AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1998
REGISTRATION NO 333-42707
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
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. JEFFREY S. TAUBER, CHAIRMAN OF THE BOARD
130 MADISON AVENUE CYBERSHOP INTERNATIONAL, INC.
NEW YORK, NEW YORK 10016 130 MADISON AVENUE
(212) 532-3553 NEW YORK, NEW YORK 10016
(Address, including ZIP Code, and Telephone Number, (212) 532-3553
including Area Code, of Registrant's Name, Address, including ZIP Code, and Telephone
Principal Executive Offices) Number, including Area Code, of
Agent for Service)
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Copies of all communications should be sent to:
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Walter M. Epstein, Esq. Robert Rosenman, Esq.
Rubin Baum Levin Constant & Friedman Cravath, Swaine & Moore
30 Rockefeller Plaza Worldwide Plaza, 825 Eighth Avenue
New York, New York 10112 New York, New York 10019
(212) 698-7700 (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.
CALCULATION OF ADDITIONAL REGISTRATION FEE
------------------------------------------
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED BE REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
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Common Stock, par value $.001 per share ... 345,000(1) $ 7.00 $2,415,000 $713(2)
====================================================================================================================================
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(1) Includes 45,000 shares which the Underwriters have an option to purchase
from the Company to cover over-allotments, if any.
(2) The additional registration fee has been paid concurrently with the filing
of this Amendment No. 1.
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: [ ]
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.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 11, 1998
P R O S P E C T U S
2,300,000 SHARES
[GRAPHIC OMITTED]
CYBERSHOP INTERNATIONAL, INC.
COMMON STOCK
-----------------
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 $5.00
and $7.00 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."
-----------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
-----------------
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.
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share ......... $ $ $
- --------------------------------------------------------------------------------
Total(3) .......... $ $ $
================================================================================
(1) Excludes warrants sold to C.E. Unterberg, Towbin and Fahnestock & Co. Inc.
(collectively, the "Underwriters") to purchase an aggregate of 230,000
shares of Common Stock at an exercise price equal to 110% of the initial
public offering price (the "Underwriters' Warrants"). The Company has
agreed to indemnify the Underwriters 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 Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 345,000 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 Underwriters, subject to
receipt and acceptance of such shares by them. The Underwriters reserve 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.
-----------------
C.E. UNTERBERG, TOWBIN FAHNESTOCK & CO. INC.
, 1998
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
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."
<PAGE>
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.]
<PAGE>
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. As of March , 1998 the members of CyberShop,
L.L.C. contributed all of their membership interests in exchange for 4,000,000
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 Underwriters' over-allotment option or the Underwriters' 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 currently 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 a convenient 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 24 hours a day. The online retailing
model also enables the Company to avoid the facilities and personnel costs
associated with maintaining traditional retail stores and the costs of printing
and distributing catalogs and staffing large "call centers" associated with
mail-order companies. 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. In addition to
offering a broad selection of quality branded merchandise at a guranteed
competitive price, the Company's customers benefit from cost savings, including
free domestic delivery for most purchases over $100 and discounts on future
purchases under the Company's frequent buyer program. Most customer orders are
completed by credit cards utilizing industry standard secured encryption.
The Company believes that relationships with merchandise manufacturers are
important to its business. CyberShop has established strategic relationships
with manufacturers which allow for prompt updates on merchandise information and
for most products to be rapidly shipped directly from suppliers. Supplier direct
shipping enables the Company to avoid inventory related risks, limit overhead
costs and provide prompt delivery. Through its Gifts Wrapped & Ready boutique
the Company also offers pre-wrapped gift items which are shipped from inventory
maintained at an independent warehouse facility or from the Company's suppliers
within 24 hours after an order is placed.
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
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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 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. The Company leverages its
database of customer demographic profiles to proactively market merchandise via
e-mail.
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 12,800 at December 31,
1997. The Company believes it has effectively positioned itself to capitalize on
the potential growth of online commerce by selectively targeting quality branded
manufacturers and strategic online partners.
