hereby and the receipt of the
estimated net proceeds therefrom (at the assumed initial public offering price
of $6.00 per share and after deducting estimated offering expenses, including
the underwriting discounts and commissions), the adjusted net tangible book
value of the Company at September 30, 1997 would have been $11,499,069 or $1.64
per share. This represents an immediate increase in net tangible book value of
$1.47 per share to existing stockholders and an immediate dilution to new
investors of $4.36 per share to purchasers of Common Stock in the Offering.
Dilution is determined by subtracting the adjusted net tangible book value per
share after the Offering from the initial public offering price per share. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering priced per share ..................... $ 6.00
Net tangible book value per share at September 30, 1997 ............. $ 0.17
Net increase per share attributable to the new investors ............ 1.47
------
Adjusted net tangible book value per share after the Offering ....... 1.64
------
Dilution to new investors ........................................... $ 4.36
======
</TABLE>
The following table summarizes as of September 30, 1997, the difference
between the existing stockholders and the new investors purchasing shares of
Common Stock in the Offering with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid therefor and the
average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ....... 5,000,000 71.4% $ 3,139,443 20.7% $0.63
New investors ............... 2,000,000 28.6% 12,000,000 79.3% $6.00
--------- ------ ----------- ------
Total ...................... 7,000,000 100.0% $15,139,443 100.0%
========= ====== ============ ======
</TABLE>
The foregoing computations assume no exercise of stock options outstanding
after September 30, 1997. As of September 30, 1997, an aggregate of 342,042
shares of Common Stock were issuable upon the exercise of outstanding options at
a weighted average exercise price per share of $1.48 per share. To the extent
that shares of Common Stock are issued upon exercise of these options there
would be no effect on the dilution to new investors. See "Management."
15
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
September 30, 1997 and (ii) the capitalization of the Company as adjusted to
give effect to the sale of the Common Stock offered hereby at an assumed initial
public offering price of $6.00 per share and after deducting estimated
underwriting discounts and commissions and Offering expenses. This table should
be read in conjunction with the Financial Statements of the Company and notes
thereto included elsewhere in this Prospectus. See "Description of Capital
Stock."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------
ACTUAL AS ADJUSTED (1)
---------- ----------------
<S> <C> <C>
Current portion of capital lease obligations ................. $ 10,141 $ 10,141
========= ============
Capital lease obligations, less current portion .............. $ 11,190 $ 11,190
-------- -----------
Stockholders' equity:
Preferred Stock, $0.001 par value, 5,000,000 authorized; 0
shares issued and outstanding; 0 shares issued and outstand-
ing, as adjusted ........................................... -- --
Common Stock, $0.001 par value, 25,000,000 authorized;
5,000,000 shares issued and outstanding; 7,000,000 shares
issued and outstanding, as adjusted(2) ..................... 5,000 7,000
Additional paid-in capital ................................... 859,069 11,492,069
-------- -----------
Total stockholders' equity ................................... 864,069 11,499,069
-------- -----------
Total capitalization ......................................... $875,259 $11,510,259
========= ============
</TABLE>
(1) Adjusted to give effect to the sale by the Company of 2,000,000 shares of
Common Stock offered hereby at an assumed initial public price of $6.00 per
share and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds."
(2) Actual information excludes an aggregate of 1,412,042 shares of Common Stock
reserved for issuance under the Company's stock option plans and other stock
options, of which 342,042 shares are issuable upon the exercise of stock
options outstanding as of September 30, 1997. The weighted average exercise
price of all outstanding options is $1.48 per share. As adjusted information
excludes 200,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants. See "Management," "Description of Capital Stock" and
"Underwriting."
16
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated statements of operations data for the period from
inception (December 1, 1994) through December 31, 1994 and the years ended
December 31, 1995 and 1996 and the selected consolidated balance sheet data as
of December 31, 1995 and 1996 have been derived from the audited consolidated
Financial Statements included elsewhere in this Prospectus. The selected
consolidated balance sheet data as of December 31, 1994 has been derived from
the audited consolidated financial statements not included in this Prospectus.
The selected consolidated balance sheet data as of September 30, 1997 and the
selected consolidated statement of operations data for the nine months ended
September 30, 1996 and 1997 have been derived from unaudited interim
consolidated financial statements of the Company that, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the data. The results of
operations for the nine months ended September 30, 1996 and 1997 are not
necessarily indicative of the results that may be expected for any other interim
period or for the entire year. The Company was an L.L.C. and as a result was
treated as a partnership for both Federal and state income tax purposes for all
periods from December 1, 1994 through September 30, 1997. Accordingly, there was
no tax loss carry-forward. The selected financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 1,
1994) THROUGH NINE MONTHS ENDED
DECEMBER 31, FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------- ------------------------------ -------------------------------
1994 1995 1996 1996 1997
--------------- ------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA
Revenues:
Net sales ........................ $ 0 $ 18,670 $ 272,560 $ 57,245 $ 496,150
Manufacturer set up fees ......... 0 417,365 74,325 68,325 82,435
Other revenues ................... 0 8,800 8,500 8,500 509
--------- ---------- ---------- ---------- ------------
Total revenues .................. 0 444,835 355,385 134,070 579,094
Cost of revenues .................. 0 13,769 155,274 30,680 355,602
--------- ---------- ---------- ---------- ------------
Gross profit ...................... 0 431,066 200,111 103,390 223,492
Selling, general and administrative
expenses ......................... 47,543 772,744 1,011,257 419,714 1,323,115
--------- ---------- ---------- ---------- ------------
Loss from operations ............. (47,543) (341,678) (811,146) (316,324) (1,099,623)
Other income ...................... 85 6,022 3,214 727 15,295
--------- ---------- ---------- ---------- ------------
Net loss(1) ....................... $ (47,458) $ (335,656) $ (807,932) $ (315,597) $ (1,084,328)
========= ========== ========== ========== ============
Net loss per share ................ $ (.17) $ (.21)
========== ============
Pro forma weighted average shares
outstanding ...................... 4,755,308 5,257,683
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30, 1997
------------------------------------ ----------------------------
1994 1995 1996 ACTUAL AS ADJUSTED(2)
---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents ....... $157,477 $110,687 $509,727 $764,273 $11,399,273
Working capital ................. 115,255 122,846 290,345 733,484 11,368,484
Total assets .................... 194,764 332,379 669,987 968,009 11,603,009
Stockholders' equity ............ 152,542 206,329 398,397 864,069 11,499,069
</TABLE>
(1) The Company was an L.L.C. and as a result was treated as a partnership for
both Federal and state income tax purposes for all periods from December 1,
1994 through September 30, 1997. The net loss of the business for those
periods was included in the individual tax returns of the stockholders. Had
the Company been subject to Federal and state corporate tax rates as a C
Corporation, the pro forma benefit for income taxes would have been
($323,173) and ($433,731) for the year ending December 31, 1996 and the nine
months ending September 30, 1997, respectively. The pro forma net loss per
common share would have been ($.10) and ($.12) for the year ending December
31, 1996 and the nine months ending September 30, 1997, respectively.
(2) Adjusted to give effect to the sale by the Company of 2,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$6.00 per share and after deducting estimated Offering expenses, includ-
17
<PAGE>
ing the underwriting discounts and commissions. See "The Company",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Use of Proceeds" and "Capitalization."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, but not limited to, those discussed in "Risk Factors."
OVERVIEW
CyberShop was in a test period from its inception in December 1994 until it
commenced its operations in September 1995 and is still in the early stages of
development. The Company did not have revenues, cost of revenues or gross profit
from inception on December 1, 1994 through December 31, 1994. In 1995 and
throughout most of 1996, the Company's primary activities related to
establishing relationships with manufacturers, which resulted in the payment of
set up fees by certain manufacturers to display products in the Company's online
stores, and developing the Company's proprietary systems operating procedures.
The Company has been selling merchandise on the Internet since September 1995
and on AOL since November 1996. Accordingly, the Company has a limited operating
history and is still in the early stages of development.
The Company intends to increase its operating expenses to fund increased
marketing and advertising, to enhance existing stores and to establish strategic
relationships important to the success of the Company. The Company expects
negative cash flow from operations to continue for the foreseeable future.
RESULTS OF OPERATIONS
Revenues. Revenue is comprised of sales of products offered in the
Company's online stores and manufacturer set up fees. Revenues were $444,835 in
the year ended December 31, 1995, with manufacturer set up fees representing
$417,365 or 94% of the total revenues and product sales representing $18,670 or
4% of total revenues. Revenues declined 20% to $355,385 in the year ended
December 31, 1996 due to a $343,040 decrease in manufacturer set up fees offset
in part by a $253,890 increase in product sales. The increase in product sales
in 1996 was primarily attributable to increased marketing efforts, significant
expansion of customer base, repeat purchases from existing customers and the
launch of the Company's store on AOL. Revenues increased 332% from $134,070 in
the nine months ended September 30, 1996 to $579,094 in the nine months ended
September 30, 1997. The increase was primarily attributable to a 767% increase
in product sales from $57,245 in 1996 to $496,150 in 1997 due to increased
marketing efforts and an expanded customer base. Additionally, manufacturer set
up fees increased to $82,435 in 1997 from $68,325 in 1996 due to the Company's
efforts to expand its product base.
Cost of Revenues. Cost of revenues consists of payments to third party
manufacturers related to product sales. Cost of revenues increased from $13,769
in 1995 to $155,274 in 1996 and increased from $30,680 in the nine months ended
September 30, 1996 to $355,602 in the nine months ended September 30, 1997. Such
increases reflect increases in product sales from one period to the next.
Selling, General and Administrative Expenses ("SG&A"). SG&A consists
primarily of personnel expenses, online and print advertising, public relations
and other promotional expenses, including payments pursuant to the AOL
agreement, which began in October 1997, and general corporate expenses.
SG&A increased $238,513 or 31% from $772,744 in 1995 to $1,011,257 in 1996.
The increase was primarily attributable to the increase in wages related to the
increased infrastructure of the Company. General and administrative personnel
increased from six full-time and three consulting personnel in 1995 to 13
full-time and three consulting personnel in 1996. SG&A increased from $419,714
in the nine months ended September 30, 1996 to $1,323,115 in the same period of
1997. Wages and payroll related expenses as well as consulting fees made up the
major portion of SG&A in the 1997 period.
18
<PAGE>
Other Income. The changes in other income from period to period are
primarily attributable to increases or decreases in the amount of excess cash
invested in short-term investments.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited results of operations for each of
the Company's last eight fiscal quarters. In the opinion of the Company's
management, this unaudited quarterly information has been prepared on a basis
consistent with the Company's audited consolidated financial statements and
includes all adjustments (consisting of normal and recurring adjustments) that
management considers necessary for a fair presentation of the data. These
quarterly results are not necessarily indicative of future results of
operations. This information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1996 1996 1996
------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales .......................... $ 17,442 $ 20,205 $ 15,228 $ 21,812
Manufacturer set up fees ........... 156,500 27,725 29,500 11,100
Other revenues ..................... 8,733 -- 1,500 7,000
---------- ---------- --------- --------
Total revenues .................... 182,675 47,930 46,228 39,912
Cost of revenues ................... 12,875 12,384 14,490 3,806
---------- ---------- --------- --------
Gross profit ...................... 169,800 35,546 31,738 36,106
Selling, general and administrative
expenses .......................... 270,412 202,313 112,096 105,305
---------- ---------- --------- --------
Loss from operations ............. (100,612) (166,767) (80,358) (69,199)
Other income ....................... 596 132 346 249
---------- ---------- --------- --------
Net loss ......................... $ (100,016) $ (166,635) $ (80,012) $(68,950)
========== ========== ========= ========
<CAPTION>
DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1997 1997 1997
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Net sales .......................... $ 215,315 $ 134,824 $ 196,117 $ 165,209
Manufacturer set up fees ........... 6,000 29,426 23,409 29,600
Other revenues ..................... -- -- 123 386
---------- ---------- ---------- ----------
Total revenues .................... 221,315 164,250 219,649 195,195
Cost of revenues ................... 124,594 100,291 144,521 110,790
---------- ---------- ---------- ----------
Gross profit ...................... 96,721 63,959 75,128 84,405
Selling, general and administrative
expenses .......................... 591,543 438,602 449,016 435,497
---------- ---------- ---------- ----------
Loss from operations ............. (494,822) (374,643) (373,888) (351,092)
Other income ....................... 2,487 4,726 1,103 9,466
---------- ---------- ---------- ----------
Net loss ......................... $ (492,335) $ (369,917) $ (372,785) $ (341,626)
========== ========== ========== ==========
</TABLE>
Quarterly results reflect the shift from set up fees in the period through
December 1995 to revenues generated by product sales through the Company's
stores. Total revenues, cost of revenues and gross profit in each of the
quarters ended December 31, 1996, March 31, 1997, June 30, 1997 and September
30, 1997 showed increases as compared to the same quarterly period of the
previous year. In general, these increases were attributable to increased sales
volume resulting from the Company's expanded marketing efforts as well as
significant expansion of customer base, repeat purchases from existing customers
and launch of the Company's stores on AOL. The Company's revenues have followed
the seasonal pattern typical of the retail industry, with product sales in the
quarter ended December 31 increasing significantly compared to the quarter ended
September 30 and product sales in the quarter ended March 31 decreasing
significantly compared to the December 31 quarter. The Company expects that this
seasonal pattern of sales volume will continue in the future.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily from
capital contributions from private investors. During the nine months ended
September 30, 1997, the Company received $1,550,000 in capital contributions
from private investors. The Company believes that its existing capital
resources, together with cash generated from operations and the proceeds of this
Offering will enable it to maintain its operations for at least 12 months from
the date of this Prospectus.
Net cash used in operating activities was $3,043, $347,534, $532,708,
$213,800 and $1,190,345 for the periods ended December 31, 1994, 1995, 1996, the
nine months ended September 30, 1996 and the nine months ended September 30,
1997, respectively. The Company has financed these activities through private
investments totaling an aggregate of approximately $3.1 million.
Capital expenditures, primarily for computers and peripheral equipment,
totaled $39,480, $88,699, $67,812, $30,093 and $99,931 for the periods ended
December 31, 1994, 1995, 1996, the nine months ended September 30, 1996 and the
nine months ended September 30, 1997, respectively. The purchases were required
to support the Company's expansion and increased infrastructure.
19
<PAGE>
The Company has entered into a marketing agreement with AOL pursuant to
which AOL will market the products offered by the Company. Under the terms of
such agreement, the Company will pay a total of approximately $500,000 during
1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS
No. 128 requires dual presentation of basic and diluted earnings per share for
complex capital structures on the face of the statements of operations.
According to SFAS No. 128, basic earnings per share, which replaces primary
earnings per share, is calculated by dividing net income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share, which replaces fully diluted earnings per
share, reflects the potential dilution from the exercise or conversion of
securities into common stock, such as stock options. SFAS No. 128 is required to
be adopted for the Company's 1997 year-end financial statements; earlier
application is not permitted. Had the Company adopted SFAS No. 128, pro forma
basic EPS for the year ended December 31, 1996 and the nine months ended
September 30, 1997 would have been ($.11) and ($.13), respectively. Pro forma
diluted EPS for the same periods would have been ($.11) and ($.12),
respectively.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements and requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is required to be adopted for the Company's
fiscal year ending December 31, 1998. The adoption of this pronouncement is
expected to have no impact on the Company's financial position or results of
operations. SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is required to be adopted
for the Company's 1998 year-end financial statements. The Company is currently
evaluating the impact, if any, of the adoption of this pronouncement on the
Company's existing disclosures.
20
<PAGE>
BUSINESS
CyberShop is an online retailer that offers over 40,000 products from more
than 400 manufacturers through its online stores on the Internet and AOL. The
Company seeks to provide an online shopping experience that incorporates
traditional department store and mail-order features into an interactive,
easy-to-use and compelling online environment.
The Company believes that online technology, and the Internet in
particular, is an advantageous medium for the selling of merchandise relative to
traditional retail stores and mail-order catalogs. Leveraging online technology
and the global reach of the Internet, the online retailing model provides
CyberShop with virtually unlimited online shelf space and the ability to reach a
geographically unlimited consumer base, without the costs associated with
constructing traditional retail stores and distributing mail-order catalogs. The
Company's strategy is to offer quality merchandise, provide effective customer
service, and capitalize on the inherent economies of the online retailing model.
The Company, which launched its Internet store in September 1995, is still in
early stages of development. The Company believes that its ability to achieve
profitability will depend primarily on its ability to increase revenues
generated by transactions relating to sales of merchandise through its online
stores. CyberShop's management team has experience in a broad range of retailing
environments, including department stores, specialty retailing stores,
television merchandising and direct mail.
CyberShop's online stores are accessed at CYBERSHOP.COM on the Internet and
in the Department Store and Gift areas of the AOL Shopping Channel. CyberShop's
online stores provide high quality color pictures and detailed information
relating to products that are conveniently organized into departments by brand
and category such as housewares, consumer electronics, gifts and gourmet food,
similar to those of traditional department stores. Shoppers can search for,
browse and select products throughout the store and place selected merchandise
in a virtual shopping bag that facilitates the process of collecting items,
subtotaling purchases and reaching the purchase decision. Furthermore, CyberShop
has established strategic relationships with manufacturers which allow most
products to be rapidly shipped directly from the manufacturer. Manufacturer
direct shipping enables the Company to avoid inventory related risks, limit
overhead costs and provide prompt delivery.
As part of its marketing strategy, the Company has formed a strategic
alliance with AOL pursuant to a marketing agreement. This agreement provides for
CyberShop to be featured on the AOL Shopping Channel as one of three anchor
tenants within the Department Store area and to be prominently featured in the
Gift area. In addition, the Company plans to establish strategic alliances with
other online companies and begin a targeted advertising campaign to attract
additional customers to the its online stores. The Company believes both online
and traditional media exposure are critical to maximizing brand recognition and
driving traffic to its online stores.
IDC estimates that the total value of goods and services purchased on the
Internet was $296 million in 1995, $2.6 billion in 1996 and will increase to
$220 billion by the year 2001. The number of Company customers grew from
approximately 2,250 at December 31, 1996 to approximately 8,900 at December 1,
1997. The Company believes it has positioned itself to capitalize on the
potential growth of online commerce by selectively targeting manufacturers and
other online companies with which to establish strategic relationships.
ONLINE SHOPPING INDUSTRY
IDC estimates that the total value of goods and services purchased on the
Internet was $296 million in 1995, $2.6 billion in 1996 and will increase to
$220 billion by the year 2001. IDC estimates that the number of devices
accessing the Internet in the United States will grow from 32 million at year
end 1996 to more than 300 million by year end 2001 and the number of users in
the United States associated with those devices will grow from 28 million at
year end 1996 to 175 million at year end 2001. In addition, according to IDC,
the percentage of such users buying goods and services on the Internet is
projected to grow from 25% in December 1996 to 39% in December 2001. According
to a CommerceNet/ Nielsen survey, as of March 1997, shopping was one of the most
popular activities on the Internet, and the number of people who shop and buy
products on the Internet is growing. This survey also indicates that
21
<PAGE>
a large majority of Internet users (73%) spend some portion of their time online
searching for information about a specific product or service. More than half of
these users (53%) have searched specifically when making a purchase decision.
The Company believes that the Internet is particularly well-suited for
promoting, marketing and selling merchandise. The Internet permits users
throughout the world to have direct access to merchandisers. A retail site on
the Internet can provide direct product service and information to a large
number of users at the same time with a substantially smaller sales staff and
has the ability to rapidly and continually update such information. Internet
merchandisers, unlike traditional department stores, are not limited by the
constraints or expense of store construction and rental, or the difficulty of
consumers traveling to their stores. In contrast to catalog merchandisers,
Internet retailers can react quickly to the need to change product description,
pricing or mix and are not subject to the costs of catalog publication and
distribution. The Internet is a highly interactive medium through which shopper
responses and preferences can be tracked, thereby enabling the merchandiser to
customize the online stores and target specific consumer groups and individuals.
BUSINESS STRATEGY
The Company's business strategy includes the following key elements:
Maximize Online Economic Advantage. The Company believes that the Internet
is a particularly well-suited medium for promoting, marketing and selling
merchandise. The Company believes there are many advantages to retailing via an
online store compared to traditional retail locations. The Internet diminishes
the limitations and expenses associated with traditional retail operations, such
as store construction and rent, and enables the Company to reach a global
customer base. An online store has virtually unlimited shelf space, enabling it
to offer a broad selection of products without the expense of carrying inventory
at a physical location. In addition, direct shipping arrangements with
manufacturers allow the Company to avoid owning and maintaining inventory,
thereby enabling the Company to avoid the risk of over-stocking merchandise. In
addition, the online structure of the Company's store enables the Company to
cross promote related brands and products, drawing the shopper's attention to
products the shopper otherwise may not have considered purchasing. The Company
intends to capitalize on the advantage of online retailing and achieve higher
operating margins because of the low overhead of the online retailing model.
Create Strong Brand Recognition. The Company believes that building brand
recognition of CyberShop is critical to attracting and expanding its customer
base. The Company intends to promote, advertise and increase its brand
recognition through various marketing and advertising media, including
traditional magazines and newspapers, hyperlinked banner ads, listings in
manufacturers' national advertising programs and hyperlinks from manufacturers'
websites, conducting an ongoing public relations campaign and developing
business alliances and partnerships. See "-- Sales and Marketing."
Develop Strategic Alliances. The Company seeks to establish strategic
alliances with global media companies to attract additional shoppers to, and
increase brand recognition of, the Company's online stores. The Company views
the AOL alliance as an important strategic alliance. The Company is seeking to
establish additional arrangements with major Internet search engines and guides.
In addition, the Company has recently established a "Partners Program," whereby
third-party websites may register with CyberShop and establish hyperlinks to
CyberShop for online shopping. See "-- Sales and Marketing --Store Promotion"
and "Strategic Alliances."
Develop Customer Loyalty. The Company believes that satisfied customers
will return to the Company's online stores and will contribute to increased
traffic to the store through word-of-mouth referrals. The Company seeks to
provide its customers with a satisfying shopping experience by making its online
stores entertaining, convenient and easy to use, by offering an extensive
selection of products, an attractive presentation of product information,
outstanding customer service and fulfillment, and compelling incentive programs.
The Company plans to provide a more customized shopping experience by utilizing
the valuable demographic data aggregated from customers upon registering on the
store and by analyzing previous browsing and purchasing behavior of its
customers.
22
<PAGE>
Selective Merchandising. The Company typically selects manufacturers who
offer quality products that are not subject to widespread discounting or high
rates of customer returns. The Company also seeks manufacturers who are willing
to respond on a timely basis to the Company's purchase orders and ship products
directly to its customers. The Company's online structure and proprietary
operating system enable the Company to add and remove products on a daily basis
based on product availability and customer demand.
THE CYBERSHOP ONLINE STORES
The Company's store on the Internet is accessed at CYBERSHOP.COM and at the
Department Store and Gift areas of the AOL Shopping Channel.
The CyberShop Store on the Internet
The CyberShop Internet address, CYBERSHOP.COM, leads to the Company's home
page which contains a store directory in addition to direct links to CyberShop
feature departments, including Gourmet Collection, Gift Emporium, Home Style and
Electronics Plus. CyberShop displays new products, best brands and special
offers in each of the departments. By clicking on the store directory or
featured products, shoppers are presented with detailed product information. The
home page also serves as a familiar base to which shoppers can return to find
key destinations within the store. Shoppers choose desired locations by clicking
on a navigation bar or hyperlinked text enabling them to (i) search for
products, brands or departments, (ii) access the Help and e-mail functions,
(iii) browse and order products, (iv) enter other departments and (v) register
as a "CyberShopper," which opens a personal account for the customer. In
addition, as part of the registration process, the Company requests the customer
to provide basic demographic information. The Company currently utilizes this
data to analyze customer shopping trends and demographics, and is evaluating
ways in which it may utilize this data to customize marketing programs. The
Company encourages shoppers to register by offering incentives, including a 10%
discount coupon and 1,000 points towards the Company's frequent buyer program.
See "-- Sales and Marketing-Merchandising and Customer Programs."
The Company's store on the Internet offers over 40,000 products from over
400 manufacturers. The Company's products range in price from $10 to $5,500.
Every product is featured with a high quality color picture and detailed
information relating to product specifics, service, care or purchasing
instructions. The Company's average order has been approximately $100 during the
nine months ended September 30, 1997.
23
<PAGE>
The following table shows the major categories of products sold by the
Company and examples of specific products, and its principal manufacturers and
brands:
<TABLE>
<CAPTION>
PRODUCT CATEGORIES AND
EXAMPLES OF PRODUCTS MANUFACTURERS/BRANDS
- --------------------------------------- --------------------------------------------------------------------------------
<S> <C> <C> <C>
HOUSEWARES
Cookware, Cutlery, Small Kitchen American Harvest DeLonghi Scanpan
Appliances, Kitchen Tools Black & Decker Joyce Chen Thermos
and Gadgets Bodum KitchenAid VIA!
Braun Krups Vitantonio
Calphalon Le Creuset Waring
Chantal Oral-B Wusthoff
Chef's Choice Polder Zojirushi
Circulon Rival Select
Copco Sabatier
Cuisinart
CONSUMER ELECTRONICS
TV's, VCR's, Phones, Audio, Bissell Minolta Sanyo
Cameras, Camcorder, Home Bose Mitsubishi Seiko Instruments
Care, Computers, Office Equipment, Brother Nikon Sony Playstation
Electronic Reference Device Canon Nintendo Toshiba
Fisher Olympus Total Recall
Franklin Oreck Weider
Hedstrom Oregon Scientific
Hewlett Packard Palm Pilot
Identadisc Panasonic
JVC ProForm
GOURMET FOOD
Chocolate, Candy, Baked Bittersweet Pastries Cheesecake Lady First Colony
Goods, Fresh Foods, Gift Bob's Brownstone Brownies Citterio Lazzaroni
Baskets, Delicacies Caf--Tasse Crabtree & Evelyn Maxim's
Candy Cottage DiCamillo Perugina
Capalbo's
GIFTS
Jewelry, Watches, Collectibles, 1928 Hush Puppies Seiko
Children's Games, Men's Cigar Savor Imperial Diamond Swiss Army
Furnishings Dart Mart Kenneth Cole Wittnauer
Evenflo Limoge Imports Zagat
Gerry Michael Graves Zelco
Honora NEI
Huffy Peter Brams
TABLETOP
China/Dinnerware, Bernardaud Luigi Bormioli Towle
Silver/Flatware, Christofle Oneida Villeroy & Boch
Crystal/Glassware Dansk Orrefors Wallace Silversmith
Daum Pfaltzgraff Waterford
Denby Reed & Barton Wedgwood
Hoya Rosenthal Royal Doulton Yamazaki
Kosta Boda Royal Worcester
Lenox Sasaki
Spode
BEAUTY & FASHION
ACCESSORIES
Cosmetics, Fragrance, Small Adrienne Vittadini Fossil Orlane Skin Care
Leather Goods, Sun Glasses, Scarves, Ahava Guess Paloma Picasso
Handbags Armani Fragrances Hugo Bosca Perlier
Burberrys Joseph Abboud Ray-Ban
Cacharel K. Bauman Design Reebok Eyewear
Crabtree & Evelyn Moschino Revo
DKNY Nature's One Serengeti Eyewear
Dolce and Gabbana Nikon Eyewear Vivian Alexander
BEDDING & BATH
Sheets, Comforters, Pillows, AeroBed Early's of Whitney Newport
Towels, Bath Accessories Burlington Faribo Pacific Coast Feather
Creative Bath Fieldcrest Cannon Perfect Fit
Croscill Imperial Regal Rugs
Crown Crafts Rug Barn Revman Industries
Down, Inc.
FURNITURE & DECORATIVE AC-
CESSORIES
Slipcovers, Lamps, Decorative Galbraith & Paul Lady Slipper Designs Seth Thomas
Pillows, Ready-to-Assemble Furniture, Godley-Schwan Replogle Sure Fit
Globes, Clocks Independent Vision Ziro Designs
John Boos
</TABLE>
24
<PAGE>
The Company's store on the Internet is designed to accommodate the needs of
both the browser and the directed shopper. The browser can view an array of
products by simply clicking on one of the feature departments or product
categories. The directed shopper is able to quickly locate a specific product by
category or brand by using the store's search function or store directory. By
clicking on the picture of a product, the customer is presented with detailed
information relating to product specifics, service, care or purchasing
instructions.
The Company seeks to provide a compelling shopping environment that will
attract customers and encourage shoppers to purchase. The Company intends to add
sound and video features to its Internet store in 1998 that will guide shoppers
through the store and announce special offers. The Company also aims to make the
shopping experience as simple and convenient as possible. CYBERSHOP.COM features
a virtual shopping bag function that allows the shopper to accumulate
merchandise for purchase while browsing through the store. Items can be added to
or subtracted from the shopping bag at any time. As a registered CyberShopper,
the customer is able to retain items in the shopping bag indefinitely, even
after leaving the store or logging-off. After selecting an item to purchase, the
customer is prompted to complete an order. In choosing a payment method when
placing an order, customers have the option of securely submitting credit card
information online or telephoning or faxing the information to customer service
representatives. The Company also provides the option of payment by check or
money order. The Company sends e-mail notifications that confirm the order and
shipment and promote special offers and events.
The Company intends to offer additional services which are particularly
well-suited to online retailing. The Company is developing an online gift
registry service, including a bridal registry service that is expected to be
available in the second half of 1998. The bridal registry will allow customers
to create, view and modify their own personal registry. To create a registry, a
couple will be able to search products displayed in CyberShop's online stores,
which will provide links to detailed product information and product
suggestions. Once the registry has been created, an automatic reminder function
will alert the couple if an important category has been neglected. Delivery
options are expected to include "ship as bought" or "hold all," which allows the
couple to return and exchange gifts before shipping. E-mail notifications
regarding gifts purchased will be provided to the couple and a comprehensive
status screen will show the purchase status of all registered items detailing
items purchased and items still available. The bridal registry will provide
convenient online access for gift givers with an easy online ordering process
requiring only the submission of a password selected by the couple. Ordering by
phone using a 24-hour 800-number will also be available.
CyberShop's AOL Stores
AOL, which has over 10 million users, has established an online shopping
mall that is comprised of more than 100 stores. This mall is a service offered
exclusively to its users. The Company has chosen to establish retail stores
within the AOL proprietary service in order to access this large customer base
in a medium familiar to AOL users. The Company's proprietary operating system
interfaces with transaction processing systems operated by AOL and enables the
Company to receive and fulfill orders in its AOL stores.
The Department Store Area of AOL
Users of AOL's online service can access the Company's online stores
through the AOL Shopping Channel. CyberShop is one of the three anchor tenants
in the Department Store area of the AOL Shopping Channel, which the Company
believes will be a popular and heavily trafficked area of the AOL Shopping
Channel. This store generally has the same extensive product offerings and
features as the Company's store on the Internet and is maintained using AOL's
proprietary technology and order systems. The Company believes that because this
store is presented to the AOL user in the familiar AOL environment, the users
are more comfortable shopping there than they might be in a less familiar
Internet environment. However, the store on AOL does not include certain
features such as CyberShopper registration and online status reports of shipping
information. Pursuant to the marketing agreement with AOL, the Company maintains
both its anchor button and a promotional button to
25
<PAGE>
promote its store and products, and has its products featured for a minimum of
five days per month on the Department Store area's main screen. Additionally,
the Company's products are featured in select AOL shopping events stores such as
Santa's Workshop, Valentine's Day, Mother's and Father's Days, and
Back-to-School, all of which are promoted throughout the AOL service.
The Gift Area of AOL
CyberShop maintains a store in the Gift area of the AOL Shopping Channel
called "CyberGift." This store links to the Company's Gifts Wrapped & Ready
boutique and has the same features as the Company's store in the Department
Store area on the AOL Shopping Channel. CyberGift currently offers for sale
approximately 135 gift items sorted by theme and price which are available for
shipment within 24 hours. Pursuant to the marketing agreement with AOL, the
Company maintains its tenant button and shares rotations of both a promotional
button and an advertising banner to promote its store and products. The
Company's products are featured for a minimum of three days per month on the
Gift area main screen. Additionally, the CyberGift boutique is featured in AOL's
Quick Gifts area as well as in select AOL shopping events stores such as Santa's
Workshop, Valentine's Day, Mother's and Father's Days, and Back-to-School, all
of which are promoted throughout the AOL service.
STRATEGIC ALLIANCES
The Company seeks to establish strategic alliances with global media
companies to attract additional shoppers to, and increase brand recognition of,
the Company's online stores. The first such alliance established by the Company
is a marketing agreement which provides, among other things, for CyberShop to be
featured as one of three anchor tenants within the Department Store area of the
AOL Shopping Channel and to be prominently featured in the Gift area of the AOL
Shopping Channel. As described above, the agreement also allows the Company to
participate in a variety of banner advertising opportunities and to have certain
of the Company's products and special offers featured within the AOL Shopping
Channel or AOL's special event stores. The AOL agreement terminates on December
31, 1998, unless it is renewed. The agreement requires monthly payments of fixed
fees. See "Use of Proceeds."
The Company is currently negotiating long-term exclusive marketing
arrangements with leading Internet search engines and guides. The Company
believes that such strategic alliances will drive additional traffic to the
Company's website and enhance brand recognition of CyberShop. Additionally, the
Company has recently established a "Partners Program" whereby third party
websites may register with the Company and establish hyperlinks to CyberShop for
online shopping. See "-- Sales and Marketing -- Store Promotion."
The Company also considers its relationships with its manufacturers
strategically important. As of September 30, 1997, the Company maintained online
marketing agreements with many of its manufacturers that provide the exclusive
right to market online, subject to certain exceptions. In addition to certain
exclusive online marketing rights of the manufacturers' products, such
agreements provide for co-marketing efforts by the Company and manufacturers. An
important factor in the selection of a manufacturer for the Company's online
stores is the manufacturer's willingness to respond on a timely basis to the
Company's purchase orders and ship products directly to the Company's customers.
SALES AND MARKETING
The Company's sales and marketing strategy is to effectively merchandise
quality products by building brand recognition and driving traffic and
attracting repeat customers to the Company's online stores. The Company utilizes
a combination of advertising, creative product merchandising and online
co-marketing programs to accomplish these objectives.
Store Promotion
The Company utilizes numerous sales and marketing techniques to increase
brand recognition and drive traffic to the Company's online stores, including
both online and traditional advertising and promotion campaigns. The Company's
online marketing tactics include the purchase of banner advertising
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on search engines and Internet directories such as Yahoo!, Excite, Lycos,
AltaVista, AOL Netfind, Go2Net, and Webcrawler. The banner advertisements
purchased by the Company that hyperlink to the Company's online stores are
displayed when a search engine user searches for information relating to certain
keywords such as gift, sale, holiday and shopping. The Company also promotes the
CyberShop brand through banner advertisements on key websites, which also
hyperlink to the store.
The Company also promotes its online stores through print advertising and
intends to develop advertising through other media. The Company has a proactive
public relations program which targets customers through national media outlets
such as magazines, newspapers, and radio and television broadcasts. In addition,
the Company places advertisement inserts into mail order catalogs of selected
retailers, the packaging of items shipped from its "Gifts Wrapped & Ready"
program, and packaging for shipments from certain manufacturers. The Company
also employs an electronic direct response program to promote certain offers or
store events via e-mail, targeting specific customers based on such customers'
prior visits and purchases.
The Company has also created a Partners Program which is designed to
attract customers and drive traffic by linking the CyberShop store with other
websites that participate in the Partners Program. The Partners Program
incentivizes participants by offering a 5% commission on sales volume generated
from a participating website, by offering a $0.15 commission on every customer
directed to CyberShop from the website, and by offering a 10% discount on
CyberShop merchandise for employees of the participant. In addition, the Company
has numerous co-promotion arrangements with companies such as MasterCard,
American Express, Transmedia, Virtual Emporium, New York Style and onQ, through
which the Company receives customer referrals.
Merchandising and Customer Programs
Essential to the Company's merchandising and customer acquisition and
retention strategy are its experienced merchandising team and its proprietary
system operating procedures.
In-Store Merchandising. The Company utilizes numerous merchandising tactics
to enhance a customer's shopping experience. The Company believes that the
shopper's ability to browse and search from a broad selection of products is a
compelling incentive to shop at CyberShop. While the CyberShop store currently
features over 40,000 products, online technology offers the Company virtually
unlimited online shelf space through which to increase its product offerings.
The online stores also provide color pictures and detailed information relative
to product specifics, service or care for every product in the store. Management
believes that access to clear pictures and helpful information at the point of
purchase assists the customer in reaching an educated purchase decision and
reduces the risk of product returns. To date, the Company has experienced a
return rate of less than 2% of all products sold.
Pricing. Through the use of its proprietary online operating system, the
Company's merchandise managers are able to rapidly change product pricing,
product information and featured products. The Company adjusts pricing
strategies to maintain competitiveness with other retailers. The Company seeks
to encourage online purchasing by offering free shipping and handling on orders
totaling more than $100 within the continental United States. In addition, the
Company frequently provides free delivery by UPS three-day service, within
certain size and weight limits, to expedite delivery and enhance customer
satisfaction. The Company believes that such value added services are important
to attracting consumers from other retailing channels.
Corporate Gift Services and Gift Certificates. Management targets corporate
customers as a source of high volume and repeat purchases. The Company offers a
portfolio of gifts specially targeted for corporate customers. Corporate
services include discounts on special gift packaging, gift cards, personalized
options and professional consultation. The Company has also created a system to
permit customers to purchase and redeem gift certificates online.
Customer Attraction, Conversion and Retention. Many of CyberShop's
customers are attracted to the Company's online stores through hyperlinks on
search engines and guides and advertisements on AOL. The Company seeks to
encourage shoppers to purchase at its online stores by offering competitive
pricing, free delivery for orders totaling more than $100 within the continental
United States, a
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convenient shopping venue, and an extensive selection of quality brand name
products. The Company seeks to retain customers by providing outstanding
customer service, including reliable order fulfillment, incentive programs such
as its frequent buyer program, and product quality guarantees.
Frequent Buyer Program. The Company seeks to enhance customer loyalty and
encourage customers to make repeat purchases through the use of incentive
programs. The Company has designed a frequent buyer program that rewards
customers of CyberShop with ten points per dollar spent that can be used as
credits towards earning savings certificates that can be redeemed at its store.
Personalized Marketing. The Company believes that a strong understanding of
the customer demographic profile and purchasing habits is critical to effective
and successful merchandising. The Company aggregates demographic information
relating to its customer base by requesting certain information, such as age,
address, employment and education, upon a customer's registration as a
CyberShopper. See "The CyberShop Online Stores -- The CyberShop Store on the
Internet." Through this collection of demographic consumer data, the Company has
the ability to target promotional e-mail directly to customers, based on
previous purchasing and browsing behavior.
MANUFACTURER RELATIONSHIPS
The Company believes its relationships with manufacturers will be a key
factor to its success in the online retail industry. In general, the Company
does not maintain an inventory of merchandise. Upon receipt of a customer order,
the Company electronically transmits a purchase order to the appropriate
manufacturer, who, in turn, ships the products directly to the customer. The
manufacturers supply shipping and back-order information, which the Company
provides to customers by telephone or via e-mail.
The manufacturers provide the Company with pictures and information
necessary to display the products online. Typically, each manufacturer pays
CyberShop a one-time set up fee for each image placed on the Company's system.
Set up fees range from $150 to $500 per image. Often, a manufacturer will commit
between one and 75 images at a total cost of $500 to $15,000. The Company does
not expect that such set up fees will be material to total revenues in the
future. However, the Company expects that it will receive cooperative marketing
allowances from certain of its manufacturers as its sales volume increases,
although it is not currently receiving any such marketing allowances.
During the nine months ended September 30, 1997, 45 major manufacturers
accounted for approximately 65% of the Company's purchases. Pursuant to
marketing agreements, the manufacturers grant to the Company the right to market
and sell the manufacturers' products and to use the manufacturers' names,
trademarks and copyrights in connection with the Company's store. Many of these
manufacturers include in their print advertisements and on their websites an
Internet address reference to the Company's store. As of September 30, 1997, the
Company maintained online marketing agreements with many of its manufacturers
that provide the exclusive right to market online, subject to certain
exceptions.
CUSTOMER SERVICE
The Company believes that high levels of customer service and support are
critical to the value of its services and to retaining and expanding its
customer base. Customer service representatives are available from 9:00 a.m. to
8:00 p.m. EST on weekdays, and 10:00 a.m. to 11:00 p.m. EST on weekends for
customer service via e-mail, fax and a toll free telephone number,
1-800-347-3900. Customer service is assisted by automated e-mail notifications
which greatly assist in keeping customers up-to-date on the status of their
orders. Company representatives handle general questions about the Company's
online stores and provide product information over the phone. The Company
believes that these representatives are a valuable source of feedback regarding
customer satisfaction, which the Company uses to improve its services. Customers
of the Company are not charged for service and support.
The Company believes that its ability to establish and maintain long-term
relationships with its customers and encourage repeat visits and purchases is
dependent, in part, on the strength of its customer support and service
operations and staff. The Company currently employs a staff of four full-time
customer support and service personnel who are responsible for handling customer
inquiries, answering
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customer questions about the ordering process, tracking shipments, investigating
problems with merchandise, and acting as liaisons between the customers and
manufacturers. The customer support and service organization is augmented by
temporary employees when required to handle seasonal or other increases in order
volume.
TECHNOLOGY
Proprietary Technology
Over the past two years, the Company has developed sophisticated
information services delivery and shopper tracking systems by integrating
third-party systems, when available, and by developing proprietary tools. The
Company's information systems can be viewed as three integrated systems: (i) a
publishing system, (ii) a selling system and (iii) and order processing system,
all of which are supported by Relational Databases ("RDBMS").
Publishing System. The publishing system contains information about all
items in the Company's online stores, including retail price, cost, color and
size characteristics, group information and all manufacturer related
information. Once the manufacturers have offered their products to CyberShop,
the datasets are published (downloaded) to the Company's online stores.
Selling System. CyberShop's main selling system is the Company's store on
the Internet, which was designed to give customers a convenient and safe
environment to effect their purchases. The Company's store on the Internet uses
the Internet Factory's Commerce Builder web server to handle the transactional
events, queries and updates to the SQL Server database. All transactions are
secured by using Secure Sockets Layer ("SSL") encryption which protects the
information as it is transmitted between the customer browser and the Company's
store on the Internet.
Ordering System. The Company's ordering system retrieves ordering
information from selling systems, validates credit cards, processes the orders,
creates and issues purchase orders to manufacturers and handles all post-sale
marketing efforts. The ordering system also allows for orders to be taken over
the telephone. The ordering system software was designed by the Company to give
customer service representatives instant access to all customer information, to
automatically update all changes to a customer's order and inform the customer
of order status by automated e-mail communications. The customer service and
marketing departments can access this customer profile information to search and
analyze customer demographics and buying patterns in order to suggest new
programs and offers to customers. The system also communicates with the
warehousing facilities in real time for updates on order shipments and stock
status positions.
Commercially Available Licensed Technology
CyberShop uses commercially available software as well as its own developed
proprietary software. The Company uses Microsoft Access as a front-end
development tool that connects to a Microsoft NT and Microsoft SQL Server
database. In addition, Commerce Builder from the Internet Factory is used to
manage the Company's store on the Internet. CyberShop has licensed a Verisign
encrypted key that authenticates transactions received from the Company's store
on the Internet.
The Company has implemented a broad array of site management, search,
customer interaction, transaction-processing and fulfillment services and
systems. These systems combine the Company's proprietary technologies and
commercially available, licensed technologies. The Company's current strategy is
to license commercially available technology to augment internally developed
solutions. CyberShop focuses its development efforts on improving and enhancing
its specialized proprietary software with the goal of automating as many
processes as possible and increasing customer satisfaction.
A group of systems administrators and network managers monitor and operate
the Company's store on the Internet, network operations and
transaction-processing systems. The continued uninterrupted operation of the
Company's store on the Internet and transaction-processing systems is essential
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to its business, and it is the job of the site operations staff to ensure, to
the greatest extent possible, the reliability of these systems. CyberShop
Internet connectivity is provided by Exodus Communications, Inc., a website
provider that specializes in providing scalable business solutions to high
volume Internet sites.
Technological Enhancements
The Company continually evaluates emerging technologies and new
developments in web technologies with the objective of optimizing its customer
interfaces, website features and operational systems. Technologies with which
the Company is currently working include Emblaze technology to add audio to its
website, which would enrich the online shopping experience and allow the Company
to deliver more effective marketing messages, and Sun's Java language to allow
the Company to provide customized services to shoppers in its store on the
Internet.
Security
A critical issue for the success of online retailing is maintaining the
integrity of information, particularly the security of information such as
credit card numbers. The Company believes, however, that security systems
currently in place are at least as secure as those used for traditional
transactions (i.e., in-store or mail order purchases). The Company believes that
it has a comprehensive security strategy.
The Company believes that there are two potential areas for possible fraud
by shopping electronically. The first is theft of credit card numbers traveling
through phone lines and the second is theft of credit card numbers residing on
the Company's system. The Company addresses the possibility of theft over the
phone lines by using SSL encryption. The credit card number is encrypted while
it is traveling and is translated only once it reaches CyberShop. This form of
encryption is only available to customers using the SSL encryption enabled
browsers.
To deter the theft of credit card numbers residing in the Company's system,
the Company has secure "fire walls" installed in the Company hardware, and all
credit card numbers are encrypted in the Company's system until either the
customer or the Company requires them. Fire walls will protect the system
against "hacker" break-ins. Moreover, anyone who successfully breaks into the
system will find nothing but encrypted codes that would be extremely difficult
to decipher.
The Company also offers other payment alternatives. The Company has
installed a toll-free telephone number for taking orders, handling customer
service, and receiving credit card information. The Company posts the toll free
phone number for the customer during the checkout phase. After a customer calls
this phone number, the Company's customer service representatives ask for the
customer's CyberShop order number and the credit card number. The order is then
processed through normal channels. The Company also can receive order requests
by fax and accept payments by money order or check.
COMPETITION
The retail shopping industry is very competitive. The Company currently
competes with a variety of other companies, including traditional stores,
non-traditional retailers, such as television retailers and mail order catalogs,
and with other online retailers. The Company potentially competes with a variety
of other stores depending on the type of merchandise and sales format offered to
customers. The Company expects there to be many more online competitors in the
future, as barriers to entry are minimal, and new competitors can launch sites
at a relatively low cost.
The Company believes that the principal competitive factors in its market
are brand recognition, selection, personalized services, convenience, price,
accessibility, customer service, quality of search tools, quality of site
content, and reliability and speed of fulfillment. Many of the Company's current
and potential competitors have longer operating histories, larger customer
bases, greater brand 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
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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 manufacturers 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 website and systems development than the Company. Increased
competition may result in reduced operating margins, loss of market share and a
diminished brand franchise. New technologies and the expansion of existing
technologies may increase the competitive pressures on the Company.
EMPLOYEES
As of December 1, 1997, the Company had 17 full-time employees, including
four in operations and development, five in sales and marketing, four in
customer service and four in general and administrative. As of December 1, 1997,
the Company also had one part-time employee primarily focused on customer
service and two consultants primarily focused on merchandising. The Company's
future success depends, in significant part, upon the continued service of its
key technical, sales and senior management personnel and on its ability to
attract and retain highly qualified employees. The Company's employees are not
represented by any collective bargaining organization. The Company has never
experienced a work stoppage and considers relations with its employees to be
good.
TRADEMARKS AND PATENTS
CyberShop (and its related logo) is a registered service mark of the
Company. The Company has also applied for trademark and/or service mark
registrations for CyberGift, the @home department store and Gifts Wrapped &
Ready.
FACILITIES
The Company's corporate headquarters are located at 130 Madison Avenue, New
York, New York. The Company leases approximately 2,500 square feet of office
space at these facilities at a cost of $2,700 per month. The term of the lease
expires in August, 2006. The Company leases other facilities and certain other
equipment under operating and capital lease agreements. The Company believes
that its existing facilities are adequate for its current requirements and that
additional space can be obtained to meet its requirements for the foreseeable
future.
The Company's website is hosted by Exodus Communications, Inc. located in
Jersey City, New Jersey with a back-up system in the Company's New York office.
The Company's entire back end processing system resides in the Company's New
York office. The Company's systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. The Company presently has very limited
redundant systems. It does not have a formal disaster recovery plan and does not
carry business interruption insurance to compensate it for losses that may
occur. Despite the implementation of network security measures by the Company,
its servers are 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.
LITIGATION
The Company is not a party to any material legal proceedings.
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MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
Company's executive officers and members of the Board of Directors as of the
date of this Prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------------- ----- --------------------------------------------
<S> <C> <C>
Jeffrey S. Tauber(1) ........ 36 Chief Executive Officer, President and
Chairman of the Board of Directors
Linda Wiatrowski ............ 38 Vice President, General Merchandise Manager
Jill Markus ................. 34 Vice President, Store Development
Tomas Montgomery ............ 35 Vice President, Operations
Michael Kempner(1)(2) ....... 40 Director
Warren Struhl(2) ............ 36 Director
David Wiederecht(3) ......... 41 Director
</TABLE>
- ------------------------------
(1) A member of the Executive Committee.
(2) A member of the Compensation Committee.
(3) A member of the Audit Committee.
Jeffrey S. Tauber has been the Chief Executive Officer, President and
Chairman of the Board of the Company since October 1997 and has been Managing
Director of CyberShop, L.L.C. since December 1994. Mr. Tauber was President of
Avanti Linens, a leading U.S. manufacturer of decorative bath towels, from June
1988 to May 1994. In August 1993, Mr. Tauber founded a multi-head embroidery
business that he sold in 1994. Prior to working at Avanti, he was a buyer and
divisional Merchandise Manager for Bloomingdale's from February 1984 to May
1988. His areas of responsibility included bed pillows, blankets, sheets,
women's swimwear, and ready-to-wear. In 1987, Mr. Tauber was named Federated
Buyer of the year. Mr. Tauber received his B.A. in Economics from Washington
University in St. Louis in 1983.
Linda Wiatrowski has been the Vice President, General Merchandise Manager
of the Company since October 1997 and has been the Vice President, General
Merchandise Manager of CyberShop, L.L.C. since January 1997. From December 1994
to January 1997 she was Merchandise Manager for housewares, tabletop and gifts,
and gourmet food of CyberShop, L.L.C. Ms. Wiatrowski was Home Furnishings
General Merchandise Manager of the "Can We Shop" television shopping show
starring Joan Rivers from November 1993 to July 1994. Ms. Wiatrowski worked as a
freelance merchant from April 1992 to November 1993. Her clients included Linens
'n Things, a 150-store home furnishings chain, where she launched the profitable
housewares and tabletop divisions. Ms. Wiatrowski began her career in 1981 at
Bloomingdale's in the merchandising training program. She held the positions of
giftware assistant buyer, housewares department manager, confectionery buyer and
lifestyle furniture buyer, before joining Bloomingdale's by Mail ("BBM") in
1989. At BBM, she was group buyer responsible for tabletop, housewares and
gourmet food, gross volume of $15 million, and 150 merchandising pages in ten
catalogs annually. Ms. Wiatrowski received a B.A. with honors in Human Relations
from Connecticut College in 1981.
Jill Markus has been Vice President, Store Development of the Company since
October 1997 and has been Vice President, Store Development of CyberShop, L.L.C.
since January 1997. From December 1994 to January 1997 she was Merchandise
Manager of CyberShop, L.L.C. Ms. Markus was the Home Furnishings Buyer of the
"Can We Shop" television shopping show starring Joan Rivers from January 1994 to
July 1994. Ms. Markus was with Bloomingdales from September 1987 until January
1994, where she served as the buyer for the Ralph Lauren home furnishings
department, the blanket department, and the towel department. In 1992, Ms.
Markus was named as "The Bloomingdale's Buyer of the Year" for her $1.0 million
sales and 39% profit increases over plan. From 1985 through 1987, she was at
Sibley's in Rochester, New York, with management responsibilities in the
housewares and tabletop areas, and buying responsibilities in the bath, luggage,
candy and book departments. Ms. Markus received her B.A. in Economics from SUNY
Binghamton in 1985.
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Tomas Montgomery has been Vice President, Operations of the Company since
October 1997 and has been Vice President, Operations of CyberShop L.L.C. since
December 1994. Mr. Montgomery worked at the Centre for European Policy Studies
(CEPS), a leading European think tank in Brussels, Belgium, from January 1994 to
July 1994, where he created the marketing department. From 1987 to 1992, as Vice
President of Gravity Graphics, Inc., a sportswear company, he oversaw that
company's rapid expansion. Gravity Graphics, Inc. was listed in Inc. magazine's
list of the 500 fastest growing companies in the U.S. in 1991. Mr. Montgomery
graduated with honors in Modern European Studies from Connecticut College in
1985.
Mr. Kempner has served as a director of the Company since October 1997. Mr.
Kempner, the founder of MWW Group, a public relations, investor relations and
marketing firm ("MWW"), has been its President and Chief Executive Officer since
1986. Prior to founding MWW, Mr. Kempner was president of the nation's first
liquor-filled chocolate company, Winters Chocolates from 1984 to 1986. Prior to
that, Mr. Kempner held several positions in government at the state and Federal
levels, including the post of Legislative Director for Representative Robert
Torricelli (D-NJ) from 1982 to 1984. He has also served as Deputy Finance
Director of the Democratic National Committee from 1980 to 1982. He is a member
of the American Bankruptcy Institute, the Turnaround Management Association and
the Retail Marketing Association. Mr. Kempner is the author of a six-part series
for Successful Restructurings magazine and an authoritative article in Risk
Management magazine. Mr. Kempner earned a Bachelor of Science degree from
American University in 1981.
Mr. Struhl has served as a director of the Company since October 1997. Mr.
Struhl is the founder and has been President of Genesis Direct Inc., a catalog
and direct marketing company, since August 1996. Mr. Struhl founded PaperDirect
Inc., a mail catalog, in 1988 and was its President until 1995. From 1984 to
1988 he was Vice President of JMB Realty Corporation, a real estate investment
company. Mr. Struhl received a B.A. in Sociology from Tulane University in 1984.
Mr. Wiederecht has served as a director of the Company since October 1997.
Mr. Wiederecht has been Vice President, Alternative Investments of General
Electric Investments since 1994 where he is responsible for non-traditional
private equity transactions. From 1990 to 1994, he was involved in the General
Electric Investment real estate portfolio, assuming operational responsibilities
for all real estate assets after their acquisition. Mr. Wiederecht joined
General Electric Investments in 1989 as Vice President, Financial Planning and
Analysis and has worked at the General Electric Company since 1978. Mr.
Wiederecht received a B.A. in Economics from St. Lawrence University in 1978.
Following the Offering, it is expected that Robert Matluck will be named a
director of the Company. Mr. Matluck has been a Managing Director of the
Underwriter since 1989 and Chief Operating Officer of the Underwriter since
December 1997. Mr. Matluck has been a Managing Director of C.E. Unterberg,
Towbin Advisors since February 1993. Mr. Matluck was an Assistant Vice President
in the private client services group of L.F. Rothschild Unterberg Towbin from
February 1985 to January 1987 and a Vice President at Shearson Lehman Brothers
from January 1987 to November 1989. Mr. Matluck received a B.A. in Finance from
Washington University in St. Louis in 1983.
Each director holds office until the next annual meeting of stockholders or
until a successor has been duly elected and qualifies, or until his or her
earlier death, resignation or removal. The Company's executive officers are
appointed annually by the Board of Directors and serve at the discretion of the
Board of Directors.
The Company is seeking to obtain key-person life insurance coverage in the
face amount of $2,000,000 for Mr. Tauber naming the Company as beneficiary under
such policy.
Mr. Tauber may be deemed a founder of the Company.
LIMITATIONS ON LIABILITY
The Company's Certificate of Incorporation provides that a director of the
Company shall not be personally liable to it or its stockholders for monetary
damages to the fullest extent permitted by the Delaware GCL. Section 102(b)(7)
of the Delaware GCL currently provides that a director's liability for breach of
fiduciary duty to a corporation may be eliminated except for liability (i) for
any breach of the
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director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware GCL, for
unlawful dividends or unlawful stock repurchases or redemptions, and (iv) for
any transaction from which the director derives an improper personal benefit.
The Delaware GCL does afford persons who serve on the board of directors of a
Delaware corporation protection against awards of monetary damages for
negligence in the performance of their duties as directors. The Delaware GCL
does not affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care. Any amendment to
these provisions of the Delaware GCL will automatically be incorporated by
reference into the Company's Certificate of Incorporation, without any vote on
the part of its stockholders, unless otherwise required.
The Company's By-Laws provide that the Company may indemnify any person,
including officers and directors, with regard to any action or proceeding to the
fullest extent permitted by Delaware law.
Upon completion of this Offering, the Company and each of its directors and
officers will enter into indemnification agreements. The indemnification
agreements will provide that the Company will indemnify its directors and
officers against certain liabilities (including settlements) and expenses
actually and reasonably incurred by them in connection with any threatened,
pending or completed legal action, proceeding or investigation (other than
actions brought by or in the right of the Company) to which any of them was, is
or is threatened to be made a party by reason of his or her status as a
director, officer or agent of the Company or his or her serving at the request
of the Company in any other capacity for or on behalf of the Company, provided
that (i) such director or officer acted in good faith and in a manner at least
not opposed to the best interests of the Company, (ii) with respect to any
criminal proceedings, such director or officer had no reasonable cause to
believe his or her conduct was unlawful, (iii) such director or officer is not
finally adjudged to be liable for negligence or misconduct in the performance of
his or her duty to the Company, unless the court takes the view that in light of
the circumstances the director or officer is nevertheless entitled to
indemnification, and (iv) the indemnification does not relate to any liability
arising under Section 16(b) of the Exchange Act, or the rules or regulations
promulgated thereunder. With respect to any action brought by or in the right of
the Company, directors and officers may also be indemnified, to the extent not
prohibited by applicable laws or as determined by a court of competent
jurisdiction, against reasonable costs and expenses incurred by them in
connection with such action if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
Company.
It is the position of the Commission that insofar as the Company's
Certificate of Incorporation, By-Laws or any indemnification agreement may be
invoked by any director, officer or stockholder as a means of indemnifying them
against liabilities arising under the Securities Act, such indemnification is
against public policy as expressed in the Securities Act, and is therefore
unenforceable.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has Executive, Audit and Compensation Committees.
The Executive Committee consists of Mr. Tauber and Mr. Kempner. Among other
functions, the Executive Committee will exercise all the power and authority of
the Board of Directors in the management and affairs of the Company between
meetings of the Board of Directors, to the extent permitted by law. Mr.
Wiederecht is the sole member of the Audit Committee. Among other functions, the
Audit Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews and evaluates the results and scope
of the audit and other services provided by the Company's independent auditors,
reviews the Company's financial statements and reviews and evaluates the
Company's internal control functions. The Compensation Committee consists of Mr.
Struhl and Mr. Kempner. The Compensation Committee administers the Company's
stock option and stock purchase plans, determines executive compensation and
makes recommendations to the Board of Directors concerning salaries and
incentive compensation for employees and consultants of the Company.
COMPENSATION OF DIRECTORS
Non-employee directors currently receive a fee of $500 per meeting for
their service on the Board of Directors or any committee thereof. Directors are
eligible to receive options under the Company's 1997 Stock Option Plan and 1997
Directors' Stock Option Plan.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of certain information regarding
compensation paid or accrued by the Company during the last fiscal year to each
of the Company's Chief Executive Officer and each of the other executive
officers of the Company whose total annual salary and bonus exceeded $100,000
during such period (collectively, the "Named Executives"). The current positions
of the Named Executives are also included in the table. Other than the Company's
Chief Executive Officer, no employee received total annual salary and bonus in
excess of $100,000 for the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------------------
ANNUAL COMPENSATION
-------------------------------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
- ----------------------------------- ------ ---------- ------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey S. Tauber(1) .............. 1996 $118,750 -- -- -- --
Chairman of the Board of Directors,
Chief Executive Officer and Pres-
ident ............................
</TABLE>
(1) Effective upon consummation of the Offering, Jeffrey S. Tauber will receive
a base salary of $250,000, subject to periodic increases.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table summarizes certain information with respect to Company
stock options granted to the Named Executives during the fiscal year ended
December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO EXERCISE MARKET
UNDERLYING EMPLOYEES OR BASE PRICE ON
OPTIONS/SARS IN FISCAL PRICE PER DATE OF EXPIRATION
NAME GRANTED(#) YEAR 1996 SHARE GRANT DATE
- ------------------------- -------------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Jeffrey S. Tauber ....... -- -- -- -- --
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table shows the number of shares covered by both exercisable
and unexercisable stock options as of fiscal year-end, and the values for
exercisable and unexercisable options. No Named Executive exercised any Company
stock options during 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1996 AT DECEMBER 31, 1996
------------------------------- ---------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------- ------------- --------------- ---------------------
<S> <C> <C> <C>
Jeffrey S. Tauber ....... -- -- --
</TABLE>
STOCK PLANS
The Company has historically utilized stock options as an integral
component of its compensation program for directors, officers and key employees
of the Company. The Company believes that stock options provide long-term
incentives to such persons and encourage the ownership of the Common Stock.
The Company has granted options covering 342,042 shares of Common Stock
having exercise prices ranging from $1.00 to $1.79 per share to executive
officers and employees of the Company, including Ms. Wiatrowski, Ms. Markus and
Mr. Montgomery. Such options are either fully vested or will fully vest by
September 1999. Such options have a five year term, except that in the event of
the termination of the
35
<PAGE>
employment of the option holder (i) for "cause," as defined in the option
agreements, all options, whether or not vested, will expire as of the date of
such termination, (ii) for reasons other than "cause," the option holder may
exercise options for a period of three months after such termination provided
that such options are exercisable at such time, and (iii) by reason of death,
the option holder's estate may exercise any option exercisable at the time of
death for a period of one year following the date of death, but not after the
expiration of the term of the option.
1997 Stock Option Plan. In __________ 1997, the Board of Directors of the
Company adopted, and in _________ 1997 the stockholders of the Company approved,
the Company's 1997 Stock Option Plan (the "1997 Option Plan"). The 1997 Option
Plan and the Directors' Plan (as hereinafter defined) are collectively referred
to as the "Stock Option Plans." Under the 1997 Option Plan, stock options may be
granted to directors, executives, other key employees and consultants of the
Company and its subsidiaries. The maximum number of shares of Common Stock
reserved for issuance under the 1997 Option Plan is 1,000,000 shares. No options
have been granted under the 1997 Option Plan.