The Company's office is located at 130 Madison Avenue, New York, New York
10016 and its telephone number is 212-532-3553.
THE OFFERING
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Common Stock offered hereby ......................... 2,300,000 shares
Common Stock outstanding after the Offering ......... 6,300,000 shares (1)
Use of proceeds ..................................... The net proceeds from the Offering will be used
by the Company to expand marketing and ad-
vertising efforts and potential strategic
alliances with Internet search engines and
guides and online communities, to repay a
secured loan made by the Trustees of the General
Electric Pension Trust, to develop and market an
online gift registry, to fund payments due to
AOL, and for working capital and other general
corporate purposes, including expansion of the
Company's technical infrastructure and possible
future stra- tegic alliances and acquisitions.
See "Use of Proceeds."
Proposed Nasdaq SmallCap Market Symbol .............. CYSP
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(1) Excludes (i) an aggregate of 1,343,634 shares of Common Stock reserved for
issuance under the Company's stock option plans of which 273,634 shares are
issuable upon the exercise of stock options outstanding as of December 31,
1997 and (ii) 230,000 shares of Common Stock issuable upon exercise of the
Underwriters' Warrants. The weighted average exercise price of all
outstanding options as of December 31, 1997 is $2.48 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; rapid technological change;
need for additional funds; potential inability to protect trademarks and
proprietary rights; sales and other taxes; control of the Company; possible
"year 2000" problems; anti-takeover effect of certain charter provisions;
shares eligible for future sale; registration rights; absence of prior
public market; possible volatility of stock price; management's broad
discretion in allocating a substantial portion of the proceeds; immediate
and substantial dilution; and absence of dividends.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
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FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenues:
Product sales ................................. $ 18,670 $ 272,560 $ 1,284,489
Set up fees ................................... 112,365 232,325 187,058
Other revenues ................................ 8,800 8,500 23,070
---------- ---------- ------------
Total revenues .............................. 139,835 513,385 1,494,617
Cost of revenues ............................... 13,769 155,274 933,187
---------- ---------- ------------
Gross profit ................................... 126,066 358,111 561,430
Operating expenses ............................. 772,744 1,011,257 2,389,773
---------- ---------- ------------
Loss from operations ........................... (646,678) (653,146) (1,828,343)
Net loss ....................................... $ (640,656) $ (649,932) $ (1,806,069)
========== ========== ============
Pro forma net loss data (unaudited)(1):
Net loss ...................................... $ (640,656) $ (649,932) $ (1,806,069)
Pro forma income tax benefit .................. (256,262) (259,973) (722,428)
---------- ---------- ------------
Pro forma net loss ............................ $ (384,394) $ (389,959) $ (1,083,641)
========== ========== ============
Pro forma net loss per common share (unaudited):
Basic ......................................... $ (0.11) $ (0.11) $ (0.27)
========== ========== ============
Diluted ....................................... $ (0.11) $ (0.10) $ (0.26)
========== ========== ============
Pro forma weighted average shares outstanding:
Basic ......................................... 3,472,614 3,696,197 4,083,174
Diluted ....................................... 3,472,614 3,760,746 4,160,363
</TABLE>
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AS OF DECEMBER 31, 1997
-------------------------------
ACTUAL AS ADJUSTED(2)
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CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents .............. $ 787,171 $13,087,171
Working capital (deficit) .............. (327,453) 11,972,547
Total assets ........................... 1,226,910 13,526,910
Stockholders' equity (deficit) ......... (4,672) 12,295,328
</TABLE>
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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 (inception) through December 31, 1997. The net loss of the business for
those periods was included in the individual tax returns of the
stockholders. The pro forma net loss data reflects the income tax benefit
that the Company would have incurred had it operated as a C Corporation for
Federal and state income tax purposes from its inception.
(2) Adjusted to give effect to the sale by the Company of 2,300,000 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
<PAGE>
RISK FACTORS
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 risk factors set forth below and economic
conditions, including economic conditions related to the online commerce
industry.
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 December 31, 1997, had an accumulated deficit of $3,144,115
prior to its conversion from a limited liability company to a corporation.
Achieving profitability given the Company's planned operations depends primarily
upon the Company's ability to generate and sustain substantially increased
revenue levels. However, 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
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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, 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 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, guides and online communities, 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
The Company believes that relationships with merchandise manufacturers are
important to its business. Suppliers for the Company's online stores include
manufacturers and a limited number of distributors. Sales of products from the
Company's top 50 manufacturers accounted for approximately 52% of the Company's
total revenues during the year ended December 31, 1997. Since the Company
warehouses limited inventory, mainly during certain holiday and gift giving
periods, it relies on rapid fulfillment of orders from its suppliers and
warehouses. There can be no assurance that the Company's current suppliers will
continue to sell merchandise to the Company on current terms or that the Company
will be able to maintain any of its exclusivity arrangements with suppliers or
that the Company will be able to establish new or extend current supplier
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 suppliers to process and ship merchandise directly to customers. The
Company has limited control over the shipping procedures of its suppliers, and
shipments by these suppliers have at times been subject to delays. Although most
merchandise sold by the Company carries a warranty supplied by the manufacturer,
the
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Company provides a 30-day money back guarantee. If the quality of service
provided by such suppliers 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 -- Supplier 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 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
8
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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 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
9
<PAGE>
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 "Business --
Technology."
RAPID TECHNOLOGICAL CHANGE
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of its online stores. The Internet
and the online commerce industry are characterized by rapid technological
change, changes in user and customer requirements and preferences, frequent new
product and service introductions embodying new technologies and the emergence
of new industry standards and practices that could render the Company's existing
store on the Internet and proprietary technology and systems obsolete. The
Company's success will depend, in part, on its ability to license leading
technologies useful in its business, enhance its existing services, develop new
services and technology that address the increasingly sophisticated and varied
needs of its prospective customers, and respond to technological advances and
emerging industry standards and practices on a cost-effective and timely basis.
The development of a store on the Internet and other proprietary technology
entails significant technical and business risks. There can be no assurance that
the Company will successfully use new technologies effectively or adapt its
store on the Internet, proprietary technology and transaction-processing systems
to customer requirements or emerging industry standards. The Company's failure
to adapt in a timely manner for technical, legal, financial or other reasons, to
changing market conditions or customer requirements, could have a material
adverse effect on the Company. See "Business -- Technology."
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 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."
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 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
10
<PAGE>
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 has employment
agreements with only two of its key personnel, its Vice President, Chief
Financial Officer and Treasurer and its Vice President and Chief Information
Officer. The Company has obtained a $2,000,000 key person life insurance policy
on the life of Mr. Tauber, naming the Company as beneficiary under such policy.
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."
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
11
<PAGE>
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.
CONTROL OF THE COMPANY
Immediately upon completion of this Offering, approximately 43.9% 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 (41.6% if the over-allotment option is exercised
in full). As a result, upon completion of this Offering, the Tauber family will
have a dominant voting position with respect to the ability 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 acquiror 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."
POSSIBLE "YEAR 2000" PROBLEMS
Although the Company's currently installed computer systems and software
products have been tested for year 2000 problems and the Company believes that
its computer systems and software products are fully year 2000 compatible, it is
possible that certain computer systems or software products of
12
<PAGE>
the Company's suppliers or customers may not accept input of, store, manipulate
and output dates prior to the year 2000 or thereafter without error or
interruption. The Company has conducted a review of its computer systems, to
attempt to identify ways in which its systems could be affected by problems of
its customers and suppliers in correctly processing date information. In
addition, the Company is requesting assurances from all software vendors from
which it has purchased or from which it may purchase software that such software
will correctly process all date information at all times. Furthermore, the
Company is querying its customers and suppliers as to their progress in
identifying and addressing problems that their computer systems will face in
correctly processing date information as the year 2000 approaches. However,
there can be no assurance that the Company will identify all date-handling
problems of its customers and suppliers in advance of their occurrence, or that
the Company will be able to successfully remedy problems that are discovered.