Options granted under the 1997 Option Plan may be either incentive stock
options which are intended to satisfy the requirements of Section 422 of the
Internal Revenue Code, or options that do not qualify as incentive stock
options. Generally, options granted under the 1997 Option Plan vest ratably over
a four-year period on each anniversary of the date of grant. At the Compensation
Committee's discretion, however, options may be made exercisable at any other
time or upon the occurrence of certain events or the achievement of certain
conditions or performance goals. Options granted under the 1997 Option Plan are
exercisable for a period not to exceed ten years from the date of grant, except
that upon a participant's termination of employment for any reason, all vested
options shall expire 90 days following such termination date and any nonvested
options shall be immediately forfeited. Pursuant to the terms of the 1997 Option
Plan, the exercise price of all incentive stock options and nonqualified stock
options granted under the Plan shall not be less than the fair market value of
the Common Stock at the time of grant. In the event of a "change of control" of
the Company (as defined in the 1997 Option Plan) or the termination of a
participant's employment other than for cause, death, disability or voluntary
departure, the Compensation Committee may provide that unvested stock options
previously granted shall be immediately exercisable and that such options, if
not exercised by a prescribed date, shall terminate. The Board of Directors may
amend the 1997 Option Plan at any time, except that stockholder approval is
required for certain amendments to the extent it is required by law, agreement
or the rules of any exchange upon which the Common Stock is listed.
Directors' Stock Option Plan. In _______ 1997, the Board of Directors
adopted and the stockholders of the Company approved, the 1997 Directors' Stock
Option Plan (the "Directors' Plan") pursuant to which each member of the Board
of Directors who is not an employee of the Company who is elected or continues
as a member of the Board of Directors is entitled to receive annually options to
purchase 3,000 shares of Common Stock at an exercise price equal to fair market
value on the date of grant. The Compensation Committee of the Board of Directors
administers the Directors' Plan; however, it cannot direct the number, timing or
price of options granted to eligible recipients thereunder.
Each option grant under the Directors' Plan vests after the first
anniversary of the date of grant and expires three years thereafter. The number
of shares of Common Stock related to awards that expire unexercised or are
forfeited, surrendered, terminated or canceled are available for future awards
under the Directors' Plan. If a director's service on the Board of Directors
terminates for any reason other than death, all vested options may be exercised
by such director until the earlier of his or her death and the expiration date
of the option grant. In the event of a director's death, any options which such
director was entitled to exercise on the date immediately preceding his or her
death may be exercised by a transferee of such director for the six-month period
after the date of the director's death. Pursuant to the Directors' Plan, in the
case of a director who represents an institutional investor, such as a venture
capital fund, option grants may be made directly to the institutional investor
on whose behalf a director serves on the Board of Directors.
The maximum number of shares of Common Stock reserved for issuance under
the Directors' Plan is 70,000 shares. No options have been granted under the
Directors' Plan.
36
<PAGE>
CERTAIN TRANSACTIONS
In November 1994, Jeffrey S. Tauber and Jane S. Tauber purchased an
aggregate of 2,850,508 membership interests in CyberShop, L.L.C. for $200,000.
In January 1995, Jeffrey S. Tauber and Jane S. Tauber purchased an
aggregate of 1,749,492 membership interests in CyberShop, L.L.C. for $139,442.
In February 1995, Donald J. Weiss purchased 300,000 membership interests in
CyberShop, L.L.C. for $150,000.
In December 1995, Genesis Direct L.L.C. purchased 100,000 membership
interests in CyberShop, L.L.C. for $100,000.
In October 1996, Trustees of General Electric Pension Trust, Leonard J.
Fassler, Gerald A. Poch and Porridge Partners II purchased an aggregate of
832,758 membership interests in CyberShop, L.L.C. for $1,000,000.
In June 1997, Jeffrey S. Tauber, Jane S. Tauber, Trustees of General
Electric Pension Trust, Gerald A. Poch, Leonard J. Fassler, Big Wave, NV and
Carinton Partnership purchased an aggregate of 864,836 membership intersts in
CyberShop, L.L.C. for $1,550,000.
The 6,697,594 membership interests in CyberShop, L.L.C., representing all
of the outstanding membership interests in CyberShop, L.L.C., were exchanged in
______, 1998 for 5,000,000 shares of Common Stock.
The Board of Directors has adopted a policy, which will be effective
simultaneously with the completion of this Offering, to provide that future
transactions between the Company and its officers, directors and other
affiliates must (i) be approved by a majority of the members of the Board of
Directors and by a majority of the disinterested members of the Board of
Directors, (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties and (iii) be for bona fide business
purposes only.
PRINCIPAL STOCKHOLDERS
The table below sets forth, as of December 10, 1997, certain information
regarding beneficial ownership of Common Stock held by (i) each director and
each of the Named Executives who own shares of Common Stock, (ii) all directors
and executive officers of the Company as a group and (iii) each person known by
the Company to own beneficially more than 5% of the Common Stock. Each
individual or entity named has sole investment and voting power with respect to
shares of Common Stock beneficially owned by them, except where otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES BENEFICIALLY OWNED(1)
BENEFICIALLY ----------------------
OWNED
IMMEDIATELY BEFORE AFTER
BEFORE OFFERING OFFERING OFFERING
----------------- ---------- ---------
<S> <C> <C> <C>
Jeffrey S. Tauber(1) ............................... 3,454,866 69.1% 49.4%
The Jeffrey S. Tauber Grantor Retained Annuity
Trust(2) .......................................... 653,030 13.1 9.3
Jane S. Tauber(3) .................................. 3,454,866 69.1 49.4
The Jane S. Tauber Grantor Retained Annuity Trust(4) 653,030 13.1 9.3
Trustees of General Electric Pension Trust ......... 663,778 13.3 9.5
Michael Kempner .................................... -- -- --
Warren Struhl ...................................... -- -- --
David Wiederecht ................................. -- -- --
All Directors and Executive Officers as a Group (7
Persons)(5): ...................................... 3,603,706 72.0 51.5
</TABLE>
37
<PAGE>
(1) Includes 653,030 shares of Common Stock held in the name of The Jeffrey S.
Tauber Grantor Retained Annuity Trust, with Kevin S. Miller and Jane S.
Tauber as trustees, and 1,727,433 shares of Common Stock held in the name of
Jeffrey S. Tauber's wife, Jane Tauber, including 653,030 shares held in the
name of The Jane S. Tauber Grantor Retained Annuity Trust, with Kevin S.
Miller and Jeffrey S. Tauber as trustees. Jeffrey S. Tauber disclaims
beneficial ownership of all of the shares held in the name of the Jane S.
Tauber Grantor Retained Annuity Trust.
(2) All shares owned by The Jeffrey S. Tauber Grantor Retained Annuity Trust are
included in the beneficial ownership of Jeffrey S. Tauber, as explained
above.
(3) Includes 653,030 shares of Common Stock held in the name of The Jane S.
Tauber Grantor Retained Annuity Trust, with Kevin S. Miller and Jeffrey S.
Tauber as trustees, and 1,727,433 shares of Common Stock held in the name of
Jeffrey S. Tauber, Jane S. Tauber's husband, including 653,030 shares held
in the name of The Jeffrey S. Tauber Grantor Retained Annuity Trust with
Kevin S. Miller and Jane S. Tauber as trustees. Jane S. Tauber disclaims
beneficial ownership of all of the shares held in the name of the Jeffrey S.
Tauber Grantor Retained Annuity Trust.
(4) All shares owned by The Jane S. Tauber Grantor Retained Annuity Trust are
included in the beneficial ownership of Jane S. Tauber, as explained above.
(5) Includes 148,840 shares of Common Stock issuable upon exercise of options,
of which 148,840 are currently exercisable as of December 9, 1997, and none
will become exercisable within 60 days from such date. Does not include
143,056 shares of Common Stock issuable upon exercise of options not
exercisable within 60 days following such date.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, par value $.001 per share, and 5,000,000 shares of Preferred
Stock. Immediately prior to the consummation of this Offering, the Company had
outstanding 5,000,000 shares of Common Stock and no shares of Preferred Stock
outstanding. Immediately prior to the consummation of this Offering, there were
13 holders of record of Common Stock. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
Certificate of Incorporation and By-Laws.
COMMON STOCK
Following this Offering, 7,000,000 shares of Common Stock will be
outstanding. All of the issued and outstanding shares of Common Stock are, and
upon the completion of this Offering the 2,000,000 shares of Common Stock
offered hereby will be, fully paid and non-assessable. Each holder of shares of
Common Stock is entitled to one vote per share on all matters to be voted on by
stockholders generally, including the election of directors. There are no
cumulative voting rights. The holders of Common Stock are entitled to dividends
and other distributions as may be declared from time to time by the Board of
Directors out of funds legally available therefor, if any. See "Dividend
Policy." Upon the liquidation, dissolution or winding up of the Company, the
holders of shares of Common Stock would be entitled to share ratably in the
distribution of all of the Company's assets remaining available for distribution
after satisfaction of all its liabilities and the payment of the liquidation
preference of any outstanding Preferred Stock as described below. The holders of
Common Stock have no preemptive or other subscription rights to purchase shares
of stock of the Company, nor are such holders entitled to the benefits of any
redemption or sinking fund provisions.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to
create and issue one or more series of Preferred Stock and determine the rights
and preferences of each series, to the extent permitted by the Certificate of
Incorporation and applicable law. Among other rights, the Board of Directors may
determine, without the further vote or action by the Company's stockholders, (i)
the number of shares constituting the series and the distinctive designation of
the series; (b) the dividend rate on the shares of the series, whether dividends
will be cumulative, and if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of the series; (iii)
whether the series shall have voting rights, in addition to the voting rights
provided by law and, if so, the terms of such voting rights; (iv) whether the
series shall have conversion privileges, and, if so, the terms and conditions of
such conversion, including provision for adjustment of the conversion rate in
such events as the Board of Directors shall determine; (v) whether or not the
shares of that series shall be redeemable or exchangeable, and, if so, the terms
and conditions of
38
<PAGE>
such redemption or exchange, as the case may be, including the date or dates
upon or after which they shall be redeemable or exchangeable, as the case may
be, and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates; (vi) whether
the series shall have a sinking fund for the redemption or purchase of shares of
that series and, if so, the terms and amount of such sinking fund; and (vii) the
rights of the shares of the series in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Company and the relative rights or
priority, if any, of payment of shares of the series. Except for any difference
so provided by the Board of Directors, the shares of all series of Preferred
Stock will rank on a parity with respect to the payment of dividends and to the
distribution of assets upon liquidation. Although the Company has no present
plans to issue any shares of Preferred Stock following the consummation of this
offering, the issuance of shares of Preferred Stock, or the issuance of rights
to purchase such shares, may have the effect of delaying, deterring or
preventing a change of control of the Company or an unsolicited acquisition
proposal. See "Risk Factors -- Anti-Takeover Provisions."
REGISTRATION RIGHTS
Trustees of General Electric Pension Trust, Leonard J. Fassler, Gerald A.
Poch and Porridge Partners II, the holders of an aggregate of 829,856 shares of
the Common Stock (collectively, the "Registration Rights Holders") have been
granted by the Company certain demand and piggyback registration rights. In
general, a majority in interest of the Registration Rights Holders have the
right at any time on or after six months from the date of the this Prospectus to
cause the Company to register certain holdings of Common Stock (the "Registrable
Securities") under the Securities Act. The Company is obligated to effect only
one such demand registration. The Registration Rights Holders are also entitled,
if the Company decides to file a registration statement covering any of its
securities under the Securities Act (with the exception of an offering pursuant
to a registration statement on Form S-8 or S-4 or an offering of securities
solely to the Company's existing stockholders or a registration statement filed
in connection with an initial public offering by the Company), to receive
written notice of such a proposed filing at least 30 days before the anticipated
filing date and to require the Company to use its reasonable commercial efforts
to include a requested amount of their Registrable Securities in the Company's
registered offering, subject to reduction if the Company or managing underwriter
for the offering determines that the inclusion of such Registrable Securities
would interfere with the successful marketing of the offering. The Company's
obligation to register the Registrable Securities ceases when such securities
have been effectively registered under the Securities Act and have been disposed
of pursuant to an effective registration statement covering such Registrable
Securities, when such securities are distributed to the public pursuant to Rule
144 of the Securities Act, or when such securities may be sold or transferred
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act. The Company is required to bear all registration expenses (other
than underwriting discounts and commissions and fees, and certain fees and
disbursements of counsel of the Registration Rights Holders) and has agreed to
indemnify the Registration Rights Holders against, and provide contribution with
respect to, certain liabilities under the Securities Act in connection with the
registrations.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
The Company is subject to Section 203 of the Delaware GCL. In general,
subject to certain exceptions, Section 203 prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder, unless (i) prior to such date the board of directors of
the corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, (ii) upon the
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85 percent of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding for purposes of determining the number of shares
outstanding those owned by (x) persons who are directors and also officers and
(y) employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer) or (iii) on or subsequent to such date
the business combination is approved by the board of directors and
39
<PAGE>
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3 percent of the outstanding
voting stock which is not owned by the interested stockholder. Section 203
defines a "business combination" to include certain mergers, consolidations,
asset sales and stock issuances and certain other transactions resulting in a
financial benefit to an "interested stockholder." In addition, Section 203
defines an "interested stockholder" to include any entity or person beneficially
owning 15 percent or more of the outstanding voting stock of the corporation and
any entity or person affiliated with such an entity or person.
THE NASDAQ SMALLCAP MARKET LISTING
The Company has applied for listing of the Common Stock on The Nasdaq
SmallCap Market under the trading symbol "CYSP."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following this Offering, there will be 7,000,000 shares of
Common Stock issued and outstanding (assuming the Underwriters' over-allotment
option is not exercised). Of such shares, the 2,000,000 shares of Common Stock
to be sold in this Offering will be immediately eligible for sale in the public
market, except for any of such shares owned at any time by an "affiliate" of the
Company within the meaning of Rule 144 under the Securities Act. The remaining
5,000,000 issued and outstanding shares are "restricted securities" within the
meaning of Rule 144 and may not be publicly resold, except in compliance with
the registration requirements of the Securities Act or pursuant to an exemption
from registration, including that provided by Rule 144.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted securities" for at least one
year, including a person who may be deemed an affiliate of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then-outstanding shares of
Common Stock of the Company, or the average weekly trading volume of Common
Stock on The Nasdaq SmallCap Market during the four calendar weeks preceding the
date on which notice of the sale is filed with the Commission. Sales under Rule
144 are subject to certain restrictions relating to manner of sale, notice and
the availability of current public information about the Company. A person who
is not an "affiliate" of the Company at any time during the 90 days preceding a
sale and who has beneficially owned shares for at least two years would be
entitled to sell such shares immediately following this offering under Rule
144(k) without regard to the volume limitations, manner of sale provisions or
notice or other requirements of Rule 144. In addition, any employee, director or
officer of, or consultant to, the Company who purchased his shares pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701, which permits non-affiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144, and permits affiliates to
sell their Rule 701 shares without having to comply with Rule 144's holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus.
The Company and all of its stockholders and current option holders have
agreed to a "lock-up" arrangement under which such stockholders will not offer,
sell or contract to sell, or otherwise dispose of, or announce an offering of,
any shares of Common Stock, or rights to acquire the same, without the prior
written consent of the Underwriter for a period of a maximum of one year after
the date of this Prospectus. After the "lock-up" period 1,545,134 shares held by
non-affiliates will be saleable pursuant to Rule 144(k) and 3,796,908 shares
will be saleable pursuant to Rule 144 and Rule 701.
Certain stockholders of the Company are entitled to both demand and
piggyback registration rights with respect to 829,856 shares of Common Stock.
After the expiration of the one year period, such holders may choose to exercise
their demand registration rights, which could result in a large number of shares
being sold in the public market. See "Description of Capital Stock
- --Registration Rights."
40
<PAGE>
Upon completion of the Offering, the Company will issue to the Underwriter
the Underwriter's Warrants. The Underwriter's Warrants require that the Common
Stock for which such Underwriter's Warrants are exercisable be registered within
one year from the date of this Prospectus. See "Underwriting."
Prior to the date of this Prospectus, there has been no public market for
the Common Stock. Trading of the Common Stock on The Nasdaq SmallCap Market is
expected to commence on the date of this Prospectus. No prediction can be made
as to the effect, if any, that future sales of shares, or the availability of
shares for future sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the
prevailing market price of the Common Stock. See "Risk Factors -- Shares
Eligible for Future Sale; Registration Rights."
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to C.E.
Unterberg, Towbin (the "Underwriter") and the Underwriter has agreed to purchase
the 2,000,000 shares of Common Stock offered hereby. In the Underwriting
Agreement, the Underwriter has agreed, subject to the terms and conditions set
forth therein, to purchase all 2,000,000 shares of Common Stock offered hereby
if any such shares are purchased.
The Underwriter proposes initially to offer the shares of Common Stock
offered hereby to the public at the public offering price per share set forth on
the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $____ per share. The Underwriter may allow, and such
dealers may reallow, a discount not in excess of $____ per share on sales to
certain other dealers. After the public offering, the offering price, discount
price and reallowance may be changed by the Underwriter.
The Company has granted the Underwriter an option which may be exercised
within 30 days after the date of this Prospectus, to purchase up to an
additional 300,000 shares of Common Stock to cover over-allotments, if any, at
the initial public offering price, less the underwriting discount.
The Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriter may be required to make in respect thereof.
Upon completion of this Offering, the Company will sell to the Underwriter,
for its own account, the Underwriter's Warrants covering an aggregate of up to
200,000 shares of Common Stock exercisable at a price equal to 110% of the
initial public offering price set forth on the cover of this Prospectus. The
Underwriter will pay a price of $0.01 per warrant. The Underwriter's Warrants
may be exercised as to all or any lesser number of shares of Common Stock
commencing ________, 1999 until _________, 2004, and require that the Company
register the Common Stock for which such Underwriter's Warrants are exercisable
within one year from the date of this Prospectus. The Underwriter's Warrants are
not transferable by the warrant holders other than to employees and affiliates
of the Underwriter. The exercise price of the Underwriter's Warrants and the
number of shares of Common Stock for which such Underwriter's Warrants are
exercisable are subject to adjustment to protect the warrant holders against
dilution in certain events.
The Company, and all of its directors, officers, existing stockholders and
option holders have agreed to a "lock-up" arrangement under which they may not
offer, sell, contract to sell, pledge or otherwise dispose of, or file a
registration statement with the Commission in respect of, or establish or
increase a put position within the meaning of Section 16 of the Exchange Act
with respect to any shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for such capital stock, or
publicly announce an intention to effect any such transaction without the prior
written consent of the Underwriter for a period of one year after the date of
this Prospectus, subject to certain exceptions.
In connection with the Offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Exchange Act, pursuant to
41
<PAGE>
which the Underwriter may bid for, or purchase, Common Stock for the purpose of
stabilizing the market price. The Underwriter also may create a short position
by selling more Common Stock in connection with the Offering than it is
committed to purchase from the Company, and in such case may purchase Common
Stock in the open market following completion of this Offering to cover all or a
portion of such short position. In addition, the Underwriter may impose "penalty
bids" whereby it may reclaim from a dealer participating in the offering, the
selling concession with respect to the Common Stock that it distributed in this
Offering, but subsequently purchased for the account of the Underwriter in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
The Underwriter has informed the Company that it does not intend to confirm
sales to any account over which it exercises discretionary authority.
Prior to this Offering, there has been no market for the Common Stock of
the Company. Accordingly, the initial public offering price for the Common Stock
will be determined by negotiation between the Company and the Underwriter. Among
the factors considered in determining the initial public offering price were the
Company's record of operations, the Company's current financial condition, its
future prospects, the state of the markets for its services, the experience of
management, the economics of the industry in general, the general condition of
the equity securities market and the demand for similar securities of companies
considered comparable to the Company.
Robert Matluck, Chief Operating Officer and a Managing Director of the
Underwriter, is expected to be named a director of the Company following the
Offering.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Rubin Baum Levin Constant & Friedman, New York,
New York. Certain legal matters will be passed upon for the Underwriter by
Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994, 1995 and 1996, and the period from inception (December 1, 1994) to
December 31, 1994 and for the years ended December 31, 1995 and 1996, included
in this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered hereby. For the purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and such Common Stock,
reference is hereby made to such Registration Statement, which can be inspected
and copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Regional Offices of the Commission at Seven World Trade Center, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. In addition, the Company is required to file electronic versions of these
documents with the Commission
42
<PAGE>
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a website at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
Statements contained in this Prospectus as to the contents of any contract
or other document to which reference is made are summaries of the material terms
of such contracts or documents, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing updated summary financial information for each of
the first three quarters of each fiscal year.
43
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants .............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited) .......................................................................... F-3
Consolidated Statements of Operations for the Period From Inception (December 1, 1994)
through December 31, 1994, the Years Ended December 31, 1995 and 1996 and the Nine
Months ended September 30, 1996 and 1997 (unaudited) ................................. F-4
Consolidated Statements of Stockholders' Equity for the Period from Inception (December
1, 1994) through December 31, 1994, the Years Ended December 31, 1995 and 1996 and
the Nine Months Ended September 30, 1997 (unaudited) ................................. F-5
Consolidated Statements of Cash Flows for the Period From Inception (December 1, 1994)
through December 31, 1994, the Years Ended December 31, 1995 and 1996 and the Nine
Months Ended September 30, 1996 and 1997 (unaudited) ................................. F-6
Notes to Consolidated Financial Statements ............................................ F-7
</TABLE>
F-1
<PAGE>
The consolidated financial statements included herein have been adjusted to
give effect to the expected contribution of the CyberShop L.L.C. members capital
interest to CyberShop International, Inc. in exchange for the issuance of
5,000,000 shares of $.001 par value common stock as described in Note 6 to the
consolidated financial statements. CyberShop L.L.C. will then be a wholly owned
subsidiary of CyberShop International, Inc. We expect to be in a position to
render the following audit report upon the effectiveness of such events assuming
that from January 31, 1997 to the effective date of such events, no other events
will have occurred that would affect the consolidated financial statements or
notes thereto.
Arthur Andersen LLP
Roseland, New Jersey
January 31, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO CYBERSHOP INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of CyberShop
International, Inc. (a Delaware Corporation) and subsidiary as of December 31,
1995 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the period from inception (December 1,
1994) through December 31, 1994 and the years ending December 31, 1995 and 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CyberShop
International, Inc. and subsidiary as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for the period from inception
(December 1, 1994) through December 31, 1994 and the years ending December 31,
1995 and 1996 in conformity with generally accepted accounting principles.
F-2
<PAGE>
CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, SEPTEMBER 30,
- ---------------------------------------------------------------- ----------------------------- --------------
1995 1996 1997
------------ -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents (Note 2) ............................ $ 110,687 $ 509,727 $ 764,273
Accounts receivable, net of allowance for doubtful accounts
of $10,000 as of December 31, 1995 and 1996 and Septem-
ber 30, 1997, respectively .................................. 138,209 39,260 59,038
--------- ----------- -----------
Total current assets ....................................... 248,896 548,987 823,311
FURNITURE AND EQUIPMENT (Note 2):
Computer equipment ............................................ 62,007 86,896 121,621
Computer software ............................................. 64,500 84,105 150,543
Furniture and fixtures ........................................ 1,672 10,212 13,529
Office equipment .............................................. 0 35,414 37,178
--------- ----------- -----------
128,179 216,627 322,871
Less -- accumulated depreciation and amortization .............. (44,696) (100,313) (183,313)
--------- ----------- -----------
Furniture and equipment, net ............................... 83,483 116,314 139,558
SECURITY DEPOSITS .............................................. 0 4,686 5,140
--------- ----------- -----------
Total assets ............................................... $ 332,379 $ 669,987 $ 968,009
========= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable .............................................. $ 125,564 $ 148,096 $ 79,211
Accrued liabilities ........................................... 486 102,399 475
Current portion of capital lease obligations (Note 4) ......... 0 8,147 10,141
--------- ----------- -----------
Total current liabilities ................................... 126,050 258,642 89,827
LONG-TERM LIABILITIES:
Deferred rent ................................................. 0 899 2,923
Capital lease obligations (Note 4) ............................ 0 12,049 11,190
--------- ----------- -----------
Total long-term liabilities ................................. 0 12,948 14,113
--------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 1):
Members capital interest ....................................... 589,443 1,589,443 0
Preferred stock, $.001 par value, 5,000,000 authorized; 0 shares
issued and outstanding ........................................ 0 0 0
Common stock, $.001, par value, 25,000,000 authorized; 5,000,000
shares issued and outstanding ................................. 0 0 5,000
Additional paid-in capital ..................................... 0 0 859,069
Accumulated deficit ............................................ (383,114) (1,191,046) 0
--------- ----------- -----------
Total stockholders' equity .................................. 206,329 398,397 864,069
--------- ----------- -----------
Total liabilities and stockholders' equity .................. $ 332,379 $ 669,987 $ 968,009
========== ============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-3
<PAGE>
CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 1,
1994) THROUGH NINE MONTHS ENDED
DECEMBER 31, YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------- ------------------------------ -------------------------------
1994 1995 1996 1996 1997
--------------- ------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES (Note 2):
Net sales .......................... $ 0 $ 18,670 $ 272,560 $ 57,245 $ 496,150
Manufacturer set up fees ........... 0 417,365 74,325 68,325 82,435
Other revenues ..................... 0 8,800 8,500 8,500 509
-------- --------- --------- --------- -----------
Total revenues ................... 0 444,835 355,385 134,070 579,094
COST OF REVENUES .................... 0 13,769 155,274 30,680 355,602
-------- --------- --------- --------- -----------
Gross profit ..................... 0 431,066 200,111 103,390 223,492
SELLING, GENERAL AND AD-
MINISTRATIVE EXPENSES ........... 47,543 772,744 1,011,257 419,714 1,323,115
-------- --------- --------- --------- -----------
Loss from operations ............... (47,543) (341,678) (811,146) (316,324) (1,099,623)
OTHER INCOME ........................ 85 6,022 3,214 727 15,295
-------- --------- --------- --------- -----------
Net loss ........................... ($ 47,458) ($ 335,656) ($ 807,932) ($ 315,597) ($ 1,084,328)
======== ========= ========= ========= ===========
PRO FORMA NET LOSS DATA (unaudited) (Notes 1, 2 and 5):
Net loss ........................... ($ 47,458) ($ 335,656) ($ 807,932) ($ 315,597) ($ 1,084,328)
Pro forma income tax benefit ....... (18,983) (134,262) (323,173) (126,239) (433,731)
-------- --------- --------- --------- -----------
Pro forma net loss ................. ($ 28,475) ($ 201,394) ($ 484,759) ($ 189,358) ($ 650,597)
======== ========= ========= ========= ===========
</TABLE>
<TABLE>
<S> <C> <C>
PRO FORMA NET LOSS
PER COMMON SHARE (unaudited) (Note 2) ........ ($ .10) ($ .12)
========== ==========
PRO FORMA WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING (Note 2) ........... 4,755,308 5,257,683
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-4
<PAGE>
CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MEMBERS ADDITIONAL
COMMON CAPITAL PAID-IN ACCUMULATED
STOCK INTEREST CAPITAL DEFICIT
-------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
BALANCE AS OF INCEPTION (DECEMBER 1, 1994) ................... $ 0 $ 0 $ 0 $ 0
Issuance of members capital interest ........................ 0 200,000 0 0
Net loss .................................................... 0 0 0 (47,458)
------ ------------ --------- ------------
BALANCE AS OF DECEMBER 31, 1994 .............................. 0 200,000 0 (47,458)
Issuance of members capital interest ........................ 0 389,443 0 0
Net loss .................................................... 0 0 0 (335,656)
------ ------------ --------- ------------
BALANCE AS OF DECEMBER 31, 1995 .............................. 0 589,443 0 (383,114)
Issuance of members capital interest ........................ 0 1,000,000 0 0
Net loss .................................................... 0 0 0 (807,932)
------ ------------ --------- ------------
BALANCE AS OF DECEMBER 31, 1996 .............................. 0 1,589,443 0 (1,191,046)
Issuance of members capital interest ........................ 0 1,550,000 0 0
Net loss .................................................... 0 0 0 (1,084,328)
Contribution of members capital interest in exchange for the
issuance of 5,000,000 shares of common stock (Note 6) ..... 5,000 (3,139,443) 859,069 2,275,374
------ ------------ --------- ------------
BALANCE AS OF SEPTEMBER 30, 1997 (unaudited) ................. $5,000 $ 0 $859,069 $ 0
====== ============ ========= ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-5
<PAGE>
CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 1,
1994) THROUGH
DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------- -----------------------------
1994 1995 1996
--------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. ($ 47,458) ($ 335,656) ($ 807,932)
Adjustments to reconcile net loss to net cash used in
operating activities- ..............................
Depreciation ....................................... 2,193 42,503 55,617
Changes in assets and liabilities- ..................
(Increase) decrease in accounts receivable, net .... 0 (138,209) 98,949
Increase in other assets ........................... 0 0 (4,686)
Increase (decrease) in accounts payable ............ 3,407 122,157 22,532
Increase (decrease) in accrued liabilities ......... 0 486 101,913
Increase (decrease) in due to officer .............. 38,815 (38,815) 0
Increase in deferred rent .......................... 0 0 899
-------- --------- ---------
Net cash used in operating activities ............ (3,043) (347,534) (532,708)
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchases of furniture and equipment ................. (39,480) (88,699) (67,812)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of members capital in-
terest .............................................. 200,000 389,443 1,000,000
Proceeds from officer loan ........................... 0 0 150,000
Repayment of officer loan ............................ 0 0 (150,000)
Payments of capital lease obligations ............... 0 0 (440)
-------- --------- ---------
Net cash provided by financing activities ........ 200,000 389,443 999,560
-------- --------- ---------
Net increase (decrease) in cash .................. 157,477 (46,790) 399,040
CASH AND CASH EQUIVALENTS, beginning of
period ............................................... 0 157,477 110,687
-------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period .............. $157,477 $ 110,687 $ 509,727
======== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest .............................. $ 0 $ 0 $ 1,220
======== ========= =========
Assets acquired under capital lease obligations ...... $ 0 $ 0 $ 20,636
======== ========= =========
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1997
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. ($ 315,597) ($ 1,084,328)
Adjustments to reconcile net loss to net cash used in
operating activities- ...............................
Depreciation ........................................ 41,713 83,000
Changes in assets and liabilities- ..................
(Increase) decrease in accounts receivable, net .... 107,733 (19,778)
Increase in other assets ........................... (3,200) (454)
Increase (decrease) in accounts payable ............ (44,447) (68,885)
Increase (decrease) in accrued liabilities ......... (2) (101,924)
Increase (decrease) in due to officer .............. 0 0
Increase in deferred rent .......................... 0 2,024
--------- -----------
Net cash used in operating activities ............ (213,800) (1,190,345)
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchases of furniture and equipment ................. (30,093) (99,931)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of members capital in-
terest 0 1,550,000
Proceeds from officer loan ........................... 150,000 0
Repayment of officer loan ........................... 0 0
Payments of capital lease obligations ................ 0 (5,178)
----------- ------------
Net cash provided by financing activities ........ 150,000 1,544,882
----------- ------------
Net increase (decrease) in cash .................. (93,893) 254,546
CASH AND CASH EQUIVALENTS, beginning of
period ............................................... 110,687 509,727
----------- ------------
CASH AND CASH EQUIVALENTS, end of period .............. $ 16,794 $ 764,273
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest .............................. $ 0 $ 3,937
=========== ============
Assets acquired under capital lease obligations ...... $ 0 $ 6,313
=========== ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-6
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE BUSINESS:
CYBERSHOP L.L.C. WAS ORGANIZED UNDER THE LAWS OF THE STATE OF NEW JERSEY
AS AN L.L.C. IN DECEMBER 1994 and is a wholly owned subsidiary of CyberShop
International, Inc. ("the Company") (see Note 6).