The expenses of the Company's efforts to identify and address such problems, or
the expenses or liabilities to which the Company may become subject as a result
of such problems, could have a material adverse effect on the Company.
ANTI-TAKEOVER 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, 6,300,000 shares of Common Stock
will be outstanding. Of such shares, the 2,300,000 shares of Common Stock
offered hereby will be tradeable without restriction by persons other than
"affiliates" of the Company. The remaining 4,000,000 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 Underwriters, subject to certain
exceptions, for a period of one year after the date of this Prospectus. Upon
expiration of the one year period, 278,777 shares of Common Stock held by non-
affiliates will be saleable pursuant to Rule 144(k) and 3,721,223 shares of
Common Stock will be saleable pursuant to Rule 144 promulgated under the
Securities Act; subject to the volume limitations under Rule 144. The Company
has outstanding options covering 402,634 shares of Common Stock. The shares of
Common Stock issuable upon exercise of such options may be resold pursuant to
Rule 701. In addition, certain stockholders of the Company are entitled to both
demand and piggyback registration rights with respect to 663,930 shares of
Common Stock. Upon completion of the Offering, the Company will sell to the
Underwriters the Underwriters' Warrants which are exercisable from the first
anniversary of the date of this Offering until the fifth anniversary of the date
of this Offering and which require that the Company register the Common Stock
for which such Underwriters' 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."
13
<PAGE>
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 Company and the
Underwriters, 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.
MANAGEMENT'S BROAD DISCRETION IN ALLOCATING A SUBSTANTIAL PORTION OF THE
PROCEEDS
Except for approximately $4,500,000, the Company has not designated any
specific use for the net proceeds from the sale by the Company of the 2,300,000
shares of Common Stock offered hereby. The Company expects to use the portion of
the net proceeds not designated for any specific use (approximately $7,800,000,
or $9,725,000 if the Underwriters' 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."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the 2,300,000 shares of Common Stock offered hereby will
experience immediate and substantial dilution in the net tangible book value per
share of $4.05 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 December 31, 1997, the Company has issued
options to purchase 273,634 shares of Common Stock. If such options are
exercised in full (assuming an initial public offering price of $6.00 per
share), the dilution in the net tangible book value per share would be $4.03 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."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,300,000 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 $12,300,000
(approximately $14,225,000 if the Underwriters' over-allotment option is
exercised in full). The net proceeds from this Offering will be used by the
Company as follows: (i) approximately $3,000,000 to expand marketing and
advertising efforts and potential strategic alliances with Internet search
engines guides and online communities; (ii) approximately $500,000 to repay a
secured loan made to the Company by the Trustees of the General Electric Pension
Trust which accrues interest at the rate of 15% per annum and matures on the
earlier of the closing of this Offering, the raising of additional equity or
debt by the Company or March 31, 1999; (iii) approximately $500,000 to develop
and market an online gift registry; (iv) approximately $500,000 to fund payments
due to AOL pursuant to a marketing agreement with AOL; and (v) 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. The proceeds of the loan from the Trustees of the General Electric
Pension Trust are being utilized for working capital purposes. Jeffrey S. Tauber
pledged 172,500 of his shares of Common Stock as security for the loan. See
"Risk Factors -- No Specific Use of Certain Proceeds," "Management's Discussion
and Analysis of Financial Conditions and Results of Operations," "Business --
Certain Transactions" and "Principal Stockholders."
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.
15
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company at December 31, 1997
was $(4,672) or approximately $(.00) 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 2,300,000
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 December 31, 1997 would have been $12,295,328 or $1.95
per share, assuming an offering price of $6.00 per share. This represents an
immediate increase in net tangible book value of $1.95 per share to existing
stockholders and an immediate dilution to new investors of $4.05 per share to
purchasers of Common Stock, assuming an offering price of $6.00 per share.
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 price per share ................... $ 6.00
Net tangible book value (deficit) per share at December 31,
1997 ........................................................... $ (0.00)
Net increase per share attributable to the new investors ......... 1.95
-------
Adjusted net tangible book value per share after the Offering..... 1.95
-------
Dilution to new investors ......................................... $ 4.05
=======
</TABLE>
The following table summarizes as of December 31, 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 ......... 4,000,000 63.5% $ 3,139,443 18.5% $ 0.78
New investors ................. 2,300,000 36.5% 13,800,000 81.5% $ 6.00
--------- ----- ----------- -----
Total ........................ 6,300,000 100.0% $16,939,443 100.0%
========= ===== =========== =====
</TABLE>
The foregoing computations assume no exercise of stock options outstanding
as of December 31, 1997. As of December 31, 1997, an aggregate of 273,634 shares
of Common Stock were issuable upon the exercise of outstanding options at a
weighted average exercise price per share of $2.48 per share. To the extent that
shares of Common Stock are issued upon exercise of these options the dilution to
new investors would decrease to $4.03 per share. See "Management."
16
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
December 31, 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 DECEMBER 31, 1997
-----------------------------
ACTUAL AS ADJUSTED (1)
---------- ----------------
<S> <C> <C>
Current portion of capital lease obligations ................. $ 13,000 $ 13,000
======== ===========
Capital lease obligations, less current portion .............. $ 15,196 $ 15,196
-------- -----------
Stockholders' equity (deficit):
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;
4,000,000 shares issued and outstanding; 6,300,000 shares is-
sued and outstanding, as adjusted(2) ........................ 4,000 6,300
Additional paid-in capital ................................... (8,672) 12,289,028
-------- -----------
Total stockholders' equity (deficit) ......................... (4,672) 12,295,328
-------- -----------
Total capitalization ......................................... $ 10,524 $12,310,524
======== ===========
</TABLE>
(1) Adjusted to give effect to the sale by the Company of 2,300,000 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 1,343,634 shares of Common Stock
reserved for issuance under the Company's stock option plans and other stock
options, of which 273,634 shares are issuable upon the exercise of stock
options outstanding as of December 31, 1997. The weighted average exercise
price of all outstanding options at December 31, 1997 is $2.48 per share. As
adjusted information excludes 230,000 shares of Common Stock issuable upon
exercise of the Underwriters' Warrants. See "Management," "Description of
Capital Stock" and "Underwriting."
17
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated statements of operations data for the years ended
December 31, 1995, 1996 and 1997 and the selected consolidated balance sheet
data as of December 31, 1996 and 1997 have been derived from the audited
consolidated Financial Statements included elsewhere in this Prospectus. The
selected consolidated balance sheet data as of December 31, 1995 has been
derived from the audited consolidated financial statements not included in this
Prospectus. 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 (inception) through December 31, 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>
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997
------------- ------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenues:
Product sales ................................. $ 18,670 $ 272,560 $ 1,284,489
Set up fees ................................... 112,365 232,325 187,058
Other revenues ................................ 8,800 8,500 23,070
---------- ---------- ------------
Total revenues ............................... 139,835 513,385 1,494,617
Cost of revenues ............................... 13,769 155,274 933,187
---------- ---------- ------------
Gross profit ................................... 126,066 358,111 561,430
Operating expenses ............................. 772,744 1,011,257 2,389,773
---------- ---------- ------------
Loss from operations ........................... (646,678) (653,146) (1,828,343)
Other income ................................... 6,022 3,214 22,274
---------- ---------- ------------
Net loss ....................................... $ (640,656) $ (649,932) $ (1,806,069)
========== ========== ============
Pro forma net loss data (unaudited)(1):
Net loss ...................................... $ (640,656) $ (649,932) $ (1,806,069)
Pro forma income tax benefit .................. (256,262) (259,973) (722,428)
---------- ---------- ------------
Pro forma net loss ............................ $ (384,394) $ (389,959) $ (1,083,641)
========== ========== ============
Pro forma net loss per common share (unaudited):
Basic ......................................... $ (0.11) $ (0.11) $ (0.27)
========== ========== ============
Diluted ....................................... $ (0.11) $ (0.10) $ (0.26)
========== ========== ============
Pro forma weighted average shares outstanding:
Basic ......................................... 3,472,614 3,696,197 4,083,174
Diluted ....................................... 3,472,614 3,760,746 4,160,363
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 AS ADJUSTED(2)
------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents .............. $ 110,687 $509,727 $ 787,171 $13,087,171
Working capital (deficit) .............. (182,154) 143,345 (327,453) 11,972,547
Total assets ........................... 332,379 669,987 1,226,910 13,526,910
Stockholders' equity (deficit) ......... (98,671) 251,397 (4,672) 12,295,328
</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 (inception) through December 31, 1997. The net loss of the business for
those periods was included in the individual tax returns of the
stockholders. The pro forma net loss data reflects the income tax benefit
that the Company would have incurred had it operated as a C Corporation for
Federal and state income tax purposes from its inception.