The Company is an online retailer that offers more than 40,000 brand name
products from over 400 manufacturers to customers from the Company's web site on
the World Wide Web (the "Web") and from its store that resides on America Online
("AOL").
The accompanying unaudited consolidated financial statements as of
September 30, 1997 and for the nine months ended September 30, 1997 and 1996
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and note
disclosures normally included in financial statements prepared in conformity
with generally accepted accounting principles have been condensed or omitted. In
the opinion of the Company, all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and changes in cash flows for the periods presented have
been made.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of Financial Statements-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation-
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Revenue Recognition-
The Company has entered into contracts with certain vendors whereby the
Company will be paid a "set up" fee for each vendor product offered by the
Company. The Company recognizes the set up fee revenue when the vendors'
products are offered on the Company's web site. The Company recognizes revenue
on product sales when the goods are shipped from the vendor.
Cash and Cash Equivalents-
The Company considers all short-term marketable equity securities with a
maturity of three months or less to be cash equivalents.
Furniture and Equipment-
Furniture and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the assets' estimated useful lives.
Income Taxes-
The stockholders of CyberShop L.L.C. had elected to be treated as a
partnership for both Federal and state income tax purposes for all periods
through September 30, 1997. The net loss for those periods will be included in
the individual income tax returns of the stockholders (see Note 6).
F-7
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - (CONTINUED)
The Company uses the asset and liability method to calculate deferred tax
assets and liabilities. Deferred taxes are recognized on the differences between
the financial reporting and income tax basis of assets and liabilities using
enacted tax rates.
Long-Lived Assets-
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets" ("SFAS 121"). SFAS 121 requires, among other things, that an entity
review its long-lived assets and certain related intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be fully recoverable. As a result of its review, the Company
does not believe that any impairment currently exists related to its long-lived
assets.
Stock Based Compensation-
The Financial Accounting Standards Board has issued a new standard,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that
an entity account for employee stock compensation under a fair value based
method. However, SFAS 123 also allows an entity to continue to measure
compensation cost for employee stock-based compensation using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("Opinion 25"). Entities electing to remain with
the accounting under Opinion 25 are required to make pro forma disclosures of
net income and earnings per share as if the fair value based method of
accounting under SFAS 123 had been applied. The Company will continue to account
for employee stock-based compensation under Opinion 25 and will make the pro
forma disclosures required under SFAS 123.
Pro Forma Net Loss Per Common Share-
Pro forma net loss per common share has been computed by dividing pro forma
net loss by the pro forma number of common shares outstanding. As required by
the Securities and Exchange Commission rules, all warrants, options and shares
issued within one year of the public offering at less than the public offering
price are assumed to be outstanding for each period presented for purposes of
the per share calculation.
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") which becomes effective for the period ending December 31, 1997,
establishes new standards for computing and presenting earnings per share (EPS).
The new standard requires the presentation of basic EPS and diluted EPS. Basic
EPS is calculated by dividing income available to common shareholders by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS is calculated by dividing income available to common shareholders by
the weighted average number of common shares outstanding adjusted to reflect
potentially dilutive securities. Previously reported EPS amounts must be
restated under the new standard when it becomes effective. Pro forma basic EPS
for the year ending December 31, 1996 and for the nine months ending September
30, 1997 would have been ($.11) and ($.13), respectively. Pro forma diluted EPS
for the year ending December 31, 1996 and the nine months ending September 30,
1997 would have been ($.10) and ($.12), respectively.
F-8
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
(3) LEASE COMMITMENTS:
Capital Leases-
Included in furniture and equipment is certain office equipment under
capital leases which expire through December 1999. Future minimum lease payments
as of December 31, 1996 are as follows-
<TABLE>
<S> <C>
1997 ................................................. $ 8,147
1998 ................................................. 8,914
1999 ................................................. 8,727
--------
Total minimum lease payments ......................... 25,788
Less- Amount representing interest ................... (5,592)
--------
Present value of future minimum lease payments ....... 20,196
Less- Current portion ................................ 8,147
--------
Long-term portion of capital lease obligations ....... $ 12,049
========
</TABLE>
Operating Leases-
In September 1996, the Company began leasing its main office space in New
York under a 10 year operating lease that expires in August 2006. The following
are the minimum lease payments for the office as of December 31, 1996.
<TABLE>
<S> <C>
1997 ................................................. $32,400
1998 ................................................. 32,832
1999 ................................................. 33,696
2000 ................................................. 34,144
2001 ................................................. 35,040
Thereafter ........................................... 172,068
</TABLE>
Rent expense for the period from inception (December 1, 1994) through
December 31, 1994, the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1996 and 1997 amounted to $0, $0, $13,533, $2,700 and
$26,324, respectively.
(4) INCOME TAXES:
As described in Note 2, CyberShop L.L.C. previously elected limited
liability company status under the provisions of the Internal Revenue Code (see
Note 6).
The following unaudited pro forma information has been determined based
upon the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). This information reflects income tax
expense that the Company would have incurred had it operated as a C Corporation
for Federal and state income taxes from its inception, without contemplating any
applicable tax laws related to the utilization of net operating losses.
Temporary differences have been deemed immaterial.
F-9
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) INCOME TAXES: - (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION NINE MONTHS ENDED
(DECEMBER 1, 1994) YEARS ENDED DECEMBER 31, SEPTEMBER 30,
THROUGH ----------------------------- ---------------------------
DECEMBER 31, 1994 1995 1996 1996 1997
---------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Federal tax benefit at statutory rate ....... ($ 16,136) ($ 114,123) ($ 274,697) ($ 107,303) ($ 368,672)
State income benefit net of Federal
benefit .................................... (2,847) (20,139) (48,476) (18,936) (65,059)
-------- --------- --------- ---------- ---------
($ 18,983) ($ 134,262) ($ 323,173) ($ 126,239) ($ 433,731)
======== ========= ========= ========= =========
</TABLE>
(5) STOCK OPTIONS:
A summary of nonqualified stock options outstanding at December 31, 1996
and September 30, 1997 and the changes during the year and nine months then
ended, respectively, is presented in the table below-
<TABLE>
<CAPTION>
EXERCISE
OPTIONS PRICE
--------- ------------
<S> <C> <C>
Outstanding at January 1, 1996 .......... 0 $ 0
Granted ................................. 134,303 1.00
Exercised ............................... 0 0
Forfeited ............................... 0 0
------- -------
Outstanding at December 31, 1996 ........ 134,303 1.00
Granted ................................. 207,739 1.79
Exercised ............................... 0 0
Forfeited ............................... 0 0
------- -------
Outstanding at September 30, 1997 ....... 342,042 $ 1.00-
======= =======
$ 1.79
=======
Exercisable at September 30, 1997 ....... 128,404 $ 1.00-
======= =========
$ 1.79
=======
</TABLE>
The above options vest ratably over a two year period and expire five years
from the date of grant.
Effective January 1, 1996, the Company adopted the provisions of SFAS 123
"Accounting for Stock-Based Compensation." As permitted by the statement, the
Company has elected to continue to account for stock-based compensation using
the intrinsic value method. Accordingly, no compensation cost has been
recognized for stock options granted at or above market value. Had the fair
value method of accounting been applied to the Company's stock option grants,
which requires recognition of compensation cost ratably over the vesting period
of the underlying equity instruments, the net loss would have been increased by
$2,304, $1,611 and $3,230 for the year ended December 31, 1996 and the nine
months ended September 30, 1996 and 1997, respectively. There would have been no
effect on the pro forma net loss per common share for each of these periods.
This pro forma impact takes into account options granted since January 1, 1996
and is likely to increase in future years as additional options are granted and
amortized ratably over the vesting period. The average fair value of options
granted during the year ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997 was $.11, $.12 and $.21, respectively. The fair
value was estimated using the Black-Scholes option pricing model based on the
weighted average market price of $1.00 in 1996 and $1.79 in 1997 and the
following weighted average assumptions: risk free interest rate of 6.5% and no
volatility. There were no options granted for any periods prior to the year
ended December 31, 1996.
F-10
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
(6) SUBSEQUENT EVENT (UNAUDITED):
Contributions of Members Capital Interest-
In October, 1997, the Company was incorporated in the State of Delaware.
Prior to the Offering, the members of CyberShop, L.L.C. will contribute their
membership interests in exchange for 5,000,000 shares of Common Stock of the
Company. As a result, the Company is subject to Federal and state corporate tax
rates as a C Corporation.
Stock Option Plans-
The Company intends to adopt the 1997 Stock Option Plan ("the 1997 Option
Plan"). Under the 1997 Option Plan, stock options may be granted to directors,
executives, other key employees and consultants of the Company and its
subsidiary. The maximum number of shares of Common Stock reserved for issuance
under the 1997 Option Plan is 1,000,000 shares. No options have been granted
under the 1997 Option Plan.
The Company intends to adopt the 1997 Directors' Stock Option Plan ("the
Directors' Plan"). Pursuant to the Directors' Plan, each member of the Board of
Directors who is not an employee of the Company who is elected or continues as a
member of the board of Directors is entitled to receive annually options to
purchase 3,000 shares of Common Stock at an exercise price equal to fair market
value on the date of the grant.
Marketing Agreements-
The Company entered into a marketing agreement with AOL pursuant to which
AOL will market the products offered by the Company. Under the terms of such
agreement, the Company will pay a total of approximately $500,000 during 1998.
Public Offering-
The Company is undertaking a public offering of 2,000,000 shares of Common
Stock. The authorized stock of the Company is 25,000,000 shares of $.001 par
value common stock and 5,000,000 shares of $.001 par value preferred stock.
F-11
<PAGE>
[DESCRIPTION OF CYBERSHOP PRODUCT PAGE
The Product display page presents users with a large size, full color photograph
of the product for sale and a text description of the items offered. Users are
able to add items to their shopping bag for purchase in one final transaction.
The presentation also may include direct links to some or all of the following:
glossary of terms, features and benefits, related products, and additional
information about the product(s).]
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
=========================================================== ====================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER 2,000,000 SHARES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED [GRAPHIC OMITTED]
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CYBERSHOP INTERNATIONAL, INC.
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
COMMON STOCK
---------------
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary .............................. 3
Risk Factors .................................... 6 ----------------
Use of Proceeds ................................. 14 PROSPECTUS
Dividend Policy ................................. 14 ----------------
Dilution ........................................ 15
Capitalization .................................. 16
Selected Financial Data ......................... 17
Management's Discussion and Analysis of Fi-
nancial Condition and Results of Opera-
tions ........................................ 18 C.E. UNTERBERG, TOWBIN
Business ........................................ 21
Management ...................................... 32
Certain Transactions ............................ 37 , 1998
Principal Stockholders .......................... 37
Description of Capital Stock .................... 38
Shares Eligible for Future Sale ................. 40
Underwriting .................................... 41
Legal Matters ................................... 42
Experts ......................................... 42
Additional Information .......................... 42
Index to Consolidated Financial Statements ...... F-1
---------------
UNTIL , 1998, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
=========================================================== ====================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Common Stock offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee ................ $ 5,428
Nasdaq SmallCap Market listing fee ........................... $ *
NASD filing fee .............................................. $ 2,340
Blue Sky fees and expenses (including attorneys' fees) ....... $22,000
Accounting fees and expenses ................................. $ *
Legal fees and expenses ...................................... $ *
Printing and engraving expenses .............................. $ *
Transfer agent and registrar fees ............................ $ *
Miscellaneous ................................................ $ *
-------
Total ........................................................ $ *
=======
</TABLE>
- ----------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Certificate of Incorporation of the Registrant provides for, and
the By-Laws of the Registrant require, indemnification of directors, officers,
employees and agents to the full extent permitted by law.
(b) Pursuant to the provisions of Section 145 of the Delaware GCL, every
Delaware corporation has the power to indemnify any person who was or is or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his or her conduct was
unlawful.
The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense or settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should apply. Such indemnification is not exclusive of any other
rights to which those indemnified may be entitled under any by-laws, agreement,
vote of stockholders or otherwise.
(c) Section 102(b)(7) of the Delaware GCL currently provides that a
director's liability for breach of fiduciary duty to a corporation may be
eliminated except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or
II-1
<PAGE>
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware GCL, for unlawful dividends or unlawful stock
repurchases or redemptions, and (iv) for any transaction from which the director
derives an improper personal benefit.
(d) See the Underwriting Agreement (the form of which is included as
Exhibit 1.1 to this Registration Statement) for provisions regarding the
indemnification under certain circumstances of the Registrant, its directors and
certain of its officers by the Underwriter.
(e) See the Form of Indemnification Agreement (to be entered into
simultaneously with the completion of this offering between the Registrant and
each of its directors and officers and which is included as Exhibit 10.4 to this
Registration Statement) for provisions regarding the indemnification under
certain circumstances of the directors and executive officers of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The securities issued in the transactions described below were offered and
sold in reliance upon the exemption from registration under Section 4(2) of the
Securities Act, relating to transactions by an issuer not involving any public
offering. The factors that assured the availability of the exemption provided by
Section 4(2) of the Securities Act included the sophistication of the offerees
and the purchasers, their access to material information, the disclosures
actually made to them by the Company and the absence of any general solicitation
or advertising.
In November 1994, CyberShop, L.L.C. issued 2,850,508 membership interests
to a class of two accredited investors for the aggregate offering price of
$200,000.
In January 1995, CyberShop, L.L.C. issued 1,749,492 membership interests to
a class of two accredited investors for the aggregate offering price of
$139,442.
In February 1995, CyberShop, L.L.C. issued 300,000 membership interests to
one accredited investor for the aggregate offering price of $150,000.
In December 1995, CyberShop, L.L.C. issued 100,000 membership interests to
one accredited investor for the aggregate offering price of $100,000.
In October 1996, CyberShop, L.L.C. issued 832,758 membership interests to a
class of four accredited investors for the aggregate offering price of
$1,000,000.
In June 1997, CyberShop, L.L.C. issued 864,836 membership interests to a
class of seven accredited investors for the aggregate offering price of
$1,550,000.
Pursuant to the Contribution, the 6,697,594 membership interests in
CyberShop, L.L.C. were exchanged in , 1998 for 5,000,000 shares of Common
Stock. The Company relied upon the exemption from registration under Section
3(a)(9) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
4.1 Specimen of Certificate for Common Stock.*
5.1 Opinion of Rubin Baum Levin Constant & Friedman.*
10.1 Third Amended and Restated Operating Agreement of CyberShop, L.L.C. effective as
of October 10, 1997.
10.2 Lease Agreement dated August 19, 1996 between the Company and Andim LTD., c/o
RVP Management Corp.*
10.3 Contribution Agreement between the Company and the members of CyberShop,
L.L.C.*
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.4 Form of Officer and Director Indemnification Agreement.*
10.5 1997 Stock Option Plan of the Company.*
10.6 1997 Directors' Stock Option Plan.*
10.7 Registration Rights Agreement dated as of October 18, 1996, amended
as of June 3, 1997, among the Company, Trustees of General Electric
Pension Trust, Leonard J.
Fassler, Gerald A. Poch and Porridge Partners II.
10.8 Interactive Marketing Agreement dated as of July 30, 1996 between the Company and
America Online, Inc.*
10.9 Warrant Agreement dated as of , 1998 between the Company and C.E. Unterberg,
Towbin.*
10.10 Form of Warrant Certificate of the Company.*
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.3 Consent of Rubin Baum Levin Constant & Friedman (contained in Exhibit 5.1).*
24.1 Power of Attorney (contained on the signature page to the Registration Statement).
27.1 Financial Data Schedule.
99.1 Consent of Robert Matluck.
</TABLE>
- ----------
* To be filed by amendment.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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 fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York, on December 19,
1997.
CYBERSHOP INTERNATIONAL, INC.
By: /s/ Jeffrey S. Tauber
------------------------------------
Jeffrey S. Tauber, Chairman of the
Board, Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes appoints Jeffrey S. Tauber his true and
lawful attorney-in-fact and agent, acting alone, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and any registration statement relating to the
same offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and all
documents relating thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, acting alone, full
power and authority to do and perform each and every act and thing necessary or
advisable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 19th day of December, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------- ----------------------------------------- ------------------
<S> <C> <C>
/s/ Jeffrey S. Tauber Chairman of the Board, Chief Executive December 19, 1997
- ---------------------------- Officer and Director (Principal
Jeffrey S. Tauber Executive Officer, Principal Accounting
Officer and Principal Financial Officer)
/s/ Michael Kempner Director December 19, 1997
- ---------------------------
Michael Kempner
/s/ Warren Struhl Director December 19, 1997
- ---------------------------
Warren Struhl
/s/ David Wiederecht Director December 19, 1997
- ----------------------------
David Wiederecht
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CyberShop International, Inc.:
We have audited in accordance with generally accepted auditing standards,
the 1994, 1995 and 1996 consolidated financial statements of CyberShop
International, Inc. and subsidiary included on pages F-3 and F-11 of this
registration statement and have issued our report thereon dated January 31. Our
audit was made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The schedule listed in Item 16(b) of this
registration statement is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements as of
December 31, 1994, 1995 and 1996 and for the period from inception (December 1,
1994) through December 31, 1994 and the years ending December 31, 1995 and 1996
and in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
Arthur Andersen LLP
Roseland, New Jersey
January 31, 1997
II-5
<PAGE>
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
OF YEAR EXPENSES DEDUCTIONS END OF YEAR
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
For the period from inception (December 1,
1994) through December 31, 1994 ............ $ 0 0 0 0
For the year ending December 31, 1995 ....... 0 10,000 0 10,000
For the year ending December 31, 1996 ....... 10,000 32,725 (32,725) 10,000
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- --------- ----------- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
4.1 Specimen of Certificate for Common Stock.*
5.1 Opinion of Rubin Baum Levin Constant & Friedman.*
10.1 Third Amended and Restated Operating Agreement of CyberShop, L.L.C. effec-
tive as of October 10, 1997.
10.2 Lease Agreement dated August 19, 1996 between the Company and Andim LTD.,
c/o RVP Management Corp.*
10.3 Contribution Agreement between the Company and the members of CyberShop,
L.L.C.*
10.4 Form of Officer and Director Indemnification Agreement.*
10.5 1997 Stock Option Plan of the Company.*
10.6 1997 Directors' Stock Option Plan.*
10.7 Registration Rights Agreement dated as of October 18, 1996, amended
as of June 3, 1997, among the Company, Trustees of General Electric
Pension Trust, Leonard J. Fassler, Gerald A. Poch and Porridge
Partners II.
10.8 Interactive Marketing Agreement dated as of July 30, 1996 between the Company
and America Online, Inc.*
10.9 Warrant Agreement dated as of , 1998 between the Company and C.E.
Unterberg, Towbin.*
10.10 Form of Warrant Certificate of the Company.*
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.3 Consent of Rubin Baum Levin Constant & Friedman (contained in Exhibit 5.1).*
24.1 Power of Attorney (contained on the signature page to the Registration Statement).
27.1 Financial Data Schedule.
99.1 Consent of Robert Matluck.
</TABLE>
- ----------
* To be filed by amendment.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
CERTIFICATE OF INCORPORATION
OF
CYBERSHOP INTERNATIONAL, INC.
A Delaware corporation
FIRST: The name of the Corporation is CyberShop International
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 15 East North Street, City of Dover, County of Kent. The
name of its registered agent at such address is United Corporate Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: (a) The total number of shares of capital stock which may be
issued by the Corporation is thirty million (30,000,000) shares, twenty-five
million (25,000,000) of which shall be Common Stock, having a par value of $.001
and (5,000,000) of which shall be Preferred Stock, having a par value of $.001.
(b) The designations and the powers, preferences and right,
and the qualifications, limitations or restrictions of the shares of each class
of the Corporation are as follows:
1. Dividends May be paid upon the Common Stock as and when
declared by the Board of Directors out of any funds legally available therefor.
2. Upon any liquidation, dissolution or winding up of the
Corporation, the holders of the Common Stock shall be entitled to receive any or
all assets of the Corporation remaining to be paid or distributed.
3. Except as otherwise provided by statute provision of
this Certificate, all rights to vote and all voting power shall be exclusively
vested in the Common Stock and the holders thereof shall be entitled to one vote
for each share of Common Stock for the election of directors and upon all other
matters.
4. The Corporation shall be entitled to treat the person
in whose name any share, right or option is registered as the owner thereof, for
<PAGE>
all purposes, and shall not be bound to recognize any equitable or other claim
to or interest in such share, right or option on the part of any other person,
whether or not the Corporation shall have notice thereof, save as may be
expressly provided by laws of the State of Delaware.
FIFTH The name and mailing address of the sole incorporator is as
follows:
NAME MAILING ADDRESS
Carolyn Cornell 30 Rockfeller Plaza, 29th Floor
New York, New York 10112
SIXTH: (a) The number of directors of the Corporation which shall
constitute the whole Board of Directors of the Corporation shall be such as from
time to time may be fixed by or in the manner provided in the By-laws, but in no
case shall the number of directors be less than one. Except as may otherwise be
required by law, vacancies in the Board of Directors of the Corporation and
newly created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors than in office, though
less than a quorum, or by a sole remaining director.
(b) All corporate powers of the Corporation shall be exercised
by the Board of Directors except as otherwise provided herein in law. In
furtherance of the powers conferred by statute and by law, the Board of
Directors shall have the power to adopt, alter, amend, repeal the By-laws of the
Corporation without any action on the part of the Corporation's stockholders.
SEVENTH: (a) A director of the Corporation shall not be personally
liable to the Corporation of stockholders for monetary damages for breaches of
fudiciary duty as a director, except for liability (i) for any breach of the
directors's duty of which to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith 174 of the General Corporation law of the State
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit; it being the intention of the foregoing provision to
eliminate the liability of the Corporation's directors to the fullest extent
permitted by Section 102(b)(7) of the General Corporation Law of the State of
Delaware, as amended from time to time.
(b) Any repeal or modification of the foregoing subparagraph
(a) by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
- 2 -
<PAGE>
(c) If the General Corporation Law of the State of is amended
after approval by the stockholders of this paragraph SEVENTH to authorize
corporate action further eliminating or limiting the personal liability then a
director of the Corporation, in addition to the circumstances in which he is now
personally liable, shall be free of liability to the fullest extent permitted by
the General Corporation Law of the, State of Delaware as so amended.
(d) Each director, officer, employee and agent, past or
present, of the Corporation, and each person who serves or may have served at
the request of the Corporation as a director, trustee, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, and their respective heirs, administrators and executors, shall be
indemnified by the Corporation in accordance with, and to the fullest extent
permitted by, the provisions of the General Corporation Law of the State of
Delaware as it may from time to time be amended. The provisions of this
subparagraph (d) shall apply to any member of any committee appointed by the
Board of Directors as fully as though such person shall have been an officer or
director of the Corporation.
(e) The provisions of this paragraph SEVENTH shall be in
addition to and not in limitation of any other rights, indemnities, or
limitations of liability to which any director or officer may be entitled, as a
matter of law or under the By-laws of the Corporation or any agreement, vote of
stockholders or
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholder's or any class of them, any court of equitable
jurisdiction within Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be in such manner as
the said court directs. If a summoned in such manner as the said court directs.
If a majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the or stockholders or class of stockholders of
this Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and to any reorganization shall,
if sanctioned by the court to which the said application has been made, be
binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
- 3 -
<PAGE>
NINTH: Elections of directors need not be by written ballot unless the
By-laws of the Corporation so provide.
IN WITNESS WHEREOF, the undersigned hereby executed this instrument and
affirms, under penalties of perjury, that this instrument is the act and deed of
the undersigned and that the facts stated herein are true, this 29th day of
October 1997.
/s/ Carolyn Cornell
----------------------
Carolyn Cornell
Sole Incorporator
BY-LAWS
OF
CYBERSHOP INTERNATIONAL, INC.
A Delaware corporation
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the
Corporation within the State of Delaware shall be located at United Corporate
Services, Inc., 15 East North Street, in the City of Dover, County of Kent.
SECTION 2. Other Offices. The Corporation may also have an
office or offices other than said registered office at such place or places,
either within or without the State of Delaware, as the Board of Directors shall
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at any such
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of meeting
or in a duly executed waiver thereof.
SECTION 2. Annual Meeting. The annual meeting of stockholders
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of meeting or in a duly executed
waiver thereof. At such annual meeting, the stockholders shall elect, by a
plurality vote, a Board of Directors and shall transact such other business as
may properly be brought before the meeting.
SECTION 3. Special Meetings. Special meetings of stockholders,
unless otherwise prescribed by statute, may be called at any time by the Board
of Directors or by the Chairman of the Board, if one shall have been elected.
SECTION 4. Notice of Meetings. Except as otherwise expressly
required by statute, written notice of each annual and special meeting of
stockholders stating the place, date and hour of the meeting, and, in the case
of a special meeting, the purpose or purposes for which such
<PAGE>
meeting is called, shall be given to each stockholder of record entitled to vote
thereat not fewer than ten (10) nor more than sixty (60) days before the date of
the meeting. Business transacted at any special meeting of stockholders shall be
limited to the purpose or purposes stated in the notice. Notice shall be given
personally or by mail and, if by mail, shall be sent in a postage prepaid
envelope, addressed to each stockholder at such stockholder's address as it
appears on the records of the Corporation. Notice by mail shall be deemed given
at the time when the same shall be deposited in the United States mail, postage
prepaid. Notice of any meeting shall not be required to be given to any person
who attends such meeting, except when such person attends the meeting in person
or by proxy for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, or who, either before or after the meeting, shall submit a
signed written waiver of notice, in person or by proxy. Neither the business to
be transacted at, nor the purpose of, an annual or special meeting of
stockholders need be specified in any written waiver of notice.
SECTION 5. List of Stockholders. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten (10)
days before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not specified, at the place where the meeting is to be held. The list
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 6. Quorum, Adjournments. The holders of a majority of
the capital stock issued and outstanding and entitled to vote thereat, present
in person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, until a quorum
shall be present or represented. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which adjournment is taken. At any such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 7. Organization. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, or, in his or her absence
or if one shall not have been elected, the President, shall act as chairman of
the meeting. The Secretary or, in his or her absence or inability to act, the
person whom the chairman of the meeting shall appoint secretary of the meeting,
shall act as secretary of the meeting and keep the minutes thereof.
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SECTION 8. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
SECTION 9. Voting. Except as otherwise provided by statute, by
the Certificate of Incorporation or by any agreement to the contrary between the
Corporation and all its stockholders, each stockholder of the Corporation having
the right to vote shall be entitled to one vote in person or by proxy for each
share of the capital stock having voting power held by such stockholder. When a
quorum is present at any meeting, directors shall be elected by a plurality of
the votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. In all matters other than the
election of directors, the affirmative vote of the majority of shares present in
person or represented by proxy and entitled to vote on the subject matter shall
be the act of the stockholders except where the General Corporation Law of the
State of Delaware, the Corporation's Certificate of Incorporation or any
agreement between the Corporation and all its stockholders prescribes a
different percentage of votes and/or a different exercise of voting power. In
the election of directors, voting need not be by written ballot. Unless required
by statute, or determined by the chairman of the meeting to be advisable, the
vote on any question need not be by written ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his or her proxy, if
there be such proxy, and shall state the number of shares voted.
Section 10. Proxy Representation. Each stockholder entitled to
vote at any meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another person or
persons to act for him by a proxy signed by such stockholder or his or her
attorney-in-fact, but no proxy shall be voted after three (3) years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
the order of business for so delivering such proxies.
SECTION 11. Inspectors. The Board of Directors shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof and make a written report thereof. The
Board of Directors may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall: ascertain the
number of shares outstanding and the voting power of each; determine the shares
represented at a meeting and the validity of proxies and ballots; count all
votes and ballots; determine and retain for a reasonable period of time a record
of the disposition of any challenges made to any determination by the
inspectors; and certify their determination of the number of shares represented
at the meeting, and their count of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of inspectors. On request of the person presiding at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
an inspector of an election of directors. Inspectors need not be stockholders.
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SECTION 12. Action by Consent. Whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or in
connection with any corporate action, by any provision of statute or any
provision of the Certificate of Incorporation or of these By-laws, the meeting
and vote of stockholders may be dispensed with, and the action taken without
such meeting and vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares of stock of the Corporation entitled to
vote thereon were present and voted, and shall be delivered to the Corporation
by delivery to its registered office in the State of Delaware, its principal
place of business or to an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Certificate of Incorporation directed or required to be exercised or done by
the stockholders.
SECTION 2. Number, Qualifications, Election and Term of
Office. The number of directors constituting the initial Board of Directors
shall be as determined in the resolutions of the Incorporator of the Corporation
electing the initial Board of Directors. Thereafter, the number of directors may
be fixed, from time to time, by the affirmative vote of a majority of the entire
Board of Directors or by action of the stockholders of the Corporation. Any
decrease in the number of directors shall be effective at the time of the next
succeeding annual meeting of stockholders unless there shall be vacancies in the
Board of Directors, in which case such decrease may become effective at any time
prior to the next succeeding annual meeting to the extent of the number of such
vacancies. Directors need not be stockholders of the Corporation. Except as
otherwise provided by statute, these By-laws or any agreement to the contrary
between the Corporation and all its stockholders, the directors (other than
members of the initial Board of Directors) shall be elected at the annual
meeting of stockholders. Each director shall hold office until his or her
successor shall have been elected and qualified, or until his or her death, or
until he or she shall have resigned, or have been removed, as hereinafter
provided in these By-laws.
SECTION 3. Place of Meetings. Meetings of the Board of
Directors shall be held at such place or places, within or without the State of
Delaware, as the Board of Directors may from time to time determine or as shall
be specified in the notice of any such meeting.
SECTION 4. Annual Meeting. The Board of Directors shall meet
for the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable
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after each annual meeting of stockholders, on the same day and at the same place
where such annual meeting shall be held. Notice of such meeting need not be
given. In the event such annual meeting is not so held, the annual meeting of
the Board of Directors may be held at such other time or place as shall be
specified in a notice thereof given as hereinafter provided in Section 7 of this
ARTICLE III.
SECTION 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held each fiscal year at such time and place as the majority
of the Board of Directors may from time to time designate. If any day designated
for a regular meeting shall be a legal holiday at the place where the meeting is
to be held, then the meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day. Notice of regular
meetings of the Board of Directors need not be given except as otherwise
required by statute or these By-laws.
SECTION 6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if one shall have been
elected, or by two or more Directors of the corporation or by the President.
SECTION 7. Notice of Meetings. Notice of each special meeting
of the Board of Directors (and of each regular meeting for which notice is
required) shall be given by the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the place, date and hour of the
meeting. Except as otherwise required by these By-laws, such notice need not
state the purposes of such meeting. Notice of each such meeting shall be mailed,
postage prepaid, to each director, addressed to such director at such director's
residence or usual place of business, by first class mail, at least two days
before the day on which such meeting is to be held, or shall be sent addressed
to him at such place by telegraph, cable, telex, telecopier or other similar
means, or be delivered to him personally or be given to him by telephone or
other similar means, at least twenty-four hours before the time at which such
meeting is to be held. Notice of any such meeting need not be given to any
director who shall, either before or after the meeting, submit a signed waiver
of notice or who shall attend such meeting, except when he or she shall attend
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 8. Quorum and Manner of Acting. A majority of the
total number of directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors. Except as otherwise expressly
required by statute, the Certificate of Incorporation, these By-laws or any
agreement to the contrary between the Corporation and all its stockholders, the
act of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. In the absence of a quorum
at any meeting of the Board of Directors, a majority of the directors present
thereat may adjourn such meeting to another time and place. Notice of the time
and place of any such adjourned meeting shall be given to all the directors
unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have
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been transacted at the meeting as originally called. The directors shall act
only as a Board and the individual directors shall have no power as such.