(2) Adjusted to give effect to the sale by the Company of 2,300,000 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."
18
<PAGE>
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 recognizes product revenues when goods are shipped to the
customer. Typically, the Company receives payment from the customer's credit
card through a financial institution within two to four business days. The
amount received by the Company is net of any credit card transaction fees
deducted by the financial institution. The Company carries minimal inventory and
typically pays its vendors for goods within 30 to 60 days.
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, manufacturer set up fees and advertising fees. Revenues
were $139,835 in 1995, with set up fees representing $112,365, or 80% of the
total revenues and product sales representing $18,670, or 13% of total revenues.
Revenues increased 267% to $513,385 in 1996 due to a $119,960 increase in set up
fees and a $253,890 increase in product sales. The increase in product sales in
1996 was primarily attributable to increased marketing efforts and the launch of
the Company's store on AOL. Revenues increased 191% in 1997 to $1,494,617. The
increase was primarily attributable to a 371% increase in product sales to
$1,284,489, primarily due to increased marketing efforts, an expanded customer
base, repeat purchases from existing customers, an increased presence on AOL and
the addition of the consumer electronics category.
Cost of Revenues. Cost of revenues consists of payments to third party
suppliers related to product sales. Cost of revenues increased from $13,769 in
1995 to $155,274 in 1996 to $933,187 in 1997. Such increases reflect increases
in product sales from one period to the next. Gross profit margins related to
product sales were 26.3% in 1995, 43.0% in 1996 and 27.3% in 1997. The decrease
from 1996 to 1997 is primarily attributed to the 1997 introduction of
promotional discount programs and the addition of consumer electronics, which
typically yield lower than average gross profit margins.
Operating expenses. Operating expenses consist primarily of personnel
expenses, online, radio and print advertising, public relations and other
promotional expenses, including payments to AOL, and general corporate expenses.
Operating expenses increased $238,513 or 31% from $772,744 in 1995 to
$1,011,257 in 1996 and increased $1,378,516, or 136%, to $2,389,773 in 1997. The
increases were primarily attributable to higher personnel costs related to the
increased infrastructure of the Company, higher advertising and promotional
expenses and an increase in AOL fees.