SECTION 9. Organization. At each meeting of the Board of
Directors, the Chairman of the Board, if one shall have been elected, or, in the
absence of the Chairman of the Board or if one shall not have been elected, the
President (or, in his or her absence, another director chosen by a majority of
the directors present) shall act as chairman of the meeting and preside thereat.
The Secretary or, in his or her absence, any person appointed by the chairman of
the meeting shall act as secretary of the meeting and keep the minutes thereof.
SECTION 10. Resignations. Any director of the Corporation may
resign at any time by giving written notice of his or her resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 11. Vacancies. Except as may otherwise be required by
law and subject to the terms of any agreement to the contrary between the
Corporation and all its stockholders, any vacancy in the Board of Directors,
whether arising from death, resignation, removal or any other cause, and any
newly created directorship resulting from any increase in the authorized number
of directors of the Corporation, may be filled by the vote of a majority of the
Directors then in office, though less than a quorum, or by the sole remaining
director or by the stockholders at the next annual meeting thereof or at a
special meeting thereof. Each director so elected shall hold office until his or
her successor shall have been elected and qualified.
SECTION 12. Removal of Directors. Subject to the terms of any
agreement to the contrary between the Corporation and all its stockholders, any
director may be removed, either with or without cause, at any time, by the
holders of a majority of the voting power of the issued and outstanding capital
stock of the Corporation entitled to vote at an election of directors.
SECTION 13. Compensation. The Board of Directors shall have no
authority to fix the compensation, including fees and reimbursement of expenses,
of directors for services to the Corporation as directors.
SECTION 14. Committees. The Board of Directors shall have the
authority to appoint any temporary or standing committee to exercise any powers
or authority as the Board of Directors may see fit, subject to such conditions
as may be prescribed by the Board of Directors. All committees so appointed
shall keep regular minutes of their meetings and shall cause such minutes to be
recorded in books kept for that purpose in the principal office of the
Corporation and shall report the same to the Board of Directors as required by
it. The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In addition, in the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not such member or members
constitute a
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quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Except to
the extent restricted by statute or the Certificate of Incorporation, each such
committee, to the extent provided in the resolution creating it, shall have and
may exercise all the powers and authority of the Board of Directors and may
authorize the seal of the Corporation to be affixed to all papers which require
it. Each such committee shall serve at the pleasure of the Board of Directors
and have such name as may be determined from time to time by resolution adopted
by the Board of Directors.
SECTION 15. Action by Consent. Unless restricted by the
Certificate of Incorporation, any action required or permitted to be taken by
the Board of Directors or any committee thereof may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or such committee, as the
case may be.
SECTION 16. Telephonic Meeting. Unless restricted by the
Certificate of Incorporation, any one or more members of the Board of Directors
or any committee thereof may participate in a meeting of the Board of Directors
or such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting by such means shall
constitute presence in person at a meeting.
ARTICLE IV
OFFICERS
SECTION 1. Number and Qualifications. The officers of the
Corporation shall be elected by the Board of Directors and shall include the
President, one or more Vice-Presidents, the Secretary and the Treasurer. If the
Board of Directors wishes, it may also elect as an officer of the Corporation a
Chairman of the Board and may elect other officers (including one or more
Assistant Treasurers and one or more Assistant Secretaries) as may be necessary
or desirable for the business of the Corporation. Any two or more offices may be
held by the same person, and no officer except the Chairman of the Board need be
a director. Each officer shall hold office until his or her successor shall have
been duly elected and shall have qualified, or until his or her death, or until
he or she shall have resigned or have been removed, as hereinafter provided in
these By-laws.
SECTION 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his or her resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon receipt. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may be
removed, either with or without cause, at any time, by the Board of Directors at
any meeting thereof.
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SECTION 4. Chairman of the Board. The Chairman of the Board,
if one shall have been elected, shall be a member of the Board, an officer of
the Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. He or she shall advise and confer with the
President, and in the President's absence with other executives of the
Corporation, and shall perform such other duties as may from time to time be
assigned to him by the Board of Directors.
SECTION 5. The President. The President shall be the Chief
Executive Officer of the Corporation. The President shall, in the absence of the
Chairman of the Board or if a Chairman of the Board shall not have been elected,
preside at each meeting of the Board of Directors or the stockholders. The
President shall perform all duties incident to the office of President and Chief
Executive Officer and such other duties as may from time to time be assigned to
him by the Board of Directors.
SECTION 6. Vice-President. Each Vice-President shall perform
all such duties as from time to time may be assigned to him by the Board of
Directors or the President. At the request of the President or in his or her
absence or in the event of his or her inability or refusal to act, the
Vice-President, or if there shall be more than one, the Vice-Presidents in the
order determined by the Board of Directors (or if there be no such
determination, then the Vice- Presidents in the order of their election), shall
perform the duties of the President, and, when so acting, shall have the powers
of and be subject to the restrictions placed upon the President in respect of
the performance of such duties.
SECTION 7. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for,
all the funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit
of the Corporation in such depositaries as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise
the investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board
of Directors may require, an account of the financial condition of the
Corporation; and
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(g) in general, perform all duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the Board of Directors.
SECTION 8. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board of Directors,
the committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance
with the provisions of these By-laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all certificates for shares of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed by the Corporation are properly kept and filed; and
(e) in general, perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the Board of Directors.
SECTION 9. The Assistant Treasurer. The Assistant Treasurer,
or if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Treasurer or in
the event of his or her inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties as from
time to time may be assigned by the Board of Directors.
SECTION 10. The Assistant Secretary. The Assistant Secretary,
or if there be more than one, the Assistant Secretaries in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Secretary or in the event
of his or her inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 11. Officers' Bonds or Other Security. If required by
the Board of Directors, any officer of the Corporation shall give a bond or
other security for the faithful performance of his or her duties, in such amount
and with such surety as the Board of Directors may require.
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SECTION 12. Compensation. The compensation of the officers of
the Corporation for their services as such officers shall be fixed from time to
time by the Board of Directors. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that such person is
also a director of the Corporation.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. Stock Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board or the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation. If the Corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restriction of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the General Corporation Law
of the State of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. Facsimile Signatures. Any or all of the signatures
on a certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
SECTION 3. Lost Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or such owner's legal representative, to give the
Corporation a bond in such sum as the Board of Directors may direct sufficient
to indemnify the Corporation against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or certificates.
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SECTION 4. Transfers of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, to cancel the old certificate and to
record the transaction upon its records; provided, however, that the Corporation
shall be entitled to recognize and enforce any lawful restriction on transfer.
Whenever any transfer of stock shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of transfer if, when the
certificates are presented to the Corporation for transfer, both the transferor
and the transferee request the Corporation to do so.
SECTION 5. Transfer Agents and Registrars. The Board of
Directors may appoint, or authorize any officer or officers to appoint, one or
more transfer agents and one or more registrars.
SECTION 6. Regulations. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.
SECTION 7. Fixing the Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor fewer than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 8. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its records
as the owner of shares of stock to receive dividends and to vote as such owner,
shall be entitled to hold liable for calls and assessments a person registered
on its records as the owner of shares of stock, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares of
stock on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Delaware.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. General. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or
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proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
or she is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against all expenses (including, without limitation,
attorneys' fees and expenses), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, in and of itself, create a presumption
that the person did not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal action or proceeding, create a
presumption that the person had reasonable cause to believe that his or her
conduct was unlawful.
SECTION 2. Derivative Actions. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against all expenses (including, without limitation, attorneys'
fees and expenses) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. Indemnification in Certain Cases. To the extent
that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this ARTICLE VI, or in defense of
any claim, issue or matter therein, he or she shall be indemnified against all
expenses (including, without limitation, attorneys' fees and expenses) actually
and reasonably incurred by him in connection therewith.
SECTION 4. Procedure. Any indemnification under Sections 1 and
2 of this ARTICLE VI (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in such Sections 1 and 2. Such determination shall be made (a) by the
Board of Directors
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by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (b) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (c) by the stockholders of
the Corporation.
SECTION 5. Advances for Expenses. The right to indemnification
conferred in this ARTICLE VI upon a director or officer shall include the right
to be paid by the Corporation all the expenses (including, without limitation,
attorneys' fees and expenses) incurred in defending an action, suit or
proceeding of the types set forth in Sections 1 and 2 of this ARTICLE VI in
advance of the final disposition of such action, suit or proceeding; provided,
however, that if the General Corporation Law of the State of Delaware requires,
an advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined that such indemnitee is not
entitled to be indemnified for such expenses under this ARTICLE VI or otherwise.
Expenses (including, without limitation, attorneys' fees and expenses) incurred
by an employee or agent in defending an action, suit or proceeding of the types
set forth in Sections 1 and 2 of this ARTICLE VI may be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such employee or agent to repay
such amount if it shall ultimately be determined that he or she is not entitled
to be indemnified for such expenses by the Corporation under this ARTICLE VI or
otherwise.
SECTION 6. Rights Not Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other sections
of this ARTICLE VI shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any law, by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
SECTION 7. Insurance. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this ARTICLE VI.
SECTION 8. Definition of Corporation. For the purposes of this
ARTICLE VI, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of
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<PAGE>
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this ARTICLE VI with
respect to the resulting or surviving corporation as he or she would have with
respect to such constituent corporation if its separate existence had continued.
SECTION 9. Definitions with respect to Employee Benefit Plans.
For purposes of this ARTICLE VI, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed upon a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any services as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and the person
who acted in good faith and in manner he or she reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this ARTICLE VI.
SECTION 10. Survival of Rights. The indemnification and
advancement of expenses provided by, or granted pursuant to, this ARTICLE VI
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Dividends. Subject to the provisions of statute and
the Certificate of Incorporation, dividends upon the shares of capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting of the Board of Directors. Dividends may be paid in cash, in
property or in shares of stock of the Corporation, unless otherwise provided by
statute or the Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
SECTION 3. Seal. The seal of the Corporation shall be in such
form as shall be approved by the Board of Directors.
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<PAGE>
SECTION 4. Fiscal Year. The fiscal year of the Corporation
shall be fixed, and once fixed, may thereafter be changed, by resolution of the
Board of Directors.
SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes,
drafts or other orders for the payment of money of the Corporation shall be
signed, endorsed or accepted in the name of the Corporation by such officer,
officers, person or persons as from time to time may be designated by the Board
of Directors or by an officer or officers authorized by the Board of Directors
to make such designation.
SECTION 6. Execution of Contracts, Deeds, Etc. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7. Voting of Stock in Other Corporations. Unless
otherwise provided by resolution of the Board of Directors, the Chairman of the
Board or the President, from time to time, may (or may appoint one or more
attorneys or agents to) cast the votes which the Corporation may be entitled to
cast as a stockholder or otherwise in any other corporation, any of whose shares
or securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. If one or more attorneys
or agents are appointed, the Chairman of the Board or the President may instruct
the person or persons so appointed as to the manner of casting such votes or
giving such consent. The Chairman of the Board or the President may, or may
instruct the attorneys or agents appointed to, execute or cause to be executed
in the name and on behalf of the Corporation and under its seal or otherwise,
such written proxies, consents, waivers or other instruments as may be necessary
or proper in the circumstances.
ARTICLE VIII
AMENDMENTS
These By-Laws may be altered, amended or repealed or new
by-laws adopted (a) by action of the stockholders entitled to vote thereon at
any annual or special meeting of stockholders or (b) if the Certificate of
Incorporation so provides, by action of the Board of Directors at a regular or
special meeting thereof. Any by-law made by the Board of Directors may be
amended or repealed by action of the stockholders at any annual or special
meeting of stockholders.
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THIRD
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
CYBERSHOP, L.L.C.
<PAGE>
THIRD
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
CYBERSHOP, L.L.C.
This Third Amended and Restated Operating Agreement (this "Operating
Agreement") of CYBERSHOP, L.L.C., a limited liability company organized pursuant
to the New Jersey Limited Liability Company Act, is entered into as of the
10th day of October, 1997 by and among the Company and the persons executing
this Operating Agreement as Members.
WHEREAS, the Company was formed on December 1, 1994;
WHEREAS, the Company and the Existing Members are parties to the
Existing Operating Agreement;
WHEREAS, the parties hereto desire to amend and restate the Existing
Operating Agreement to reflect the issuance of certificates to reflect and
represent the Existing Member's respective Membership Interests, to provide that
any additional Membership Interests issued hereafter shall be represented by
certificates, and to make other changes to the Existing Operating Agreement as
set forth herein;
NOW, THEREFORE, the Existing Operating Agreement is hereby amended and
restated in its entirety as follows:
ARTICLE I
DEFINITIONS
For purposes of this Company Agreement (as defined below), unless the
context clearly indicates otherwise, the following terms shall have the
following meanings:
1. ACT - The New Jersey Limited Liability Company Act and all
amendments to the Act.
2. ADDITIONAL MEMBER - A Person admitted as a Member of the Company
after the Effective Date.
3. ADMISSION AGREEMENT - The agreement between an Additional Member or
Additional Members and the Company pursuant to which such Additional Member or
Members shall purchase Membership Interests in the Company and be admitted as a
Member of the Company and the agreement between an Assignee and the Company
pursuant to which such Assignee is admitted to the Company as a Substitute
Member. Each Admission Agreement shall contain an agreement by such Additional
Member or Substitute Member to be bound by the terms of this Company Agreement.
4. ADVISORY COMMITTEE - A committee initially consisting of
representatives of each of the following five Members or group of Members:
Jeffrey Tauber, Donald J. Weiss, Genesis Direct Inc., the GE Group Members and
Big Wave. Each such Member and the majority in interest of each group of
Members, as applicable, shall have the right to designate, and thereafter to
change, its (or their) representative, by written notice to the Company. An
Additional Member or Substitute Member the purchase price for whose Membership
Interests equals or exceeds $1,000,000 shall be permitted one representative on
the Advisory Committee. Jeffrey Tauber hereby designates Jeffrey
<PAGE>
Tauber as his representative, Donald J. Weiss hereby designates Donald J. Weiss
as his representative, Genesis Direct Inc. hereby designates Warren Struhl as
its representative, the GE Group Members hereby designate David W. Wiederecht as
their representative and Big Wave hereby designates Jean Pigozzi as its
representative and if at any time Jean Pigozzi is not present in the United
States, Big Wave hereby designates Michael Simoff as its representative during
such time. Each representative on the Advisory Committee shall have one vote on
all matters to be voted on or approved by the Advisory Committee and, unless
otherwise indicated herein, approvals by the Advisory Committee require a
majority vote by such representatives. Upon the sale by any Member of all of its
Membership Interests, such selling Member shall no longer have a representative
on the Advisory Committee.
5. ASSIGNEE - A transferee of a Membership Interests who has not been
admitted as a Substituted Member.
6. BANKRUPT MEMBER - A Member who: (1) has become the subject of an
Order for Relief under the United States Bankruptcy Code, or (2) has initiated,
either in an original Proceeding or by way of answer in any state insolvency or
receivership proceeding, an action for liquidation arrangement, composition,
readjustment, dissolution, or similar relief.
7. BIG WAVE - Big Wave NV, a Netherlands Antilles corporation.
8. BUSINESS DAY - Any other day than Saturday, Sunday or any legal
holiday observed in New Jersey.
9. CAPITAL ACCOUNT - The account maintained for a Member or Assignee
determined in accordance with Article VII.
10. CAPITAL CONTRIBUTION - Any contribution of Property or services to
the Company or the obligation to contribute Property or services to the Company
made by or on behalf of a Member or Assignee in consideration for the purchase
from the Company of Membership Interests.
11. CERTIFICATE - The Certificate of Formation of the Company as
properly adopted and amended from time to time by the Members and filed with the
Secretary of State of New Jersey.
12. CODE - The Internal Revenue Code of 1986, as amended from time to
time.
13. COMMITMENT - The Capital Contributions that a Member or Assignee
is obligated to make.
14. COMPANY - Cybershop, L.L.C., a limited liability company formed
under the laws of New Jersey, and any successor limited liability company.
15. COMPANY AGREEMENT - This Operating Agreement including all
amendments adopted in accordance with the terms hereof and the Act. References
herein to this Operating Agreement shall mean this Company Agreement.
16. COMPANY LIABILITY - Any enforceable debt or obligation for which
the Company is liable or which is secured by any Company Property.
17. COMPANY MINIMUM GAIN - An amount determined by first computing for
each Company Nonrecourse Liability any gain the Company would realize if it
disposed of the Company Property subject to that liability for no consideration
other than full satisfaction of the liability, and then aggregating the
separately computed gains. The amount of Company Minimum Gain includes such
minimum gain arising from a conversion, refinancing, or other change to a debt
instrument, only to the extent a Member is allocated a share of that minimum
gain. For any Taxable Year, the net increase or decrease in Company Minimum Gain
is determined by comparing the Company Minimum Gain on the
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<PAGE>
last day of the immediately preceding Taxable Year with the Minimum Gain on the
last day of the current Taxable Year. Notwithstanding any provision to the
contrary contained herein, Company Minimum Gain and increases and decreases in
Company Minimum Gain are intended to be computed in accordance with Section 704
of the Code and the Regulations issued thereunder, as the same may be issued and
interpreted from time to time. A Member's share of Company Minimum Gain at the
end of any Taxable Year equals: the sum of Nonrecourse Deductions allocated to
that Member (and to that Member's predecessors in interest) up to that time and
the distributions made to that Member (and to that Member's predecessors in
interest) up to that time of proceeds of a Nonrecourse Liability allocable to an
increase in Company Minimum gain minus the sum of that Member's (and that
Member's predecessors in interest) aggregate share of the net decreases in
Company Minimum Gain plus its (or their) aggregate share of decreases resulting
from revaluations of Company Property subject to one or more Company Nonrecourse
Liabilities.
18. COMPANY NONRECOURSE LIABILITY - A Company Liability to the extent
that no Member or Related Person bears the economic risk of loss (as defined in
Section 1.752-2 of the Regulations) with respect to the liability.
19. COMPANY PROPERTY - Any Property owned by the Company.
20. COMPANY SECURITIES - Membership Interests and all rights,
warrants, options or other securities or interests convertible into or
exercisable for limited liability company interests in the Company issued by the
Company and outstanding from time to time.
21. DISTRIBUTION - A transfer of Property to a Member on account of
Membership Interests as described in Article VIII hereof.
22. DISPOSITION (DISPOSE) - Any sale, assignment, transfer, exchange,
mortgage, pledge, grant, hypothecation, or other transfer, absolute or as
security or encumbrance (including dispositions by operation of law).
23. DISSOCIATION - Any action which causes a Person to cease to be a
Member as described in Article XII hereof.
24. DISSOLUTION EVENT - An event, the occurrence of which will result
in the dissolution of the Company under Article XIV hereof unless the Members
agree to the contrary.
25. EXISTING MEMBERS - Jeffrey S. Tauber, Jane S. Tauber, The Jeffrey
S. Tauber Grantor Retained Annuity Trust, The Jane S. Tauber Grantor Retained
Annuity Trust, Donald J. Weiss, Genesis Direct Inc., Trustees of General
Electric Pension Trust, Gerald A. Poch, Leonard J. Fassler, Porridge Partners
II, Big Wave, NV and Carinton Partnership.
26. EXISTING OPERATING AGREEMENT - That certain Second Amended and
Restated Operating Agreement in effect as of October 18, 1996, as amended on
June 3, 1997 and as of June 24, 1997.
27. GE GROUP MEMBER(S) - General Electric Pension Trust, Gerald A.
Poch, Leonard J. Fassler and Porridge Partners II.
28. IMMEDIATE FAMILY - A Member's Immediate Family includes the
Member's spouse, issue (including natural, adopted and step) and parents.
29. INITIAL MEMBERS - Jeffrey S. Tauber, Jane S. Tauber, the Jeffrey
S. Tauber Grantor Retained Annuity Trust, The Jane S. Tauber Grantor Retained
Annuity Trust, Donald J. Weiss and Genesis Direct Inc.
3
<PAGE>
30. MAJORITY - The affirmative vote or consent of Members described as
a "Majority" in Article VI hereof.
31. MANAGING MEMBER - The Person designated as such in Article VI.
32. MEMBER - Initial Members, GE Group Members, Big Wave, Carinton
Partnership, Substituted Members and Additional Members, but, unless the context
expressly indicates to the contrary, excludes Assignees.
33. MEMBER MINIMUM GAIN - An amount determined by first computing for
each Member Nonrecourse Liability any gain the Company would realize if it
disposed of the Company Property subject to that liability for no consideration
other than full satisfaction of the liability, and then aggregating the
separately computed gains. The amount of Member Minimum Gain includes such
minimum gain arising from a conversion, refinancing, or other change to a debt
instrument, only to the extent a Member is allocated a share of that minimum
gain. For any Taxable Year, the net increase or decrease in Member Minimum Gain
is determined by comparing the Member Minimum gain on the last day of the
immediately preceding Taxable Year with the Minimum Gain on the last day of the
current Taxable Year. Notwithstanding any provision to the contrary contained
herein, Member Minimum Gain and increases and decreases in Member Minimum gain
are intended to be computed in accordance with Section 704 of the Code and the
Regulations issued thereunder, as the same may be issued and interpreted from
time to time.
34. MEMBER NONRECOURSE DEDUCTIONS - The net increase in any Taxable
Year in Member Minimum Gain attributable to Member Nonrecourse Liabilities
reduced (but not below zero) by proceeds of the Member Nonrecourse Liability
distributed during the year to the Member bearing the economic risk of loss for
such liability that are both attributable to such liability and allocable to an
increase in the Member Minimum Gain.
35. MEMBER NONRECOURSE LIABILITY - Any Company Liability to the
extent the liability is nonrecourse under state law, and on which a Member or
Related Person bears the economic risk of loss under Section 1.752-2 of the
Regulations because, for example, the Member or Related Person is the creditor
or a guarantor.
36. MEMBERSHIP INTEREST - Membership Interest means a limited
liability company interest in the Company which includes the rights of a Member
or, in the case of an Assignee, the rights of the assigning Member to its
Sharing Ratio amount of Distributions (liquidating or otherwise) and allocations
of the profits, losses, gains, deductions, and credits of the Company. As
provided in Article IV, all Membership Interests existing on the date hereof and
all Membership Interests issued or sold after the date hereof will be
represented by Membership Interest Certificates.
37. MEMBERSHIP INTEREST CERTIFICATE - Membership Interest Certificate
has the meaning given to such term in Section 4.1 of this Company Agreement.
38. MONEY - Cash or other legal tender of the United States, or any
obligation that is immediately reducible to legal tender without delay or
discount. Money shall be considered to have a fair market value equal to its
face amount.
39. NET LOSSES - The losses and deductions of the Company determined
in accordance with accounting principles consistently applied from year to year
employed under the method of accounting adopted by the Company and as reported
separately or in the aggregate, as appropriate, on the tax return of the Company
filed for federal income tax purposes.
40. NET PROFITS - The income and gains of the Company determined in
accordance with accounting principles consistently applied from year to year
employed under the method of accounting
4
<PAGE>
adopted by the Company and as reported separately or in the aggregate, as
appropriate, on the tax return of the Company filed for federal income tax
purposes.
41. NONRECOURSE LIABILITIES - Nonrecourse liabilities include Company
Nonrecourse Liabilities and Member Nonrecourse Liabilities.
42. NOTICE - Notice shall be in writing. Notice to the Company shall
be considered given when received by registered or certified mail, return
receipt requested, or by Federal Express or similar service providing receipt
against delivery, addressed to the Company at the address of its Principal
Office. Notice to a Member shall be considered given when received by registered
or certified mail, return receipt requested, or by Federal Express or similar
service providing receipt against delivery, addressed to the Member at the
address reflected in Exhibit A to this Company Agreement unless the Member has
given the Company a Notice of a different address.
43. OFFSETTABLE DECREASE - Any allocation that unexpectedly causes or
increases a deficit in the Member's Capital Account as of the end of the taxable
year to which the allocation relates attributable to depletion allowances under
Section 1.704(b)(2)(iv)(k) of the Regulations, allocations of loss and
deductions under Sections 704(e)(2) or 706(d) of the Code or under Section
1.751-1(b)(2)(ii) of the Regulations, or distributions that, as of the end of
the year are reasonably expected to be made to the extent they exceed the
offsetting increases to such Member's Capital Account that reasonably are
expected to occur during or (prior to) the taxable years in which the such
distributions are expected to be made (other than increases pursuant to a
Minimum Gain Chargeback).
44. ORGANIZATION - A Person other than a natural person. Organization
includes, without limitation, corporations (both non-profit and other
corporations), partnerships (both limited and general), joint ventures, limited
liability companies, and unincorporated associations, but the term does not
include joint tenancies and tenancies by the entirety.
45. PERSON - An individual, trust, estate, or any incorporated or
unincorporated organization permitted to be a member of a limited liability
company under the laws of New Jersey.
46. PRINCIPAL - Jeffrey Tauber and Jane S. Tauber.
47. PROCEEDING - Any judicial or administrative trial, hearing or
other activity, civil criminal or investigative, the result of which may be that
a court, arbitrator, or governmental agency may enter a judgment, order, decree,
or other determination which, if not appealed and reversed, would be binding
upon the Company, a Member or other person subject to the jurisdiction of such
court, arbitrator, or governmental agency.
48. PROPERTY - Any property, real or personal, tangible or intangible,
including money and any legal or equitable interest in such property, but
excluding services and promises to perform services in the future.
49. REGULATIONS - Except where the context indicates otherwise, the
permanent and temporary regulations of the United States Department of the
Treasury under the Code, as such regulations may be lawfully from time to time.
50. RELATED PERSON - A person having a relationship to a Member that
is described in Section 1.752-4(b) of the Regulations.
51. SHARING RATIO - With respect to each Member, such Member's
percentage ownership of all outstanding Membership Interests an any given date
calculated by dividing the number of Membership Interests owned by such Member
by the total number of Membership Interests outstanding on such given date.
5
<PAGE>
52. SUBSTITUTE MEMBER - An Assignee who has been admitted to all of
the rights of membership in accordance with this Company Agreement and pursuant
to an Admission Agreement.
53. TAXABLE YEAR - The taxable year of the Company as determined
pursuant to Section 706 of the Code.
54. TAXING JURISDICTION - Any state, local, or foreign government that
collects tax, interest or penalties, however designated, on any Member's share
of the income or gain attributable to the Company.
55. TRANSFER - Any sale, assignment, transfer, pledge (other than a
pledge to the Company), mortgage, hypothecation or other encumbrance other than
a transfer to an affiliate or pursuant to will or by law.
ARTICLE II
FORMATION
1. ORGANIZATION - The Company has been organized as a New Jersey
limited liability company pursuant to the provisions of the Act. The Certificate
was duly filed with the Secretary of State of the State of New Jersey on
December 1, 1994.
2. AGREEMENT - For and in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Members executing this Company
Agreement hereby agree to the terms and conditions hereof, as it may from time
to time be amended according to its terms. It is the express intention of the
Members that this Company Agreement shall be the sole operating agreement of the
Company and the sole source of agreement among all of the parties hereto, and,
except to the extent a provision of this Company Agreement expressly
incorporates federal income tax rules by reference to sections of the Code or
Regulations or is expressly prohibited or ineffective under the Act, this
Company Agreement shall govern, even when inconsistent with, or different than,
the provisions of the Act or any other law or rule. To the extent any provision
of this Company Agreement is prohibited or ineffective under the Act, this
Company Agreement shall be considered amended to the smallest degree possible in
order to make this Company Agreement effective under the Act. In the event the
Act is subsequently amended or interpreted in such a way to make any provision
of this Company Agreement that was formerly invalid valid, such provision shall
be considered to be valid from the effective date of such interpretation or
amendment.
3. NAME - The name of the Company is Cybershop, L.L.C., and all
business of the Company shall be conducted under that name or under any other
name, but in any case, only to the extent permitted by applicable law.
4. EFFECTIVE DATE - This Company Agreement shall be effective upon the
execution and delivery hereof by each party hereto to each other party hereto.
5. TERM - The Company shall be dissolved and its affairs wound up in
accordance with the Act and this Company Agreement on December 1, 2044, unless
the term shall be extended by amendment to this Company Agreement and the
Certificate, or unless the Company shall be sooner dissolved and its affairs
would up in accordance with the Act or this Company Agreement.
6. REGISTERED AGENT AND OFFICE - The registered agent for the service
of process and the registered office shall be that Person and location reflected
in the Certificate as filed in the office of the Secretary of State of New
Jersey. The Managing Member, may, from time to time, change the registered agent
or office through appropriate filings with the Secretary of State of New Jersey.
In the event the registered agent ceases to so act as such for any reason or the
registered office shall change,
6
<PAGE>
the Managing Member shall promptly designate a replacement registered agent or
file a notice of change of address as the case may be. If the Managing Member
shall fail to so designate a replacement registered agent or change of address
of the registered office, any Member may designate a replacement registered
agent or file a notice of change of address.
7. PRINCIPAL OFFICE - The Principal Office of the Company shall be
located at 130 Madison Avenue, Third Floor, New York, New York 10016.
ARTICLE III
NATURE OF BUSINESS
The Company may engage in any lawful business permitted by the Act or
the laws of any jurisdiction in which the Company may do business. The Company
shall have the authority to do all things necessary or convenient to accomplish
its purpose and operate its business as described in this Article III.
ARTICLE IV
ACCOUNTING, RECORDS AND CERTIFICATES
1. RECORDS TO BE MAINTAINED - The Company shall maintain its books and
records at its Principal Office.
2. REPORTS TO MEMBERS:
2.1. The Company shall provide reports at least annually to
the Members other than Assignees at such time and in such manner as the Managing
Member may determine reasonable.
2.2. The Company shall provide all Members with those
information returns required by the Code and the laws of any applicable state.
3. ACCOUNTS - The Company shall maintain a record of the Capital
Account for each Member in accordance with Article VII hereof.
4. CERTIFICATES
4.1. Certificates representing Membership Interests shall be
in the form attached hereto as Exhibit C and bearing the legend required by
Section 14 of Article XIX hereof (each, a "Membership Interest Certificate") and
shall be executed by the Managing Member. Each Member shall be entitled to a
Membership Interest Certificate (or Certificates) certifying the Membership
Interests owned by such Member. All Membership Interests issued hereafter shall
be represented by a Membership Interest Certificate. The Company has delivered
to each existing Member a Membership Interest Certificate representing the
number of Membership Interests set forth opposite such Member's name on Exhibit
A hereto.
4.2. Upon surrender to the Company of a Membership Interest
Certificate duly endorsed or accompanied by proper evidences of authority to
Transfer, it shall be the duty of the Company to issue a new Membership Interest
Certificate to the person or entity entitled thereto and cancel the old
certificate, assuming that such Transfer is otherwise in accordance with the
terms of this Company Agreement. Upon surrender to the Company of a Membership
Interest Certificate duly endorsed or accompanied by proper evidences of
authority to Transfer some, but not all, of the Membership Interests evidenced
by such Membership Interest Certificate, it shall be the duty of the Company to
issue a new Membership Interest Certificate to the person or entity entitled
thereto on account of such Transfer for such Membership Interests so
Transferred, issue a new Membership
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Interest Certificate to the Member effecting such Transfer for the Membership
Interests not so Transferred and cancel the old certificate, assuming that such
Transfer is otherwise in accordance with the terms of this Company Agreement.
Every such Transfer shall be entered on the transfer book of the Company which
shall be kept at its principal office. The Members of the Company shall have the
right to inspect the transfer book of the Company at the principal office of the
Company during business hours upon prior notice to the Managing Member.
4.3. Upon written notice to the Company that a Member's certificate
has been lost, mutilated or destroyed accompanied by such representations,
warranties and indemnifications that the Company shall reasonably request in
connection therewith, the Company shall issue a new Membership Interest
Certificate to such Member to replace such lost, mutilated or destroyed
Membership Interest Certificate.
ARTICLE V
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the Initial Members and the Additional
Members who have been admitted to the Company as of the date hereof are as
reflected on Exhibit A attached hereto and by this reference made a part hereof
as if set forth fully herein.
ARTICLE VI
RIGHTS AND DUTIES OF MEMBERS AND THE ADVISORY COMMITTEE
1. MANAGEMENT
1.1. The Company shall be managed by a Managing Member, who
must be a Member. Jeffrey Tauber is hereby designated to continue to serve as
the Managing Member.
1.2. The Managing Member shall have full, exclusive, and
complete discretion, power, and authority, subject in all cases to the other
provisions of this Company Agreement (including, without limitation, Sections
1.3, 1.5 an 7 of this Article VI) and the requirements of applicable law, to
manage, control, administer, and operate the business and affairs of the Company
for the purposes herein stated, and to make all decisions affecting such
business and affairs, including, without limitation, for Company purposes, the
power to:
1.2.1. acquire by purchase, lease or otherwise, any
real or personal property, tangible or intangible;
1.2.2. construct, operate, maintain, finance, and
improve, and to own, sell, convey, assign, mortgage, or lease any real estate
and any personal property;
1.2.3. sell, dispose, trade, or exchange Company
assets in the ordinary course of the Company's business;
1.2.4. enter into agreements and contracts and to
give receipts, releases, and discharges;
1.2.5. purchase liability and other insurance to
protect the Company's properties and business;
1.2.6. borrow money for and on behalf of the
Company, and, in connection therewith, execute and deliver instruments
authorizing the confession of judgment against the Company.
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1.2.7. execute or modify leases with respect to any
part or all of the assets of the Company;
1.2.8. prepay, in whole or in part, refinance,
amend, modify, or extend any mortgages or deeds of trust which may affect any
asset of the Company and in connection therewith to execute for and on behalf of
the Company any extensions, renewals, or modifications of such mortgages or
deeds of trust;
1.2.9. execute any and all other instruments and
documents which may be necessary or in the opinion of the Managing Member
desirable to carry out the intent and purpose of this Company Agreement;
1.2.10. make any and all expenditures which the
Managing Member, in its sole discretion, deems necessary or appropriate in
connection with the management of the affairs of the Company and the carrying
out of its obligations and responsibilities under this Company Agreement,
including, without limitation, all legal, accounting and other related expenses
incurred in connection with the organization and financing and operation of the
Company;
1.2.11. enter into any kind of activity necessary
to, in connection with, or incidental to, the accomplishment of the purposes of
the Company; and
1.2.12. invest and reinvest Company reserves in
short-term instruments or money market funds.
Notwithstanding anything to the contrary in this Company Agreement,
the Managing Member shall not engage in business in any jurisdiction which does
not provide for the registration of limited liability companies.
1.3. Upon the death or incapacity of the Managing Member ("Prior
Manager"), a successor Managing Member shall be selected by the Advisory
Committee (not including any representative of the Prior Manager on the Advisory
Committee) provided that if the Prior Manager is Jeffrey Tauber, such successor
Managing Member so approved by the Advisory Committee must also be approved by
Jane S. Tauber if she is then a Member. The Managing Member may be removed as
Managing Member for Cause (as hereafter defined), and in such event or upon the
resignation of the Managing Member, a successor Managing Member will be elected,
by a majority vote of the representatives on the Advisory Committee other than
any representative of such removed or resigned Managing Member on such
committee. For purposes hereof, "Cause" shall mean (i) an action or course of
conduct or failure to act by the Managing Member in carrying out his duties as
Managing Member which action, course of conduct or failure to act constitutes
willful misconduct or gross negligence by the Managing Member and either has had
a material adverse effect on the Company or its business or would reasonably
likely have had a material adverse effect on the Company or its business had
such action, course of conduct or failure to act not been detected and remedied
or discontinued and (ii) a breach or violation by the Managing Member of a
material term of this Company Agreement which breach or violation remains
uncured for a period of 30 days (or if such breach or violation cannot with
reasonably commercial efforts be cured within such period, such longer period as
may be required under the circumstances) after notice in writing to the Managing
Member by any other Member.
1.4. The Managing Member shall use his best efforts to continue the
business of the Company, including but not limited to seeking additional
financing, by way of debt and/or equity, consistent with the terms and
instructions contained in this Company Agreement, for at least two years from
the date of this Company Agreement.
1.5. The Company and each of the Members agree that the following
actions may not be taken without the prior written consent of a majority of the
representatives on the Advisory
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Committee provided, that the representative of the GE Group Members must be
included in the majority of the representatives so consenting:
(i) Amend or change the provisions of the Company's
Certificate of Formation;
(ii) Declare the bankruptcy of or dissolve, voluntarily
liquidate or voluntarily wind-up the Company or any subsidiary thereof;
(iii) Enter into or be subject to any transactions between
the Company or any subsidiary thereof and any owner or beneficial holder of any
Company Securities or any officer, manager or member of the Company (except for
employment agreements with the Company or such subsidiary as the employer,
subject to any other requirements contained in this Company Agreement);
(iv) Declare or pay any dividends, distributions or other
payments to the owners or beneficial holders of the Company Securities (except
to the extent necessary to cover each Member's respective income tax liability
with respect to his, her or its ownership of the Company Securities);
(v) Redeem or repurchase any Company Securities or, except as
otherwise provided in this Operating Agreement, issue any additional Company
Securities;
(vi) Borrowings by the Company individually or in the
aggregate in excess of $50,000;
(vii) Approve any initial public offering of securities of
the Company; or
(viii) Effect any merger, corporate reorganization, business
combination, joint venture or similar transaction or arrangement that, in any
such case, fundamentally changes the Company or any subsidiary thereof or the
sale of the Company or all or substantially all of its assets or Business.
2. MAJORITY - Unless otherwise indicated herein, whenever any matter
is required or allowed to be approved by a "Majority of the Members" or a
"Majority of the remaining Members" under the Act or this Company Agreement (but
not including approvals by the Advisory Committee), such matter shall be
considered approved or consented to upon the receipt of the affirmative approval
or consent, either in writing or at a meeting of the Members, of both (i) the
Managing Member and (ii) those Members having Sharing Ratios in excess of
one-half of the Sharing Ratios of all the Members (other than the Managing
Member) entitled to vote on a particular matter. Assignees and, in the case of
approvals to resignation where consent of the remaining Members is required,
dissociating Members shall not be considered Members entitled to vote for the
purpose of determining a Majority.
3. LIABILITY OF MEMBERS - No Member shall be liable as such for the
liabilities of the Company. The failure of the Company to observe any
formalities or requirements relating to the exercise of its powers or management
of its business or affairs under this Company Agreement or the Act shall not be
grounds for imposing personal liability on the Members or managers for
liabilities of the Company.
4. INDEMNIFICATION - The Company shall indemnify the Members and
agents for all costs, losses, liabilities, and damages paid or accrued by such
Member or agent in connection with the business of the Company, to the fullest
extent provided or allowed by the laws of New Jersey.
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5. REPRESENTATIONS AND WARRANTIES OF THE MEMBERS - Each Member, for
himself, herself or itself, severally and not jointly, hereby represents and
warrants to the Company and each other member each of the following
representations and warranties:
5.1. Such Member has duly and validly executed and delivered
this Company Agreement (and, in the case of any Member that is an Organization,
such Member has duly authorized this Company Agreement and such execution and
delivery). This Company Agreement is a valid and binding obligation of such
Member enforceable against him or it in accordance with its terms.
5.2. Neither the execution or delivery nor the performance of
this Company Agreement by such Member will, with or without notice or the lapse
of time or both, conflict with, constitute a default or breach under, give any
right to any Person to terminate, to accelerate any liability or impose any
penalty under or to otherwise modify, or otherwise violate, any agreement to
which such Member is a party;
5.3. No consent, approval, permit of, designation,
declaration, registration or other filing with or notification to any Person by
or on behalf of such Member is required relating to, arising out of or in
connection with the execution, delivery or performance by such Member of this
Company Agreement or any related document;
5.4. There is no material litigation, legal action or other
proceeding pending or, to such Member's knowledge, threatened against, involving
or affecting the Company, or pending or, to such Member's knowledge, threatened
against, involving or affecting the execution, delivery or performance of this
Company Agreement by such Member;
5.5. There is no existing material breach or default known to
such Member under, or right of any Person to terminate, or to accelerate any
liability or impose any penalty under, or otherwise modify, any agreement to
which such Member is or is expected to become a party relating to the Company's
business or this Company Agreement or by which the proposed or existing assets
of the Company may be bound or under which the Company has or is expected to
have rights, or event known to such Member that with or without notice or the
lapse of time or both would constitute a breach or default by the Company or
such Member or give any Person any of the foregoing rights under any such
agreement. Notwithstanding anything contained herein to the contrary, all of the
representations and warranties of the Existing Members contained in the Existing
Operating Agreement and in the Members' respective Admission Agreements shall
survive execution and delivery of this Company Agreement.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY - The Company hereby
represents and warrants to each Existing Member as follows:
6.1. In consideration for Capital contributions received by
the Company from each Existing Member, each Existing Member currently owns the
number of fully-paid and non-assessable Membership Interests in the Company
opposite such Member's name on Exhibit A hereto (which on the date hereof
represents a Sharing Ratio set forth opposite such Member's name on Exhibit A
hereto (without taking into account dilution which will result from the exercise
of the outstanding or anticipated options disclosed on Exhibit B hereto);
6.2. The Company has duly and validly executed and delivered
this Company Agreement. This Company Agreement is a valid and binding obligation
of the Company enforceable against it in accordance with its terms;
6.3. Neither the execution or delivery nor the performance of
this Company Agreement by the Company will, with or without notice or the lapse
of time or both, conflict with, constitute a default or breach under, give any
right to any Person to terminate, to accelerate any
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liability or impose any penalty under or to otherwise modify, or otherwise
violate, any agreement to which the Company is a party;
6.4. No consent, approval, permit of, designation,
declaration, registration or other filing with or notification to any Person by
or on behalf of the Company is required relating to, arising out of or in
connection with the execution, delivery or performance by the Company of this
Company Agreement or any related document;
6.5. There is no material litigation, legal action or other
proceeding pending or, to the Company's knowledge, threatened against, involving
or affecting the Company, or pending or, to the Company's knowledge, threatened
against, involving or affecting the execution, delivery or performance of this
Company Agreement by the Company; and
6.6. There is no existing material breach or default known to
the Company under, or right of any person to terminate, or to accelerate any
liability or impose any penalty under, or otherwise modify, any agreement to
which the Company is or is expected to become a party relating to the Company's
business or this Company Agreement or by which the proposed or existing assets
of the Company may be bound or under which the Company has or is expected to
have rights, or event known to the Company that with or without notice or the
lapse of time or both would constitute a breach or default by the Company or
give any Person any of the foregoing rights under any such agreement.
7. CONFLICTS OF INTEREST
7.1. Except as set forth in Article XVII, a Member shall be
entitled to enter into transactions that may be considered to be competitive
with , or a business opportunity that may be beneficial to, the Company, it
being expressly understood that some of the Members may enter into transactions
that are similar to the transactions into which the Company may enter. Members
shall account to the Company and hold as trustee for it any property, profit, or
benefit derived by the Member, without the consent of the other Members, in the
conduct and winding up of the Company business or from a use or appropriation by
the Member of Company Property including information developed exclusively for
the Company and opportunities expressly offered to the Company.
7.2. A Member does not violate a duty or obligation to the
Company merely because the Member's conduct furthers the Member's own interest.
A Member may lend money to and transact other business with the Company. The
rights and obligations of a Member who lends money to or transacts business with
the Company are the same as those of a person who is not a Member, subject to
other applicable law. No transaction with the Company shall be voidable solely
because a Member has a direct or indirect interest in the transaction if either
the transaction is fair to the Company or the disinterested Members, knowing the
material facts of the transaction and the Member's interest, authorize, approve,
or ratify the transaction.
8. COMPENSATION OF MANAGING MEMBER AND KEY EMPLOYEES - The Managing
Member shall be reimbursed for all reasonable expenses incurred in managing the
Company and shall be entitled to compensation which, if it shall exceed $150,000
per year, shall require advance approval by the Advisory Committee provided that
the representative of the GE Group Members on the Advisory Committee is included
in the majority of representatives so approving. Compensation to any other
employee of the Company in excess of $100,000 per year shall require the
approval of the Advisory Committee.
9. OPTIONS - By executing and delivering this Company Agreement, the
Existing Members acknowledge and agree (and each Member admitted hereafter shall
be conclusively deemed to have acknowledged and agreed) that (a) the Company has
issued options to purchase Membership Interests to the persons identified on
Exhibit B hereto (the "Optionees"); (b) that, in connection with the execution
and delivery of this Company Agreement, the Company will enter into new or
revised option
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agreements with each of the Optionees to reflect, among other things, the
certification of Membership Interests to provide that such Optionees will have
the option to purchase the number of Membership Interests set forth opposite
each Optionees respective name on Exhibit B; and (c) that upon exercise of his
or her options to purchase Membership Interests, an Optionee or his or her
permitted assigns shall be permitted to be admitted as a Member of the Company
without any further action on the part of the other then existing Members. By
executing and delivering this Company Agreement, the Existing Members further
consent to (and each Member admitted hereafter shall be deemed to have consented
to) (a) the grant by the Company to certain of its employees, consultants and
other advisors of the right to purchase from the Company up to an aggregate of
300,000 of the Company's Membership Interests at an exercise price of $1.79 per
Membership Interest, and (b) the execution and delivery by the Company of an
option agreement with each such employee, consultant and advisor in
substantially the form attached hereto as Exhibit D, with such changes thereto
(including, without limitation, with respect to vesting) as the Managing Member
shall approve, the execution and delivery thereof to be conclusive evidence of
such approval.
ARTICLE VII
CONTRIBUTIONS AND CAPITAL ACCOUNTS
1. INITIAL CONTRIBUTIONS - No interest shall accrue on any Capital
Contribution and no Member shall have the right to withdraw or be repaid any
Capital Contribution except as provided in this Company Agreement. Each
Additional Member shall make the Capital Contribution described in its Admission
Agreement. The value of the Additional Member's Capital Contribution and the
time for making such contribution shall be set forth in its Admission Agreement.
Except to the extent of a Member's unpaid Commitment, if any, no Member shall be
obliged to make any additional contributions.
2. MAINTENANCE OF CAPITAL ACCOUNTS - The Company shall establish and
maintain Capital Accounts for each Member and Assignee. Each Member's Capital
Account shall be increased by (1) the amount of any Money actually contributed
by the Member to the capital of the Company, (2) the fair market value of any
Property contributed, as determined by the Company and the contributing Member
at arm's length at the time of contribution (net of liabilities assumed by the
Company or subject to which the Company takes such Property, within the meaning
of Section 752 of the Code), and (3) the Member's share of Net Profits and of
any separately allocated items of income or gain. Each Member's Capital Account
shall be decreased by (1) the amount of any Money actually distributed to the
Member from the Company, (2) the fair market value of any Property distributed
to the Member, as determined by the Company and the distributee Member at arm's
length at the time of distribution (net of liabilities of the Company assumed by
the Member or subject to which the Member takes such Property within the meaning
of Section 752 of the Code), and (3) the Member's share of Net Losses and of any
separately allocated items of deduction or loss.
3. DISTRIBUTION OF ASSETS - If the Company at any time distributes any
of its assets in-kind to any Member, the Capital Account of each Member shall be
adjusted to account for that Member's allocable share (as determined under
Article IX below) of the Net Profits or Net Losses that would have been realized
by the Company had it sold the assets that were distributed at their respective
fair market values immediately prior to their distribution.
4. SALE OR EXCHANGE OF INTEREST - In the event of a sale or exchange
of some or all of a Member's Membership Interests in the Company, the Capital
Account of the Transferring Member shall become the capital account of the
Assignee, to the extent of the Membership Interests transferred.
5. COMPLIANCE WITH SECTION 704(b) OF THE CODE - The provisions of this
Article VII as they relate to the maintenance of Capital Accounts are intended,
and shall be construed, and, if necessary, modified to cause the allocations of
profits, losses, income, gain and credit pursuant to Article IX hereof to have
substantial economic effect under the Regulations promulgated under Section
704(b)
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of the Code, in light of the distributions made pursuant to Articles VIII and
XIV hereof and the Capital Contributions made pursuant to this Article VII.
Notwithstanding anything herein to the contrary, the Company Agreement shall not
be construed as creating a deficit restoration obligation or otherwise
personally obligate any Member to make a Capital Contribution in excess of its
Initial Contribution.
ARTICLE VIII
DISTRIBUTIONS
1. INTERIM DISTRIBUTIONS
1.1 The Company shall make cash Distributions to its Members in
accordance with their Sharing Ratios to pay the federal and state income taxes
on the income that passes through from the Company under the respective
provisions of the Code and applicable state law. The total amount required to be
distributed hereunder shall be determined by conclusively presuming that all
taxable income passed through to each Member will be taxed at the maximum
federal and maximum New Jersey rate at which income of any individual can be
taxed in the calendar year that includes the last day of the Company's taxable
year. The Company shall make the distributions required in this Section 1.1 in a
timely manner to allow the tax (including, without limitation, estimated tax
payments) attributable to the income passed through to any Member to be paid
when due.
1.2 In addition to the Distributions required in Section 1.1, the
Managing Member, from time to time, may determine in his reasonable judgment to
what extent, if any, the Company's cash on hand exceeds the current and
anticipated needs, including, without limitation, needs for operating expenses,
debt service, acquisitions, reserves, and mandatory Distributions, if any. To
the extent such excess exists, the Managing Member may make Distributions to the
Members in accordance with their Sharing Ratios. Such Distributions shall be in
cash or Property (which need not be distributed proportionately) or partly in
both, as determined by the Members.
2. LIMITATIONS ON DISTRIBUTIONS - No Distribution shall be declared and
paid unless, after the Distribution is made, the assets of the Company are in
excess of all liabilities of the Company, except liabilities to Members on
account of their Capital Accounts.
ARTICLE IX
ALLOCATIONS
1. ALLOCATIONS OF NET PROFITS AND NET LOSSES FROM OPERATIONS - Except as
may be required by Sections 2, 3, 4, 5 and 6 of this Article IX, Net Profits,
Net Losses, and other items of income, gain, loss, deduction and credit shall be
apportioned among the Members in proportion to their Sharing Ratios.
2. COMPANY MINIMUM GAIN CHARGEBACK - If there is a net decrease in
Company Minimum Gain for a Taxable Year, each Member must be allocated items of
income and gain for that Taxable Year equal to that Member's share of the net
decrease in Company Minimum Gain. A Member's share of the net decrease in
Company Minimum Gain is the amount of the total net decrease multiplied by the
Member's percentage share of the Company Minimum Gain at the end of the
immediately preceding taxable Year. A Member's share of any decrease in Company
Minimum Gain resulting from a revaluation of Company Property equals the
increase in the Member's Capital Account attributable to the revaluation to the
extent the reduction in minimum gain is caused by revaluation. A Member is not
subject to this Company Minimum Gain Chargeback requirement to the extent the
Member's share of the net decrease in Company Minimum Gain is caused by a
guarantee, refinancing, or to the change in the debt instrument causing it to
become partially or wholly a Recourse Liability or a Member Nonrecourse
Liability, and the Member bears the economic risk of loss (within the meaning of
Section 1.752-2 of the Regulations) for the newly guaranteed, refinanced, or
otherwise changed liability.
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3. MEMBER MINIMUM GAIN CHARGEBACK - If during a Taxable Year there is a
net decrease in Member Minimum Gain, any Member with a share of that Member
Minimum Gain (as determined under Section 1.704-2(i)(5) of the Regulations) as
of the beginning of that Taxable Year must be allocated items of income and gain
for that Taxable Year (and, if necessary, for succeeding Taxable Years) equal to
that Member's share of the net decrease in the Company Minimum Gain. A Member's
share of the net decrease in Member Minimum Gain is determined in a manner
consistent with the provisions of Section 1.704-2(g)(2) of the Regulations. A
Member is not subject to this Member Minimum Gain Chargeback requirement,
however, to the extent the net decrease in Member Minimum Gain arises because
the liability ceases to be Member Nonrecourse Liability due to a conversion,
refinancing, or other change in the debt instrument that causes it to become
partially or wholly a Company Nonrecourse Liability. The amount that would
otherwise be subject to the Member Minimum Chargeback is added to the Member's
share of Company Minimum Gain. In addition, rules consistent with those
applicable to Company Minimum Gain shall be applied to determine the shares of
Member Minimum Gain and Member Minimum Gain Chargeback to the extent provided
under the Regulations issued pursuant to Section 704(b) of the Code.
4. QUALIFIED INCOME OFFSET - In the event any Member, in such capacity,
unexpectedly receives an Offsettable Decrease, such Member will be allocated
items of income and gain (consisting of a pro rata portion of each item of
Company income and gain for such year) in an amount and manner sufficient to
offset such Offsettable Decrease as quickly as possible.
5. MEMBER NONRECOURSE DEDUCTIONS - Any Member Nonrecourse Deductions
shall be specially allocated to the Member who bears the economic risk of loss
with respect to the Member Nonrecourse Liability to which such Member
Nonrecourse Deductions are attributable.
6. CONTRIBUTED PROPERTY - In accordance with Code Section 704(c) and the
Regulations thereunder, as well as Section 1.704-1(b)(2)(iv)(d)(3) of the
Regulations, income, gain, loss, and deduction with respect to any property
contributed (or deemed contributed) to the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of the property to the Company for federal income tax
purposes and its fair market value at the date of contribution (or deemed
contribution). If the adjusted book value of any Company asset is adjusted as
provided herein, subsequent allocations of income, gain, loss, and deduction
with respect to the asset shall take account of any variation between the
adjusted basis of the asset for federal income tax purposes and its adjusted
book value in the manner required under Code Section 704(c) and the Regulations
thereunder.
ARTICLE X
TAXES
1. ELECTIONS - The Members may make any tax elections for the Company
allowed the Code or the tax laws of any state or other jurisdiction having
taxing jurisdiction over the Company.
2. TAXES OF TAXING JURISDICTIONS - To the extent that the laws of any
Taxing Jurisdiction require, each Member requested to do so by the Managing
Member will submit an agreement indicating that the Member will make timely
income tax payments to the Taxing Jurisdiction and that the Member accepts
personal jurisdiction of the Taxing Jurisdiction with regard to the collection
of income taxes attributable to the Member's income, and interest, and penalties
assessed on such income. If the Member fails to provide such agreement, the
Company may withhold and pay over to such Taxing Jurisdiction the amount of tax,
penalty and interest determined under the laws of the Taxing Jurisdiction with
respect to such income. Any such payments with respect to the income of a Member
shall be treated as a distribution for purposes of Article VIII. The Company
may, where permitted by the rules of any Taxing Jurisdiction, file a composite,
combined or aggregate tax return reflecting the income of the Company and pay
the tax, interest and penalties of some or all of the Members on such income to
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the Taxing Jurisdiction, in which case the Company shall inform the Members of
the amount of such tax, interest and penalties so paid.
3. TAX MATTERS PARTNER - The Members shall designate one of their number
as the tax matters partner of the Company pursuant to Section 6231(a)(7) of the
Code. Any Member designated as tax matters partner shall take such action as may
be necessary to cause each other Member to become a notice partner within the
meaning of Section 6223 of the Code. Any Member who is designated tax matters
partner may not take any action contemplated by Sections 6222 through 6233 of
the Code without the consent of the Managing Member. The Members hereby
designate Jeffrey Tauber to continue to act as the tax matters partner.
4. METHOD OF ACCOUNTING - The records of the Company shall be maintained
on a method of accounting determined by the Managing Member.
ARTICLE XI
DISPOSITION OF MEMBERSHIP INTERESTS
1. DISPOSITION - No Member or Assignee may dispose of all or any amount
of such Member's or Assignee's Membership Interests without the written consent
of the Managing Member; provided that such consent shall not be required for a
disposition to a Member's or Assignee's Immediate Family or a trust(s) for their
benefit or, in the case of a Member that is an Organization, to a Person that
controls, is controlled by or is under common control with, such Member.
2. ADDITIONAL REQUIREMENTS - No Membership Interests shall be Disposed
of:
2.1. if such disposition, alone or when combined with other
transactions, would result in a a termination of the Company within the meaning
of Section 708 of the Code;
2.2. without an opinion of counsel satisfactory to the Managing
Member that such assignment is subject to an effective registration under, or
exempt from the registration requirements of, the applicable state and federal
securities laws;
2.3. unless and until the Company receives from the Assignee the
information and agreements that the Managing Member may reasonably require,
including but not limited to any taxpayer identification number and any
agreement that may be required by any Taxing Jurisdiction.
3. FURTHER RESTRICTIONS ON TRANSFERS BY MEMBERS
3.1. Tag-Along Right - The Principals agree that if at any time a
Principal receives an offer to Transfer, all or a portion of such Principal's
Membership Interests constituting 15% or more of the then total outstanding
Membership Interests (determined by reference to the Sharing Ratios represented
thereby) or other Company Securities, such Principal shall not, and shall not
permit any Affiliate to, directly or indirectly, Transfer such Membership
Interests (or such amount thereof equal to or in excess of such 15%) or other
Company Securities, unless contemporaneously with the Transfer of such
Membership Interests by such Principal, the transferee thereof simultaneously
acquires or causes to be acquired on the same terms and conditions all of the
Membership Interests and other Company Securities owned or beneficially held by
the GE Group Members.
3.2. Drag-Along Right - In the event that Members owning or
beneficially holding more than 65% of either the Company Securities or the
Membership Interests (determined by reference to the Sharing Ratios represented
thereby) approves a transaction (such Members, the "Approving Members") pursuant
to which any person(s) or entity(ies) who is not affiliated with any of the
Members will acquire 80% or more of the Company Securities or the Membership
Interests (determined by reference to the Sharing Ratios represented thereby)
(by purchase of Membership
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Interests, merger or otherwise), each of the Members hereby agrees, upon the
written request of the Approving Members, to sell all of its, a pro rata portion
of his, her or its Company Securities or Membership Interests, to such
persons(s) or entity(ies) on the same terms and conditions that the Company
Securities and Membership Interests of the Approving Members will be sold.
3.3 First Offer Right
(i) At any time any Member proposes to Transfer to a third
party any Company Secutities issued to such Member, such Member shall
deliver written notice (the "Offer") to the Company and each other Member
which shall set forth the number of such Company Securities (the "Member
Securities") and the terms on which the Member Securities are to be
offered. Within 20 days following the effectiveness of the offer, each
other Member shall give notice (the "Purchase Notice") to such Member, with
a copy to the Company, stating the maximum percentage of the Secutities
each such other Member is willing to purchase upon the terms set forth in
the Offer.
(ii) For the purpose of this Section 3.3, if any Member does
not deliver a Purchase Notice within the time required by this Section 3.3
such Member shall be deemed to have provided a Purchase Notice on the last
day on which a Purchase Notice may be provided specifying no interest in
purchasing the Member Securities.
(iii) In the event that the total number of Member Securities
that the other Members are willing to purchase from such selling Member
equals the number of offered Member Securities, then such selling Member
shall be bound to sell to the other Members and the other Members shall be
bound to purchase from such Member the Member Securities. If the total
number of Member Securities that the other Members are willing to purchase
from such selling Member is less than the number of offered Member
Securities, then, such selling Member shall be permitted to sell all, but
not less than all, of the Member Securities to a third party on terms not
less favorable than those set forth in the Offer. If the total number of
Member Securities that the other Members are willing to purchase from such
selling Member is more than the number of offered Member Securities, then,
each other Member shall be permitted to purchase up to its ratable portion
of the Member Securities based on its current interest in the Company
Securities on an as converted or exercised basis.
(iv) The closing of the sale of the Member Securities to the
other Members shall occur at such selling Member's election at a time and
place specified by such selling Member during business hours and no more
than 180 days after the delivery of the Offer. In the event that the other
Members do not purchase the Member Securities within such 180 day period,
such selling Member may sell the offered Member Securities to a third
party.
(v) If, prior to the closing of the sale of the Members
Securities, such selling Member receives an offer to purchase the Member
Securities from a third party at a price that is greater than that in the
Offer, the other Members shall have not less than 20 days to accept such
higher price before any Member Securities are sold to a third party.
(vi) Notwithstanding the foregoing, if approved in accordance
with Section 1.5 of Article VI, the Company may repurchase the Member
Securities (to the exclusion of the other Members) from the offering
Member, subject to compliance by the Company with the procedures set forth
in the foregoing clauses of this Section 3.3 with respect to Members (other
than the offering Member).
4. DISPOSITION NOT IN COMPLIANCE WITH THIS ARTICLE VOID - Any attempted
Disposition of Membership Interest or other Company Securities, or any part
thereof, not incompliance with this Article is null and void ab initio.
17
<PAGE>
ARTICLE XII
DISSOCIATION OF A MEMBER
1. DISSOCIATION - A Person shall cease to be a Member upon the happening of
any of the following events:
1.1 the resignation of a Member with the consent of a Majority of the
remaining Members prior to December 1, 2044;
1.2 the bankruptcy of a Member;
1.3 in the case of a Member who is a natural person, the death of the
Member or the entry of an order by a court of competent jurisdiction
adjudicating the Member incompetent to manage the Member's person or estate;
1.4 in the case of a Member who is acting as a Member by virtue of being
a trustee of a trust, the termination of the trust (but not merely the
substitution of a new trustee);
1.5 in the case of a Member that is separate Organization other than a
corporation, the dissolution and commencement of winding up of the separate
Organization;
1.6 in the case of a Member that is a corporation, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter;
1.7 in the case of an estate, the distribution by the fiduciary of the
estate's entire interest in the Company; or
1.8 any event under the Act which causes the Member to cease to be a
Member.
2. RIGHTS OF DISSOCIATING MEMBER - In the event any Member dissociates
prior to the expiration of the Term:
2.1 if the dissociation causes a dissolution and winding up of the
Company under Article XIV, the Member shall be entitled to participate in the
winding up of the Company to the same extent as any other Member except that any
distributions to which the Member would have been entitled shall be reduced by
the damages sustained by the Company as a result of the Dissolution and winding
up:
2.2 if the dissociation does not cause a dissolution and winding up of
the Company under Article XIV, the Member and his successors shall be deemed an
Assignee and his successors shall not have any right to receive the value of
such Membership Interests in the Company except as provided in Article XIII
hereof.
ARTICLE XIII
ADMISSION OF ASSIGNESS AND ADDITIONAL MEMBER
1. RIGHTS OF ASSIGNESS - The Assignee of Membership Interests has no right
to participate in the management of the business and affairs of the Company or
to become a Member. The Assignee is only entitled to receive the distributions
and return of capital, and to be allocated the Net Profits and Net Losses
attributable to the Membership Interests so assigned.
2. ADMISSION OF SUBSTITUTE MEMBERS - An Assignee of Membership Interests
(other than from a Managing Member) shall be admitted as a Substitute Member and
admitted to all the rights of the Member who initially assigned the Membership
Interests only with the approval of a majority in
18
<PAGE>
interest of the Manging Members and the execution by such Assignee of an
Admission Agreement, which approval may be withheld in the sole and absolute
discretion of the Managing Members. An Assignee of Membership Interests of a
Managing Member shall be admitted as a Substitute Member and admitted to all the
rights of the Member who initially assigned the Membership Interests (but not
the right to be a Managing Member) only with the approval of a majority in
interest of the Members unrelated to the person assigning such interest and the
execution by such Assignee of an Admission Agreement, which approval may be
withheld in the sole and absolute discretion of such Members. If so admitted,
the Substitute Member shall have all the rights and powers and be subject to all
the restrictions and liabilities of the Member originally assigning the
Membership Interests. The admission of a Substitute Member, without more, shall
not release the Member originally assigning the Membership Interests from any
liability to the Company that may have existed prior to the approval.
3. ADMISSION OF ADDITIONAL MEMBERS; ADDITIONAL SALES TO EXISTING MEMBERS -
Subject to the restrictions contained in this Company Agreement (including,
without limitation, the immediately succeeding sentence and Article XVIII), the
Managing Member may permit the admission of Additional Members and determine the
Capital Contributions of such Members. The Company hereby grants to each Member
the right to purchase an amount of Membership Interests or other Company
Securities equal to that portion of any additional Membership Interests or other
Company Securities issued or sold by the Company after the date hereof necessary
to maintain unchanged such Member's proportionate ownership interest and Sharing
Ratio in the Company after giving effect to the issuance or sale of such
additional Membership Interests or other Company Securities (at the same price
per Membership Interest as shall be paid by such Additional Members).
ARTICLE XIV
DISSOLUTION AND WINDING UP
1. DISSOLUTION - The Company shall be dissolved and its affairs wound up,
upon the first to occur of the following events (which, unless the Members agree
to continue the business, shall constitute Dissolution Events):
1.1 the expiration of the Term, unless the business of the Company is
continued with the consent of a Majority of the Members;
1.2 the unanimous written consent of all of the Members;
1.3 the Dissociation of any Member, unless the business of the Company
is continued with the consent of those Members holding a majority of the capital
and profit interest in the Company then held by the remaining Members within 90
days after such Dissociation.
2. EFFECT OF DISSOLUTION - Upon dissolution, the Company shall cease
carrying on as distinguished from the winding up of the Company business, but
the Company is not terminated and it shall continue until the winding up of the
affairs of the Company is completed and the Certificate of Cancellation has been
filed with the Secretary of State of New Jersey.
3. DISTRIBUTION OF ASSETS ON DISSOLUTION - Upon the winding up of the
Company, the Company Propery shall be distributed:
3.1 to creditors, including Members who are creditors, to the extent
permitted by law, in satisfaction of Company Liabilities;
3.2 to Members in accordance with positive Capital Account balances
taking into account all Capital Account adjustments for the Company's Taxable
Year in which the liquidation occurs. Liquidation proceeds shall be paid within
60 days of the end of the Company's Taxable Year or, if later, within 90 days
after the date of liquidation. Such distributions shall be in cash or Property
19
<PAGE>
(which need not be distributed proportionately) or party in both, as determined
by a Majority of the Members.
4. WINDING UP AND CERTIFICATE OF CANCELLATION - The winding up of the
Company shall be completed when all debts, liabilities, and obligations of the
Company have been paid and discharged or reasonably adequate provision therefor
has been made, and all of the remaining property and assets of the Company have
been distributed to the Members. Upon the completion of winding up of the
Company, a Certificate of Cancellation shall be delivered to the Secretary of
State of New Jersey for filing. The Certificate of Cancellation shall set forth
the information required by the Act.
ARTICLE XV
AMENDMENT
This Company Agreement may be amended or modified from time to time only by
a written instrument executed by all of the Members; provided, however, that
Exhibit A hereto may be amended from time to time by the Company without such
consent to reflect changes in the information contained therein resulting from
Transfers or Dispositions of Membership Interests and issuances of new
Membership Interests, in each case, that have been effected in accordance with
all the applicable provisions of this Company Agreement. The Managing Member
shall deliver copies of each such amendment to each Member promptly following
the effectiveness thereof.
ARTICLE XVI
LIFE INSURANCE
The Company shall purchase and maintain insurance on the life of Jeffrey
Tauber in an amount not less than One Hundred Fifty Thousand Dollars ($150,000).
The Company shall pay the premiums for such insurance policy and shall name
Donald J. Weiss as the beneficiary of such insurance policy in an amount not
less than One Hundred Fifty Thousand Dollars ($150,000). The requirement
hereinabove set forth for the Company to maintain life insurance shall cease
upon the earlier of (i) the date on which ownership interests in the Company, or
any successor entity or subsidiary operating the business of the Company, shall
have been registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, and such interest shall be listed for
trading on the New York Stock Exchange, the American Stock Exchange or
authorized for trading on NASDAQ, (ii) the date on which all of the assets of
the Company are sold or all of the Membership Interests of the Company are sold
or (iii) when Donald J. Wiess has received Distributions pursuant to Section 1.2
of Article VIII of this Company Agreement (but not pursuant to Section 1.1 of
Article VIII of the Company Agreement) in an amount equal to or in excess of the
amount of the Capital Contribution(s) made by Donald J. Wiess.
The Company shall purchase and maintain an additional insurance policy of
the life of Jeffrey Tauber in an amount not less than One Million Dollars
($1,000,000). The Company shall pay the premiums of such insurance policy and
shall name each of the GE Group Members as the beneficiaries of such insurance
policy, in an aggregate amount not less than One Million Dollars ($1,000,000),
allocated to each GE Group Member pro rata in accordance with their Capital
Contributions set forth on Exhibit A. Such requirement by the Company to
maintain such life insurance shall cease upon the earliest of (i) the date on
which ownership interests in the Company, or any successor entity or subsidiary
operating the business of the Company, shall have been registered pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
and such interest shall be listed for trading on the New York Stock Exchange,
the American Stock Exchange or authorized for trading on NASDAQ, (ii) the date
on which all of the assets of the Company are sold or all of the Membership
Interests of the Company are sold or (iii) when each GE Group Member has
received Distributions pursuant to Section 1.2 of Article VIII of this Company
Agreement (but not pursuant to Section 1.1 of
20
<PAGE>
Article VIII of the Company Agreement) in an amount equal to or in excess of the
amount of the Capital Contribution(s) made by such GE Group Member.
ARTICLE XVII
RESTRICTIVE COVENANT
During any Person's tenure as a Managing Member of the Company and for a
period of two (2) years thereafter, such Person and its Affliates shall not (i)
directly or indirectly, alone or with any other Person(s) participate in any
business which competes with the business of the Company as an employee,
partner, shareholder, member, officer, director or consultant, or in any other
capacity, and (ii) if the business of the Company is no longer being conducted,
directly or indirectly, alone or with any other Person(s), participate in any
business conducting substantially the same business as that previously conducted
by the Company, as an employee, partner, shareholder, member, officer, director
or consultant, or in any other capacity. This restriction is for the benefit of
the Company as well as its Members and shall survive the termination of this
Company Agreement.
ARTICLE XVIII
RESTRICTIONS ON ADMITTING ADDITIONAL MEMBERS
In addition to the restrictions on admitting Additional Members to the
Company contained in Section 3 of Article XIII, no Membership Interests shall be
issued by the Company and no Additional Members shall be admitted to the Company
without the consent of all of the Members unless the formula used for
determining the Capital Contribution of such Additional Member requires a
Capital Contribution with respect to each one (1%) percent in Sharing Ratio to
be received by such Additional Member (after giving effect to the issuance of
such additional Membership Interests) of the greater of (i) One Hundred Thousand
Dollars ($100,000) and (ii) the amount so required and paid in connection with
the most recent prior issuance of additional Membership Interests. The admission
of an Additional Member upon the approval of the Managing Member shall be
subject to the fiduciary obligations of the Managing Member not to permit the
Company to sell Membership Interests in the Company for less than fair value.
ARTICLE XIX
MISCELLANEOUS PROVISIONS
1. ENTIRE AGREEMENT - This Company Agreement represents the entire
agreement among all the Members and between all the Members and the Company.
2. NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES - The Members have formed
the Company under the Act, and expressly do not intend hereby to form a
partnership (but do intend that the Company be treated as a partnership for tax
purposes). The Members do not intend to be partners one to another, or partners
as to any third party. To the extent any Member, by word or action, represents
to another person that any other Member is a partner or that the Company is a
partnership, the Member making such wrongful representation shall be liable to
any other Member who incurs personal liability by reason of such wrongful
representation.
3. RIGHTS OF CREDITORS AND THIRD PARTIES UNDER COMPANY AGREEMENT- This
Company Agreement is entered into amoung the Company and Members for the
exclusive benefit of the Company, its Members, and their successors and
assignees. This Company Agreement is expressly not intended for the benefit of
any creditor of the Company or any other Person. Except and only to the extent
provided by applicable statute, no such creditor or third party shall have any
rights under this Company Agreement or any agreement between the Company and any
Member with respect to any Capital Contribution or otherwise.
21
<PAGE>
4. GOVERNING LAW - This Company Agreement shall be construed, interpreted
and enforced in accordance with the internal laws of the State of New Jersey
without regard to conflicts of laws principles.
5. HEADINGS - The headings used in this Company Agreement are used for
administrative purposes only and shall not be considered in construing the terms
of this Company Agreement.
6. PARTIES BOUND - This Company Agreement shall be binding on, and inure to
the benefit of, the parties and their respective heirs, executors,
administrators, legal representatives, successors, and assigns when permitted by
this Company Agreement.
7. LEGAL CONSTRUCTION - In case any one or more of the provisions contained
in this Company Agreement shall, for any reason, be held invalid, illegal, or
unenforceable in any respect, that invalidity, illegality, or unenforceability
shall not affect any other provision of this Company Agreement, and this Company
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained in this Company Agreement.
8. COUNTERPARTS - This Company Agreement may be executed in any number of
counterparts and each counterpart shall, for all purposes, be deemed to be an
original.
9. WAIVERS IN WRITING - No consent or waiver, express or implied, by a
Member to or of any breach by a Member in the performance by him or her of any
of his or her respective obligations hereunder shall be deemed or construed to
be a consent or waiver to or of the breach in the performance by such Member of
the same or any other obligation of such Member hereunder. Failure on the part
of a Member or the Company to complain of any act or failure to act of a Member
or to declare such Member in default, irrespective of how long such failure
shall continue, shall not, unless otherwise herein expressly provided to the
contrary, constitute a waiver by a Member or the Company of his, her or its
rights hereunder. All consents and waivers shall be in writing.
10. JOINT EFFORT AND REPRESENTATIONS - Each of the Members agree that in
the event a conflict among them arises hereafter, such party will not object to
the representation of either the Company or Jeffrey Tauber (or his affiliates)
(and, in the absence of an actual conflict of interest, all such parties) by
Sills Cummis Zuckerman Radin Tischman Epstein & Gross, P.A. ("Sills Cummis")
with respect to such matter.
The Company and the Initial Members understand and accept responsibility
for the fact that they have substantial conflicting interests. The Initial
Members (other than Genesis Direct L.L.C.) have been advised by Simon Levin,
Esq. of Sills Cummis of their right to and need for independent counsel and with
full knowledge and understanding, have declined to retain independent counsel.
Such parties have read and fully understand the terms, conditions and provisions
of this Company Agreement. They acknowledge that all the terms, conditions and
provisions of this Agreement have been negotiated by them without any influence
whatsoever by any attorney associated with Sills Cummis. Such parties
acknowledge and understand that this Company Agreement is necessary to preserve
harmony and continuity with respect to the management of the Company. As part of
the consideration for Sills Cummis performing the legal work necessary to
prepare this Company Agreement, the Company and the Initial Members hereby
jointly and severally agree to indemnify Sills Cummis, and all its members,
shareholders, directors and employees who are such on the date of this Company
Agreement, or any time
22
<PAGE>
thereafter for, and hold such firm, its members, shareholders, directors and
employees harmless from, any claims made by (and expenses incurred in defending
against such claims) any of the parties or any of their heirs, assignees,
administrators, legal or personal representatives, executors or successors based
upon such firm's involvement in the transactions which are the subject of this
Company Agreement. This agreement to "hold harmless" shall be binding upon the
Company and the Initial Members and their heirs, executors, administrators,
successors and assignees, and shall inure to the benefit of all members,
shareholders, directors and employees of Sills Cummis who are such on the date
of this Company Agreement, or any time thereafter, and all such members,
shareholders', directors' and employees' heirs, executors, administrators,
successors an assignees.
11. SPECIFIC PERFORMANCE OR RESCISSION - The Members acknowledge that
inasmuch as the Membership Interests are closely-held and the market therefor is
limited, irreparable damage would result if this Company Agreement is not
complied with and not specifically enforced. Therefore, the restrictions on
transfers or other disposition of Membership Interests may be enforceable in a
court of equity by a decree of specific performance or rescission, and
appropriate injunctive relief may be applied for and granted in connection
therewith. Such remedies shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have any under
this Company Agreement or otherwise.
12. FURTHER ASSURANCES - Without limiting the generality of any provisions
of this Company Agreement, each Member agrees that upon request of any other
Member, he or it shall, from time to time, do any and all other acts and things
(including without limitation, the execution and delivery of documents) as may
reasonably be required to carry out his or its obligations hereunder, to
consummate the transactions contemplated hereby, and to effectuate the purposes
hereof.
13. EXPIRATION OF CERTAIN RIGHTS - Notwithstanding any other provision of
this Company Agreement, the parties hereto hereby agree that the rights granted
to the GE Group members pursuant to Section 3 of Article XI of this Company
Agreement shall expire and be of no further force and effect (i) as of the date
on whch the respective GE Group Members ceases to be the record or beneficial
holder of any Company Securities, or (ii) at the option of a majority in
interest of the GE Group Members, in connection with any initial public offering
of securities of the Company or otherwise.
14. RESTRICTIVE LEGEND ON CERTIFICATED INTERESTS - The Membership Interest
Certificates shall include the following restrictive legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURTIES LAWS. THESE SECURITIES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION
THEREFROM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS.
ADDITIONALLY, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE AND/OR RIGHTS OF THE HOLDER OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE IN RESPECT OF VOTING OR
OTHER CONSENT RIGHTS AND THE ADMISSION TO THE COMPANY OF SUBSTITUTE OR
ADDITIONAL MEMBERS ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE THIRD
AMENDED AND RESTATED OPERATING AGREEMENT DATED AS OF THE 10th DAY OF
OCTOBER ,1997, AMONG CYBERSHOP, L.L.C., AND CERTAIN HOLDERS OF THE
OUTSTANDING LIMITED LIABILITY COMPANY INTERESTS AND OTHER SECURITIES OF
SUCH LIMITED LIABILITY COMPANY (AS SAME MAY BE AMENDED OR RESTATED FROM
TIME TO TIME). COPIES OF SUCH AGREEMENT AND ANY AMENDMENTS TO OR
RESTATEMENT OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO CYBERSHOP, L.L.C.
ISSUANCE OF THIS CERTIFICATE TO ANY NAMED PERSON OR ENTITY DOES NOT, IN AND
OF ITSELF, CONSTITUTE THE ADMISSION OF SUCH PERSON OR
23
<PAGE>
ENTITY AS A "MEMBER" (AS DEFINED IN SUCH OPERATING AGREEMENT) OF CYBERSHOP,
L.L.C.
15. TRUSTEES NOT LIABLE - Any obligation of the Trustees of General
Electric Pension Trust hereunder shall be enforceable solely against the assets
of such Pension Trust and not against any Trustee individually (except with
respect to the actual fraud or willful misconduct of any such Trsutee).
IN WITNESS WHEREOF, we have hereunto executed this document as of the 10th
day of October, 1997.
COMPANY:
CYBERSHOP, L.L.C.
By: /s/ Jeffrey Tauber
--------------------
JEFFREY TAUBER, Member
WITNESS:
/s/ Jeffrey Tauber
- --------------------------------- ---------------------------------
JEFFREY TAUBER
/s/ Jane Tauber
- --------------------------------- ---------------------------------
JANE TAUBER
/s/ Donald J. Weiss
- --------------------------------- ---------------------------------
DONALD J. WEISS
GENESIS DIRECT INC.
- --------------------------------- By: /s/ Warren Struhl
-------------------
Name: Warren Struhl
Title: CEO
JEFFREY S. TAUBER GRANTOR
RETAINED ANNUITY TRUST
- --------------------------------- By: /s/ Jeffrey S. Tauber
--------------------------
Jeffrey S. Tauber, Trustee
JANE S. TAUBER GRANTOR
RETAINED ANNUITY TRUST
24
<PAGE>
- --------------------------------- By: /s/ Jane S. Tauber
-------------------
Jane S. Tauber, Trustee
WITNESS: TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
- --------------------------------- By: /s/ Donald Torey
-------------------
Name: Donald Torey
Title: Trustee
- --------------------------------- /s/ Gerald A. Poch
-----------------------
GERALD A. POCH
- --------------------------------- /s/ Leonard J. Fassler
-----------------------
LEONARD J. FASSLER
PORRIDGE PARTNERS II
- --------------------------------- By: /s/ Arthur J. Samberg
-----------------------
Name: Arthur J. Samberg
Title: General Partner
BIG WAVE, NV
- --------------------------------- By: /s/ Michael Hecht
--------------------
Name: Micheal Hecht
Title: President
CAIRNTON PARTNERSHIP
- --------------------------------- By: /s/ G A Cubbin
--------------------
Name: G A Cubbin
Title: Director
25
<PAGE>
EXHIBIT A
MEMBERS
<TABLE>
<CAPTION>
==================================================================================
NAME, MEMBERSHIP SHARING
ADDRESS INTERESTS AS RATIO AS OF
AND T.I.N. OF AUGUST __, 1997 AUGUST __, 1997
<S> <C> <C>
- ----------------------------------------------------------------------------------
Initial Member ........................... 1,439,183 21.492%
Jeffrey Tauber
211 Gates Avenue
Montclair, New Jersey 07042
T.I.N. ###-##-####
- ----------------------------------------------------------------------------------
Initial Member ........................... 1,439,183 21.492%
Jane S. Tauber
211 Gates Avenue
Montclair, New Jersey 07042
T.I.N. ###-##-####
- ----------------------------------------------------------------------------------
The Jeffrey S. Tauber Grantor
Retained Annuity Trust .................. 874,746 13.063%
c/o Jeffrey Tauber, Trustee
211 Gates Avenue
Montclair, New Jersey 07042
T.I.N. ###-##-####
- ----------------------------------------------------------------------------------
The Jane S. Tauber Grantor
Retained Annuity Trust .................. 874,746 13.063%
c/o Jane S. Tauber, Trustee
211 Gates Avenue
Montclair, New Jersey 07042
T.I.N. ###-##-####
- ----------------------------------------------------------------------------------
Initial Member ........................... 300,000 4.476%
Donald J. Weiss
50 Hartshorn Drive
Short Hills, New Jersey
T.I.N. ###-##-####
- ----------------------------------------------------------------------------------
Initial Member ........................... 100,000 1.480%
Genesis Direct, Inc.
1 Bridge Plaza
Fort Lee, New Jersey 07024
Attention: Warren Struhl
T.I.N. 22-3378338
- ----------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
================================================================================
NAME, MEMBERSHIP SHARING
ADDRESS INTERESTS AS RATIO AS OF
AND T.I.N. OF AUGUST , 1997 AUGUST , 1997
<S> <C> <C>
- --------------------------------------------------------------------------------
GE Group Member ............... 889,143 13.278%
Trustees of General Electric
Pension Trust
3003 Summer Street
Stamford, Connecticut 06904-7900
Attention: David Wiederecht and
Steve Levanti
- --------------------------------------------------------------------------------
GE Group Member ............... 83,369 1.245%
Porridge Partners II
c/o Dawson-Samberg
354 Pequot Avenue
Southport, Connecticut 06490
T.I.N. 06-1391106
- --------------------------------------------------------------------------------
GE Group Member ............... 69,575 1.039%
Leonard J. Fassler
700 Canal Street
Stamford, Connecticut 06902
T.I.N. ###-##-####
- --------------------------------------------------------------------------------
GE Group Member ............... 69,575 1.039%
Gerald A. Poch
700 Canal Street
Stamford, Connecticut 06902
T.I.N. ###-##-####
- --------------------------------------------------------------------------------
Big Wave, NV 279,037 4.167%
c/o Hecht and Company
111 West 40th Street
New York, NY ___
T.I.N. ..................
- --------------------------------------------------------------------------------
Cairnton Partnership 279,037 4.167%
54 Park Street
Sydney
2,000, New South Wales
Australia
T.I.N. ______
- --------------------------------------------------------------------------------
Total 6,697,594 100%
================================================================================
</TABLE>
A-2
<PAGE>
EXHIBIT B
OPTIONS
<TABLE>
<CAPTION>
NUMBER OF MEMBERSHIP INTERESTS
NAME OF OPTIONEE SUBJECT TO THE OPTION
- ------------------ -------------------------------
<S> <C>
J. Markus 37,000
L. Wiatrowski 85,000
T. Montgomery 50,000
J. Burton 3,646
N. Kirschenbaum 4,200
A. Perry 13,395
-------
193,241
</TABLE>
B-1
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE
See attached.
C-1
<PAGE>
EXHIBIT D
FORM OF OPTION AGREEMENTS
See attached.
D-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS .................................................... 1
ARTICLE II
FORMATION ...................................................... 6
1. Organization ............................................ 6
2. Agreement ............................................... 6
3. Name .................................................... 6
4. Effective Date .......................................... 6
5. Term .................................................... 6
6. Registered Agent and Office ............................. 6
7. Principal Office ........................................ 7
ARTICLE III
NATURE OF BUSINESS ............................................. 7
ARTICLE IV
ACCOUNTING, RECORDS AND CERTIFICATES ........................... 7
1. Records to be Maintained ................................ 7
2. Reports to Members: ..................................... 7
3. Accounts ................................................ 7
4. Certificates ............................................ 7
ARTICLE V
NAMES AND ADDRESSES OF MEMBERS ................................. 8
ARTICLE VI
RIGHTS AND DUTIES OF MEMBERS AND THE ADVISORY COMMITTEE ........ 8
1. Management .............................................. 8
2. Majority ................................................ 10
3. Liability of Members .................................... 10
4. Indemnification ......................................... 10
5. Representations and Warranties of the Members ........... 11
6. Representations and Warranties of the Company ........... 11
7. Conflicts of Interests .................................. 12
8. Compensation of Managing Member and Key Employees ....... 12
9. Options ................................................. 12
ARTICLE VII
CONTRIBUTIONS AND CAPITAL ACCOUNTS ............................. 13
1. Initial Contributions ................................... 13
2. Maintenance of Capital Accounts ......................... 13
3. Distribution of Assets .................................. 13
4. Sale or Exchange of Interest ............................ 13
5. Compliance with Section 704(b) of the Code .............. 13
ARTICLE VIII
DISTRIBUTIONS .................................................. 14
1. Interim Distributions ................................... 14
2. Limitations on Distributions ............................ 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IX
ALLOCATIONS ................................................................... 14
1. Allocations of Net Profits and Net Losses from Operations .............. 14
2. Company Minimum Gain Chargeback ........................................ 14
3. Member Minimum Gain Chargeback ......................................... 14
4. Qualified Income Offset ................................................ 15
5. Member Nonrecourse Deductions .......................................... 15
6. Contributed Property ................................................... 15
ARTICLE X
TAXES ......................................................................... 15
1. Elections .............................................................. 15
2. Taxes of Taxing Jurisdiction ........................................... 15
3. Tax Matters Partner .................................................... 15
4. Method of Accounting ................................................... 16
ARTICLE XI
DISPOSITION OF MEMBERSHIP INTERESTS ........................................... 16
1. Disposition ............................................................ 16
2. Additional Requirements ................................................ 16
3. Further Restrictions on Transfers by Members ........................... 16
4. Disposition not in Compliance with this Article Void ................... 17
ARTICLE XII
DISSOCIATION OF A MEMBER ...................................................... 18
1. Dissociation ........................................................... 18
2. Rights of Dissociation Member .......................................... 18
ARTICLE XIII
ADMISSION OF ASSIGNEES AND ADDITIONAL MEMBERS ................................. 18
1. Rights of Assignees .................................................... 18
2. Admission of Substitute Members ........................................ 18
3. Admission of Additional Members; Additional Sales to Existing Members .. 19
ARTICLE XIV
DISSOLUTION AND WINDING UP .................................................... 19
1. Dissolution ............................................................ 19
2. Effect of Dissolution .................................................. 19
3. Distribution of Assets on Dissolution .................................. 19
4. Winding Up and Certificate of Cancellation ............................. 20
ARTICLE XV
AMENDMENT ..................................................................... 20
ARTICLE XVI
LIFE INSURANCE ................................................................ 20
ARTICLE XVII
RESTRICTIVE COVENANT .......................................................... 21
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XVIII
RESTRICTIONS ON ADMITTING ADDITIONAL MEMBERS ......................... 21
ARTICLE XIX
MISCELLANEOUS PROVISIONS ............................................. 21
1. Entire Agreement ............................................. 21
2. No Partnership Intended for Nontax Purposes .................. 21
3. Rights of Creditors and Third Parties under Company Agreement 21
4. Governing Law ................................................ 22
5. Headings ..................................................... 22
6. Parties Bound ................................................ 22
7. Legal Construction ........................................... 22
8. Counterparts ................................................. 22
9. Waivers in Writing ........................................... 22
10. Joint Effort and Representations ............................. 22
11. Specific Performance or Rescission ........................... 23
12. Further Assurances ........................................... 23
13. Expiration of Certain Rights ................................. 23
14. Restrictive Legend on Certificated Interests ................. 23
15. Trustees Not Liable .......................................... 24
EXHIBIT A - MEMBERS .................................................... A-1
EXHIBIT B - OPTIONS .................................................... B-1
EXHIBIT C - FORM OF CERTIFICATE ........................................ C-1
EXHIBIT D - FORM OF OPTION AGREEMENTS .................................. D-1
</TABLE>
iii
EXHIBIT 10.7
REGISTRATION RIGHTS AGREEMENT
Dated as of October 18, 1996
By and Among
CYBERSHOP, L.L.C.
TRUSTEES OF GENERAL ELECTRIC PENSION TRUST
LEONARD J. FASSLER
GERALD A. POCH
PORRIDGE PARTNERS II
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Securities Subject to this Agreement..................................................... 1
(a) Definitions......................................................................... 1
(b) Restricted Securities............................................................... 1
2. Demand Registration...................................................................... 2
(a) Request for Registration........................................................... 2
(b) Effective Registration and Expenses................................................ 3
(c) Priority on Demand Registrations................................................... 4
3. Piggy-Back Registrations................................................................. 4
4. Holdback Agreement....................................................................... 6
(a) Restrictions on Public Sale by Holders of
Registrable Securities.............................................................. 6
(b) Restrictions on Public Sale by the Company
and Others.......................................................................... 6
5. Registration Procedures.................................................................. 6
6. Registration Expenses.................................................................... 11
7. Indemnification; Contribution............................................................ 11
(a) Indemnification by the Company...................................................... 11
(b) Indemnification by Holders of Registrable
Securities.......................................................................... 12
(c) Conduct of Indemnification Proceedings.............................................. 13
(d) Contribution........................................................................ 13
8. Selection of Underwriters; Participation in
Underwritten Registrations............................................................... 15
9. Rule 144 Reporting....................................................................... 15
10. Miscellaneous............................................................................ 16
(a) Governing Law....................................................................... 16
(b) No Inconsistent Agreements.......................................................... 16
(c) Successors and Assigns.............................................................. 16
(d) Entire Agreement.................................................................... 16
(e) Amendments and Waivers.............................................................. 17
(f) Notices............................................................................. 17
(g) Delays or Omissions................................................................. 17
(h) Remedies............................................................................ 17
(i) Counterparts........................................................................ 17
(j) Severability........................................................................ 17
(k) Titles and Subtitles................................................................ 18
(l) Attorneys' Fees..................................................................... 18
(m) Trustees Not Liable................................................................. 18
</TABLE>
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
effective as of October 18, 1996 by and among the Trustees of the General
Electric Pension Trust, a New York trust, with its principal office at 3003
Summer Street, Stamford, CT 06904, Leonard J. Fassler, an individual, having an
office at 700 Canal Street, Stamford, CT 06902, Gerald A. Poch, an individual,
having an office at 700 Canal Street, Stamford, CT 06902, and Porridge Partners
II, a Connecticut general partnership having an office at c/o Dawson-Samberg,
354 Pequot Avenue, Southport, Connecticut 06490 (each a "Purchaser" and,
collectively, the "Purchasers") and CyberShop, L.L.C., a New Jersey limited
liability company (the "Company"), with its principal office at 211 Gates
Avenue, 13th Floor, Montclair, NJ 07042-1742.
This Agreement is made pursuant to the Securities Purchase
Agreement dated as of the date hereof by and among the Company and each of the
Purchasers (the "Purchase Agreement"). In order to induce the Purchasers to
enter into the Purchase Agreement, the Company has agreed to provide the
registration rights with respect to the Securities (as defined in the Purchase
Agreement) purchased by the Purchasers pursuant to the Purchase Agreement as set
forth in this Agreement. Capitalized terms used herein without definitions shall
have the meanings set forth in the Purchase Agreement.
The parties hereto agree as follows:
1. Securities Subject to this Agreement
------------------------------------
(a) Definitions. The terms "Registrable Securities" and
"Restricted Securities" mean and include each of the following, subject to
Section 1(b): (i) the Securities, (ii) any securities similar to the Securities
distributed to the holders of Securities in connection with a dividend, split or
other distribution relating to the Securities and (iii) any other securities
issued in substitution or exchange for any of the Securities in which
substitution or exchange such Securities would cease to be outstanding.
(b) Restricted Securities. For the purposes of this Agreement,
Restricted Securities shall cease to be Registrable Securities when (i) such
Restricted Securities have been effectively registered under the Securities Act
of 1933, as amended (the "Act"), and they have been disposed of
<PAGE>
pursuant to an effective registration statement covering such Registrable
Securities, (ii) they are distributed to the public pursuant to Rule 144 (or any
similar provisions then in force) under the Act or (iii) they may be sold or
transferred pursuant to Rule 144(k) (or any similar provision then in force)
under the Act.
2. Demand Registration
-------------------
(a) Request for Registration. At any time on or after the date
6 months after the effective date of the initial public offering of any
securities of or other ownership interests in the Company (the "IPO"), any
holder or holders of Registrable Securities then outstanding may make a written
request for registration under the Act pursuant to this Section 2 of all or part
of its or their Registrable Securities (a "Demand Registration"); provided,
that, the Company need effect only one Demand Registration pursuant hereto from
the Purchasers (which shall be exercised by a majority in interest of the
Purchasers). Such request will specify the aggregate percentage or number of
each Purchaser's Registrable Securities proposed to be sold and will also
specify the intended method or methods of disposition thereof. Within 10 days
after receipt of such request the Company will give written notice of such
registration request to all other holders of Registrable Securities and include
in such registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within 30 days after
the receipt by the applicable holder of the Company's notice. Each such request
will also specify the percentage or number of each Purchaser's Registrable
Securities to be registered and the intended method or methods of disposition
thereof. Unless a majority in interest of the holders requesting to participate
in the Demand Registration shall consent in writing, none of the Company's
security holders (other than the Company and the holders of Registrable
Securities) shall have the right to include any of the Company's securities in
any registration statement prepared in connection with any such Demand
Registration.
(i) If, within 5 business days of receipt of a registration
request pursuant to this Section 2(a), the Company is advised in
writing (with a copy to the holder of Registrable Securities requesting
registration) by the managing underwriter of the IPO that, in such
firm's good faith opinion, a registration at the time and on the terms
requested would materially and adversely affect any planned offering of
securities by the Company or any other financing by the Company that
had been contemplated by the Company prior to receipt of the notice
requesting registration pursuant to this Section 2(a), the Company
shall not be required to
2
<PAGE>
effect a registration pursuant to this Section 2(a) until the earliest
of (A) the abandonment of such offering, (B) 90 days after the
completion of such offering or (C) the termination of any "hold back"
period obtained by the underwriter(s) of such offering from any person
in connection therewith.
(ii) If a registration request is pending pursuant to this
Section 2(a) and the Company has determined in good faith that (A) the
filing of a registration statement (or, if such registration statement
has been declared effective, any post-effective filing) would require
the disclosure of material information that the Company has a bona fide
business purpose for preserving as confidential, or (B) the Company is
then unable to comply with SEC requirements applicable to the requested
registration if such registration statement has not been declared
effective, the Company shall not be required to effect a registration
pursuant to such registration request or make any such post-effective
filing until the earlier of (1) the date upon which such material
information is otherwise disclosed to the public or ceases to be
material or the Company is able to so comply with applicable SEC
requirements, as the case may be, and (2) 30 days after the Company
makes such good-faith determination; provided that the Company shall
not be permitted to delay a requested registration or any such
post-effective filing in reliance on this clause (ii) more than 2 times
in any 12 month period.
(b) Effective Registration and Expenses. A Demand Registration
shall not be deemed to have been effected pursuant to Section 2(a) hereof until
it has become effective and the period of distribution of the registration
contemplated thereby has been completed; provided, however, that if a
registration does not become effective solely because of any act or omission on
the part of any Purchaser, such registration shall nevertheless count as a
Demand Registration and provided further that if after any such registration
statement has been declared or becomes effective, the Company, upon the request
of the Purchasers, causes the effectiveness thereof to lapse prior to the
completion of the period of distribution originally contemplated, such lapsed
registration shall be deemed a completed Demand Registration unless such request
by the Purchasers is directly related to a material adverse change to the
Company or its business which (i) in the good faith determination of the
Purchasers is likely to materially and adversely affect the ability of the
Purchasers to sell the Registrable Securities pursuant to such Registration
Statement or (ii) was known, but not disclosed to the Purchasers, by the Company
prior to the effectiveness of
3
<PAGE>
such registration statement. In any registration initiated as a Demand
Registration, the Company will pay all Registration Expenses (as hereinafter
defined) in connection therewith, whether or not such registration becomes
effective.
(c) Priority on Demand Registrations. If the holders of a
majority of the number of shares or amount of Registrable Securities to be
registered in a Demand Registration so elect, the offering of such Registrable
Securities pursuant to such Demand Registration shall be in the form of an
underwritten offering. Subject to the immediately succeeding sentence, the
Company shall have the right to cause the registration of additional securities
for sale for the account of any person (including the Company) in any
registration of Registrable Securities requested by a Holder pursuant to Section
2(a). In connection with such registration, if the managing underwriter or
underwriters of such offering advise the Company and the holders in writing that
in their good faith opinion the aggregate amount of Registrable Securities
requested to be included in such offering (together with additional securities
being offered by the Company or for the account of any other person other than
the Purchasers) is sufficiently large to materially and adversely affect the
offering and sale of such Registrable Securities, the Company will reduce the
amount of securities to be offered by it or for the account of any other person
other than the Purchasers to the extent recommended by the managing underwriter
(or if so recommended, withdraw from the offering entirely) and will include in
such registration the aggregate amount of Registrable Securities which in the
opinion of such managing underwriter or underwriters can be sold without any
such material adverse effect, and such securities to be included shall be
allocated pro rata among the holders of Registrable Securities on the basis of
the number or amount of Registrable Securities requested to be included in such
registration by the holders thereof.
3. Piggy-Back Registrations
------------------------
(a) If the Company proposes to file a registration statement
under the Act with respect to an offering by the Company for its own account
and/or for the account of any security holders (other than the holders of
Registrable Securities) of any class of security (other than a registration
statement on Form S-4 or S-8 or successor forms thereto or filed in connection
with an exchange offer or an offering of securities solely to the Company's
existing stockholders or a registration statement filed in connection with the
IPO), then the Company shall in each case give written notice of such proposed
filing to the holders of Registrable Securities at least 30 days before the
anticipated filing date, and such notice shall offer
4
<PAGE>
(except as otherwise contemplated by the penultimate sentence of this Section)
such holders the opportunity to register such number of shares of Registrable
Securities as each such holder may request. The Company shall use its reasonable
commercial efforts to cause the managing underwriter or underwriters of a
proposed underwritten offering to permit the holders of Registrable Securities
requested to be included in the registration for such offering to include such
securities in such offering on the same terms and conditions as any similar
securities of the Company included therein.
(b) If at any time after giving written notice of its
intention to register any securities and prior to the effective date of such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, given
written notice of such determination to the holders of Registrable Securities
and, thereupon, (A) in the case of a determination not to register, the Company
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration, and (B) in the case of a determination to
delay such registration, the Company shall be permitted to delay registration of
any Registrable Securities requested to be included in such piggyback
registration for the same period as the delay in registering such other
securities.
(c) (i) If the registration referred to in the first sentence
of this Section 3 is to be an underwritten primary registration on behalf of the
Company, and the managing underwriter advises the Company in writing that, in
such firm's good faith opinion, such offering would be materially and adversely
affected by the inclusion therein of the Registrable Securities requested to be
included therein, the Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own account ("Company
Securities"), (2) second, up to the full number or amount of Registrable
Securities held by the Purchasers and requested to be included in such
registration by such Purchasers ("Purchaser Securities") in excess of the number
or dollar amount of securities the Company proposes to sell which, in the
good-faith opinion of such managing underwriter, can be so sold without so
materially and adversely affecting such offering, and (3) third, an amount of
other securities, if any, requested to be included therein in excess of the
number or dollar amount of Company Securities and Purchaser Securities which, in
the opinion of such underwriter(s), can be sold without materially and adversely
affecting such offering (allocated among the holders of such other securities in
such proportions as such holders and the Company may agree); and (ii) if the
registration referred to in the first
5
<PAGE>
sentence of this Section 3 is to be an underwritten secondary registration on
behalf of holders of securities (other than Registrable Securities) of the
Company (the "Other Holders"), and the managing underwriter advises the Company
in writing that in their good-faith opinion such offering would be materially
and adversely affected by the inclusion therein of the Registrable Securities
requested to be included therein, the Company shall include in such registration
the amount of securities (including Registrable Securities) that such managing
underwriter advises allocated pro rata among the Other Holders and the holders
of Registrable Securities on the basis of the number or amount of securities
(including Registrable Securities) requested to be included therein by each
Other Holder and each Holder of Registrable Securities.
4. Holdback Agreement
------------------
(a) Restrictions on Public Sale by Holders of Registrable
Securities. To the extent not inconsistent with applicable law, each holder of
Registrable Securities whose securities are included in a registration statement
agrees, upon the request of the managing underwriter or underwriters in an
underwritten offering, not to sell, make any short sale of, lend, grant any
option for the purchase of, effect any public sale or distribution or otherwise
dispose of any securities of the Company, during the 30 days prior to, and
during the 90-day period beginning on, the effective date of such registration
statement, if and to the extent requested by the managing underwriter or
underwriters. The Company may impose stop transfer restrictions on certificates
reflecting the foregoing.
(b) Restrictions on Public Sale by the Company and Others. The
Company agrees, upon the request of the managing underwriter or underwriters in
an underwritten offering, not to effect any public or private offer, sale or
distribution of any securities of the Company of the same class as the
securities included in any registration participating, or any securities
convertible into or exchangeable or exercisable for such securities (except
pursuant to employee benefit plans, as part of such registration or pursuant to
registrations on Forms S-4 or S-8 or any successor form to such Forms), during
the 14 days prior to, and during the 90-day period beginning on, the effective
date of such registration statement, if and to the extent requested by the
managing underwriter or underwriters.
5. Registration Procedures
-----------------------
6
<PAGE>
Whenever the holders of Registrable Securities have requested
that any Registrable Securities be registered pursuant to Section 2 or 3 of this
Agreement, the Company will use its reasonable commercial efforts to effect the
registration and the sale of such Registrable Securities upon the terms and
conditions hereof to permit the sale of Registrable Securities by holders
thereof in accordance with the intended method or methods of distribution or
disposition thereof as quickly as practicable, and in connection with any such
request, the Company will as expeditiously as possible:
(a) in connection with a request pursuant to Section 2,
prepare and file with the Securities and Exchange Commission (the
"Commission"), not later than 60 days (90 days if other than on a Form
S-3) after receipt of a request to file a registration statement with
respect to Registrable Securities, a registration statement on any form
for which the Company then qualifies or which counsel for the company
shall deem appropriate for the sale of Registrable Securities in
accordance with the intended method or methods of distribution thereof,
and use reasonable commercial efforts to cause such registration
statement to become effective as promptly as practicable thereafter;
and provided, further, that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company will
furnish to one counsel selected by the holders of a majority in number
of shares of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed;
(b) in connection with a registration pursuant to Section 2,
prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for a period of not less than 90 days or such shorter period
which will terminate when all Registrable Securities covered by such
registration statement have been sold (but not before the expiration of
the applicable period referred to in Section 4(3) of the Act and Rule
174 thereunder, if applicable), and comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the
intended method or methods of disposition by the sellers thereof set
forth in such registration statement or prospectus;
(c) as soon as reasonably possible, furnish to each seller of
Registrable Securities to be included in
7
<PAGE>
a registration statement copies of such registration statement as filed
and each amendment and supplement thereto (in each case including all
exhibits thereto), as many copies of the prospectus included in such
registration statement and any amendments or supplements thereto as
such seller may reasonably request (including each preliminary
prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(d) use reasonable commercial efforts to register or qualify
such Registrable Securities under such other securities or blue sky
laws of such jurisdictions as any seller reasonably requests and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such seller;
provided, that the Company will not be required to (i) register or to
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d) or to
subject itself to taxation in any such jurisdiction or (ii) take any
action that would subject it to the service of process in suits other
than as to matters and transactions relating to the sale of the
Registrable Securities or any violation of state securities laws in any
jurisdiction where it is not now so subject;
(e) use reasonable commercial efforts to cause the Registrable
Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities as may
be necessary to enable the seller or sellers thereof or the underwriter
or underwriters, if any, to consummate the disposition of such
Registrable Securities subject to the proviso contained in paragraph
(d) above;
(f) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered
under the Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Company will promptly prepare a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated
8
<PAGE>
therein or necessary to make the statements therein not misleading;
(g) notify each seller of Registrable Securities of any stop
order issued or threatened by the Commission and take all reasonable
actions required to prevent the entry of such stop order or to remove
it if entered;
(h) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions (including
using reasonable commercial efforts to obtain customary opinions of
counsel for the Company) as are reasonably required in order to
expedite or facilitate the disposition of such Registrable Securities;
(i) make available at all reasonable times and in a reasonable
manner for inspection by any seller of Registrable Securities, any
underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company customarily reviewed in similar
securities offerings (collectively, the "Records"), and cause the
officers, directors and employees of the Company to supply all
information reasonably requested by any such Inspector in connection
with such registration statement prior to its effectiveness. Records
which the Company determines, in good faith, to be confidential and
which the Company notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records
is necessary to avoid or correct a misstatement or omission in the
registration statement or (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction. Each seller of Registrable Securities agrees that it
will, upon learning that disclosure of such Records is sought in a
court of competent jurisdiction, give notice to the Company and allow
the Company, at the Company's expense, to undertake appropriate action
to prevent disclosure of the Records deemed confidential;
(j) use reasonable commercial efforts to obtain a comfort
letter from the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by
comfort letters with respect to offerings of such type as the holders
of a
9
<PAGE>
majority in number of shares of the Registrable Securities being sold
reasonably request;
(k) otherwise comply with all applicable rules and regulations
of the Commission, and make generally available to its security
holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within 3 months after the
effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Act and Rule 158
thereunder;
(l) cause all such Registrable Securities to be listed on each
securities exchange or quotation system on which similar securities
issued by the Company are then listed; and
(m) cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD")
and in the performance of any due diligence investigation by any
Inspector (including any "qualified independent underwriter" that is
required to be retained in accordance with the rules and regulations of
the NASD).
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding the distribution of such Securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 5(f) hereof, such holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 5(f) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the prospectus may be resumed. If so directed by the Company, such holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including the period referred to in
Section 5(b)) by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 5(f) hereof to and
including the date when each seller of Registrable
10
<PAGE>
Securities covered by such registration statement shall have received the copies
of the supplemented or amended or amended prospectus contemplated by Section
5(f) hereof or shall have received the Advice.
6. Registration Expenses
---------------------
All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation, all registration
and filing fees and expenses (including those for filings made with the NASD),
fees and expenses of compliance with securities or blue sky laws (including fees
and disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), rating agency fees, printing expenses, messenger and
delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of the Company's officers and employees performing legal
or accounting duties), the fees and expenses incurred in connection with the
listing of the securities to be registered on each securities exchange and
quotation system on which similar securities issued by the Company are then
listed, and fees and disbursements of counsel for the Company and its
independent certified public accountants (including the expenses of any special
audit and "comfort" letters required by or incidental to such performance),
securities acts liability insurance (if the Company elects to obtain such
insurance), the fees and expenses of any special experts retained by the Company
in connection with such registration, fees and expenses of other Persons
retained by the Company, fees and expenses of other Persons retained by the
Company, fees and expenses of one counsel for the holders of Registrable
Securities incurred in connection with each registration hereunder and any
reasonable out-of-pocket expenses of the holders of Registrable Securities (or
the agents who manage their accounts) (all such expenses being herein called
"Registration Expenses"), will be borne by the Company. The holders of
Registrable Securities sold pursuant to a registration statement shall bear the
expense of any broker's commission or underwriter's discount or commission
relating to such registration and sale.
7. Indemnification; Contribution
-----------------------------
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, (i) each
holder of Registrable Securities, (ii) each Person who controls such holder
(within the meaning of the Act), (iii) any investment advisor thereof or
financial agent or counsel therefor, and (iv) the trustees, officers, directors,
partners, employees, representatives and/or agents, as applicable, of each
Person described in the foregoing clauses (i) through (iii), from and against
any and all losses, claims, damages, liabilities and
11
<PAGE>
expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus
(or any amendments or supplements thereto), including any document incorporated
by reference therein, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein (in case of a prospectus or preliminary prospectus, in light
of the circumstances under which they were made) not misleading, except insofar
as the same are caused by, contained in, or, with respect to any material
omission, omitted from, any information with respect to indemnified parties or
any underwriter or person controlling or affiliated with an underwriter
furnished in writing to the Company by such indemnified party expressly for use
therein. The Company will also indemnify and hold harmless (A) any underwriters
of the Registrable Securities, (B) each Person who controls such underwriters
(within the meaning of the Act), and (C) the officers, directors, partners,
employees, representatives and/or agents of each Person described in the
foregoing clauses (A) and (B), to the same extent as provided above with respect
to the indemnification of the holders of Registrable Securities.
(b) Indemnification by Holders of Registrable Securities. In
connection with any registration statement in which a holder of Registrable
Securities is participating, each such holder will furnish to the Company in
writing such information with respect to such holder as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and agrees to indemnify and hold harmless, to the extent permitted by
law, (i) the Company, (ii) each Person who controls the Company (within the
meaning of the Act), and (iii) the officers, directors, partners, employees,
representatives and/or agents of each Person described in the foregoing clauses
(i) and (ii), from and against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of a material
fact or any omission or alleged omission of a material fact required to be
stated in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or necessary to make the statements
therein (in the case of a prospectus or preliminary prospectus, in the light or
the circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission is contained in, or
with respect to any material omission, omitted from, any information with
respect to such holder so furnished in writing by such holder expressly for use
therein. In no event shall the liability of any selling holder of Registrable
Securities hereunder be greater in amount than the dollar amount of the proceeds
received by such holder upon the sales of
12
<PAGE>
Restricted Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder agrees to give prompt written notice to
the indemnifying party after the receipt by such Person of any written notice of
the commencement of any action , suit, proceeding or investigation or threat
thereof made in writing for which such Person will claim indemnification or
contribution pursuant to this Agreement (but the failure to give such notice
will not affect the right to indemnification or contribution hereunder unless,
and only to the extent that, the indemnifying party is materially prejudiced by
such failure). The indemnifying party shall not have the right to assume the
defense of such action or proceeding on behalf of such indemnified party, it
being understood, however, that the indemnifying parties shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) in any one jurisdiction at any time for all such indemnified
parties, unless in the reasonable judgment of an indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the reasonable fees and expenses of such
additional counsel or counsels. Any indemnified party shall also have the right
to employ separate counsel in any such action and participate in the defense
thereof at such indemnified party's expense. The indemnifying party will not be
subject to any liability for any settlements made without its consent, which
shall not be unreasonably withheld. No indemnifying party shall, without the
consent of such indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which such indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability for claims that are the subject matter
of such proceeding.
(d) Contribution. If for any reason the indemnity provided for
in this Section 7 is unavailable to, or is insufficient to hold harmless, an
indemnified party, then the indemnifying party, in lieu of indemnifying such
party, shall contribute the amount paid or payable by the indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is
13
<PAGE>
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and the indemnified party, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party, on the one hand, and the
indemnified party, on the other hand, shall be determined by reference to, among
other things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, the
indemnifying party or the indemnified party; and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 7(c), any
legal or other fees or expenses reasonably incurred by such indemnified party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. 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.
14
<PAGE>
8. Selection of Underwriters; Participation in Underwritten Registrations
----------------------------------------------------------------------
(a) The underwriters for any offering of Registrable
Securities to be distributed pursuant to Section 2 shall be selected by the
holders of a majority of the number of shares of Registrable Securities to be
registered and shall be reasonably acceptable to the Company.
(b) The underwriters for any offering of Registrable
Securities to be registered pursuant to Section 3 shall be selected by the
Company and shall be reasonably acceptable to the holders of a majority of the
number of shares of Registrable Securities to be registered.
(c) Notwithstanding the provisions of this Section 8(a)and
(b), the Trustees of General Electric Pension Trust shall have the right to
disapprove any underwriter in which General Electric Company has a direct or
indirect interest of five percent or more.
(d) No Person may participate in any underwritten registration
hereunder unless such Person (a) agrees to sell such Person's securities on the
basis provided in any underwriting agreements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
9. Rule 144 Reporting
------------------
With a view to making available the benefits of certain rules
and regulations of the Commission which may at any time permit the sale of the
Registrable Securities to the public without registration, the Company agrees
to:
(a) use reasonable commercial efforts to make and keep public
information available, as those terms are understood and defined in
Rule 144 under the Act;
(b) use reasonable commercial efforts to file with the
Commission in a timely manner all reports and other documents required
of the Company under the Act and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); and
(c) furnish to any holder of Registrable Securities forthwith
upon request a written statement by the Company as to its compliance
with the reporting requirements of such Rule 144 and of the Act and the
Exchange Act, a copy of the most recent annual or
15
<PAGE>
quarterly report of the Company, and such other reports and documents
so filed by the Company as such holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing
such holder to sell any Registrable Securities without registration.
10. Miscellaneous
-------------
(a) Governing Law. This Agreement shall be governed in all
respects by the laws of the State of New Jersey, without reference to its
conflicts of law principles.
(b) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement and, without the prior written consent of the Purchasers, grant
registrations rights to any other Person or Persons that are senior to or pari
passu with registration rights granted to the Purchasers hereunder. The Company
represents and warrants that it has not previously entered into any agreement
with respect to any of its securities granting any registration rights to any
Person, other than agreements which by reason of lapse of time do not require
the Company as a practical matter to register any securities for any Person.
(c) Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto. No party may assign any of such party's rights, interests or
obligations hereunder without the prior written consent of the other parties
hereto; provided, however, that any Purchaser may assign any or all of its
rights, interests and obligations hereunder (i) in connection with the
concurrent sale or transfer of Registrable Securities, or (ii) to a successor
entity to any Purchaser pursuant to a reorganization of such Purchaser,
provided, in case of each assignment pursuant to clause (i) or (ii) above, that
(A) the Company receives notice o such assignment and (B) this Agreement may
only be assigned if, prior to such assignment, such assignee shall assume all of
the applicable assignor's obligations hereunder.
(d) Entire Agreement. This Agreement, together with the
Purchase Agreement, constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof and no party
shall be liable or bound to any other party in any manner by any warranties,
representations, or covenant except as specifically set forth herein or therein.
16
<PAGE>
(e) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least a majority of number of shares of Registrable Securities then
outstanding affected by such amendment, modification, supplement, waiver or
departure.
(f) Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
express, registered or certified mail, postage prepaid, return receipt
requested, sent by facsimile confirmed by first-class mail, postage prepaid, or
by courier service guaranteeing overnight delivery with charges prepaid, or
otherwise delivered by hand or by messenger, addressed to party at such party's
address and/or facsimile number as provided in Schedule I hereto or at such
other address and/or facsimile number as such party shall have furnished to the
other parties hereto in accordance with this Section 10(f). Any notice provided
hereunder shall be effective upon receipt.
(g) Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to the Purchasers, upon any breach or default of
the Company under this Agreement, shall impair any such right, power or remedy
of the Purchasers nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any other breach or default
theretofore or thereafter occurring.
(h) Remedies. Each holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of breach by it of the
provisions of this Agreement and hereby agrees to waive (to the extent permitted
by law) the defense in any action for specific performance that a remedy of law
would be adequate.
(i) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(j) Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable
17
<PAGE>
or void, this Agreement shall continue in full force and effect without said
provision, it being intended that all of the rights and privileges of the
Purchasers shall be enforceable to the fullest extent permitted by law.
(k) Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(l) Attorney's Fees. In any action or proceeding brought to
enforce any provision of this Agreement, the Securities or the Purchase
Agreement, or where any provision hereof or thereof is validly asserted as a
defense, the successful party shall be entitled to recover reasonable attorney's
fees in addition to any other available remedy.
(m) Trustees Not Liable. Any obligation of the Trustees of
General Electric Pension Trust shall be enforceable solely against the assets of
such Pension Trust and not against any Trust individually (except with respect
to the actual fraud or willful misconduct of any such Trustee).
[Remainder of page intentionally left blank.]
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the 18th day of October, 1996.
The Company: Purchasers:
- ----------- ----------
CYBERSHOP, L.L.C. TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By: /s/ Jeffrey Tauber By:
--------------------------- --------------------------------
Name: Jeffrey Tauber Name:
Title: Managing Member Title:
----------------------------
GERALD A. POCH
----------------------------
LEONARD J. FASSLER
PORRIDGE PARTNERS II
By:
----------------------------
Name: Arthur J. Samberg
Title: General Partner
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the 18th day of October, 1996.
The Company: Purchasers:
- ----------- ----------
CYBERSHOP, L.L.C. TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By: By: /s/ Alan M. Lewis
--------------------------- --------------------------------
Name: Name: Alan M. Lewis
Title: Managing Member Title: Trustee
-------------------------------------
GERALD A. POCH
-------------------------------------
LEONARD J. FASSLER
PORRIDGE PARTNERS II
By:
----------------------------
Name: Arthur J. Samberg
Title: General Partner
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the 18th day of October, 1996.
The Company: Purchasers:
- ----------- ----------
CYBERSHOP, L.L.C. TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By: By:
--------------------------- --------------------------------
Name: Name:
Title: Managing Member Title:
/s/ Gerald A. Poch
-------------------------------------
GERALD A. POCH
/s/ Leonard J. Fassler
-------------------------------------
LEONARD J. FASSLER
PORRIDGE PARTNERS II
By:
----------------------------
Name: Arthur J. Samberg
Title: General Partner
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the 18th day of October, 1996.
The Company: Purchasers:
- ----------- ----------
CYBERSHOP, L.L.C. TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By: By:
--------------------------- --------------------------------
Name: Name:
Title: Managing Member Title:
-------------------------------------
GERALD A. POCH
-------------------------------------
LEONARD J. FASSLER
PORRIDGE PARTNERS II
By: /s/ Arthur J. Samberg
----------------------------
Name: Arthur J. Samberg
Title: General Partner
<PAGE>
SCHEDULE I
----------
ADDRESSES OF THE PARTIES
------------------------
1. CyberShop, L.L.C.
211 Gates Avenue, 13th Floor
Montclair, NJ 07042-1742
facsimile number: (201) 746-6983
2. Trustee of General Electric Pension Trust
3003 Summer Street
Stamford, CT 06904
facsimile number: (203) 326-4177
3. Leonard J. Fassler
700 Canal Street
Stamford, CT 06902
facsimile number: (203) 357-1531
4. Gerald A. Poch
700 Canal Street
Stamford, CT 06902
facsimile number: (203) 357-1531
5. Porridge Partners II
c/o Dawson-Samberg
354 Pequot Avenue
Southport, CT 06490
facsimile number: (203) 255-2558
<PAGE>
AMENDMENT NO. 1
REGISTRATION RIGHTS AGREEMENT
This Amendment No. 1 (this "Amendment") dated as of June 3, 1997 to
that certain Registration Rights Agreement (the "Existing Registration Rights
Agreement") dated and effective as of October 18, 1996 by and among the Trustees
of the General Electric Pension Trust, a New York trust ("GEPT"), Leonard J.
Fassler, an individual ("Fassler"), Gerald A. Poch ("Poch"), an individual,
Porridge Partners II, a Connecticut general partnership ("Porridge") and
CyberShop, L.L.C., a New Jersey limited liability company (the "Company").
RECITAL
Reference is made to (i) that certain Securities Purchase Agreement
dated as of October 18, 1996 among the Company, GEPT, Poch, Fassler and Porridge
(the "1996 Purchase Agreement") pursuant to which GEPT, Poch, Fassler and
Porridge purchased membership interests in, and were as admitted as members of,
the Company and (ii) that certain Second Securities Purchase Agreement of even
date herewith among the Company, GEPT and Fassler (the "1997 Purchase
Agreement") pursuant to which GEPT and Fassler are to make additional
contributions to the Company in the amounts of $400,000 and $50,000,
respectively (the "Additional Contributions"). In order to induce GEPT and
Fassler to make the Additional Contributions to the Company, the Company has
agreed to amend the Existing Registration Rights Agreement in the manner set
forth herein and, in light of the benefit to be received by the Company from the
Additional Contributions, Poch and Fassler have agreed to consent to this
Amendment.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definition of "Securities"; Consent by Non-Participating Parties;
Automatic Amendment Relating to Possible Poch Contribution. The term
"Securities" as used in the Existing Registration Rights Agreement shall have
the meaning provided in the 1996 Purchase Agreement and shall also include any
increases to the interests in the Company owned by GEPT and Fassler as a result
of the Additional Contributions to be made by each of them pursuant to the 1997
Purchase Agreement. Poch and Porridge hereby agree and consent to the Amendment
contained in the preceding sentence. All parties hereto agree and acknowledge
that Poch may (prior to the end of June 1997) make an additional contribution of
$50,000 to the Company in respect of his
<PAGE>
membership interest in the Company on the same terms as the Additional
Contributions and that if and when such contribution is made by Poch, the
Existing Registration Rights Agreement, as amended hereby, shall be deemed to be
further amended, without further action or the execution of any instrument, such
that the term "Securities", as amended, hereby, shall also include increases in
Poch's interests as a result of his $50,000 additional contribution.
Section 2. Miscellaneous
-------------
(a) Full Force; Governing Law. Except as amended hereby, the Existing
Registration Rights Agreement remains in full force and effect. This Amendment
shall be governed in all respects by the laws of the State of New Jersey,
without reference to its conflicts of law principles.
(b) Counterparts; Captions. This Amendment may be executed in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. The captions used
in this Amendment are used for convenience only and are not to be considered in
construing or interpreting this Amendment or the Existing Registration Rights
Agreement.
[Remainder of page intentionally left blank.]
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Existing Registration Rights Agreement as of the day of , 1997.
CYBERSHOP, L.L.C. TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By: /s/ Jeffrey Tauber By:
------------------------ -------------------------
Name: Jeffrey Tauber Name:
Title: Managing Member Title:
/s/ Generald A. Poch
-----------------------------
GERALD A. POCH
-----------------------------
LEONARD J. FASSLER
PORRIDGE PARTNERS II
By:
------------------------
Name: Arthur J. Samberg
Title: General Partner
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Existing Registration Rights Agreement as of the 3rd day of June , 1997.
CYBERSHOP, L.L.C. TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By: By: /s/ Donald W. Torey
------------------------ ------------------------
Name: Jeffrey Tauber Name: Donald W. Torey
Title: Managing Member Title: Trustee
-----------------------------
GERALD A. POCH
-----------------------------
LEONARD J. FASSLER
PORRIDGE PARTNERS II
By:
------------------------
Name: Arthur J. Samberg
Title: General Partner
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Existing Registration Rights Agreement as of the 3rd day of June , 1997.
CYBERSHOP, L.L.C. TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By: By:
------------------------ ------------------------
Name: Jeffrey Tauber Name:
Title: Managing Member Title:
-----------------------------
GERALD A. POCH
/s/ Leonard J. Fassler
-----------------------------
LEONARD J. FASSLER
PORRIDGE PARTNERS II
By:
------------------------
Name: Arthur J. Samberg
Title: General Partner
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Existing Registration Rights Agreement as of the 3rd day of June , 1997.
CYBERSHOP, L.L.C. TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By: By:
------------------------ ------------------------
Name: Jeffrey Tauber Name:
Title: Managing Member Title:
-----------------------------
GERALD A. POCH
-----------------------------
LEONARD J. FASSLER
PORRIDGE PARTNERS II
By: /s/ Arthur J. Samberg
------------------------
Name: Arthur J. Samberg
Title: General Partner
6
EXHIBIT 21.1
SUBSIDIARIES
OF
CYBERSHOP INTERNATIONAL, INC.
CyberShop, L.L.C., a New Jersey limited liability company, is the only
subsidiary of CyberShop International, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CyberShop International, Inc.:
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made part of this
registration statement.
Arthur Andersen LLP
Roseland, New Jersey
December 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 509,727 764,273
<SECURITIES> 0 0
<RECEIVABLES> 49,260 69,038
<ALLOWANCES> 10,000 10,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 548,987 823,311
<PP&E> 216,627 322,871
<DEPRECIATION> 100,313 183,313
<TOTAL-ASSETS> 669,987 968,009
<CURRENT-LIABILITIES> 258,642 89,827
<BONDS> 0 0
0 0
0 0
<COMMON> 0 5,000
<OTHER-SE> 398,397 859,069
<TOTAL-LIABILITY-AND-EQUITY> 669,987 968,009
<SALES> 272,560 496,150
<TOTAL-REVENUES> 355,385 579,094
<CGS> 155,274 355,602
<TOTAL-COSTS> 1,678,717 1,678,717
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (807,932) (1,084,328)
<INCOME-TAX> (807,932) (1,084,328)
<INCOME-CONTINUING> (807,932) (1,084,328)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (807,932) (1,084,328)
<EPS-PRIMARY> (.17) (.21)
<EPS-DILUTED> 0 0
</TABLE>
CONSENT
The undersigned hereby consents to the use in any Registration Statement
filed with the Securities and Exchange Commission pursuant to the Securites Act
of 1933, or pre- or post-effective amendment thereto ("Registration Statement"),
filed by CyberShop International, Inc., a Delaware coporation (the "Company"),
of the undersigned's name as a person expected to be named as a director of the
Company following the offering contemplated by such Registration Statement and
to the use of the information relating to the undersigned contained therein.
Dated: December 19, 1997
Robert Matluck
By: /s/ Robert Matluck
--------------------
Name: Robert Matluck