19
<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
------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Product sales .............. $ 20,205 $ 15,228 $ 21,812 $ 215,315
Set up fees ................ 59,602 63,215 55,909 53,599
Other revenues ............. -- 1,500 7,000 --
---------- --------- --------- ----------
Total revenues ............ 79,807 79,943 84,721 268,914
Cost of revenues ........... 12,384 14,490 3,806 124,594
---------- --------- --------- ----------
Gross profit .............. 67,423 65,453 80,915 144,320
Operating expenses ......... 202,313 112,096 105,305 591,543
---------- --------- --------- ----------
Loss from operations ..... (134,890) (46,643) (24,390) (447,223)
Other, net ................. 132 346 249 2,487
---------- --------- --------- ----------
Net loss ................. $ (134,758) $ (46,297) $ (24,141) $ (444,736)
========== ========= ========= ==========
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Product sales .............. $ 134,824 $ 196,117 $ 165,209 $ 788,339
Set up fees ................ 62,525 48,405 39,789 36,339
Other revenues ............. -- 123 386 22,561
---------- ---------- ---------- ----------
Total revenues ............ 197,349 244,645 205,384 847,239
Cost of revenues ........... 100,291 144,521 110,790 577,585
---------- ---------- ---------- ----------
Gross profit .............. 97,058 100,124 94,594 269,654
Operating expenses ......... 438,602 449,016 435,497 1,066,658
---------- ---------- ---------- ----------
Loss from operations ..... (341,544) (348,892) (340,903) (797,004)
Other, net ................. 4,726 1,103 9,466 6,979
---------- ---------- ---------- ----------
Net loss ................. $ (336,818) $ (347,789) $ (331,437) $ (790,025)
========== ========== ========== ==========
</TABLE>
Total revenues, cost of revenues and gross profit in each of the quarters
ended March 31, 1997, June 30, 1997, September 30, 1997 and December 31, 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 year ended December 31,
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 $347,534, $532,708, and
$1,176,102 for the years ended December 31, 1995, 1996, and 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 $88,699, $67,812 and $89,454 for the years ended December 31, 1995,
1996, and 1997, respectively. The purchases were required to support the
Company's expansion and increased infrastructure.
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.
20
<PAGE>
In January and February 1998, the Company entered into one year employment
agreements with its Vice President, Chief Financial Officer and Treasurer and
its Vice President and Chief Information Officer, respectively. The agreements
provide for a base salary of $140,000 and $125,000 upon the completion of this
Offering ($120,000 and $96,000 prior to completion of this Offering). See
"Management" and "Certain Transactions."
The Trustees of General Electric Pension Trust loaned the Company $500,000
at an interest rate of 15% per annum. The proceeds of the loan are being
utilized by the Company for working capital purposes. Jeffrey S. Tauber pledged
172,500 of his shares of Common Stock as security for the loan. The Company
intends to repay the principal and accrued interest on the loan with a portion
of the proceeds of this Offering. See "Use of Proceeds," "Principal
Stockholders" and "Certain Transactions."
The Company believes that its computer systems and software products are
fully year 2000 compatible. However, it is possible that certain computer
systems or software products of the Company's suppliers or customers may not
accept input of, store, manipulate and output dates in the year 2000 or
thereafter without error or interruption. The Company may be required to make
significant expenditures to identify, address or remedy any potential year 2000
problems, or in connection with liabilities to which the Company may become
subject as a result of such problems.
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. The Company adopted SFAS No. 128 for the year
ended December 31, 1997.
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.
21
<PAGE>
BUSINESS
CyberShop is an online retailer that currently offers over 40,000 products
from more than 400 manufacturers through its online stores on the Internet and
AOL. The Company seeks to provide a convenient 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 24 hours a day. The online retailing
model also enables the Company to avoid the facilities and personnel costs
associated with maintaining traditional retail stores and the costs of
publishing and distributing catalogs and staffing large "call centers"
associated with mail-order companies. 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. In addition to
offering a broad selection of quality branded merchandise at a guaranteed
competitive price, the Company's customers benefit from cost savings, including
free domestic delivery for most purchases over $100 and discounts on future
purchases under the Company's frequent buyers program. Most customer orders are
completed by credit cards utilizing industry standard secured encryption.
The Company believes that relationships with merchandise manufacturers are
important to its business. CyberShop has established strategic relationships
with manufacturers which allow for prompt updates on merchandise information and
for most products to be rapidly shipped directly from suppliers. Supplier direct
shipping enables the Company to avoid inventory related risks, limit overhead
costs and provide prompt delivery. Through its Gifts Wrapped & Ready boutique
the Company also offers pre-wrapped gift items which are shipped from inventory
maintained at an independent warehouse facility or from the Company's suppliers
within 24 hours after an order is placed.
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. The Company leverages its database of
customers to proactively market merchandise through E-mail.
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 12,800 at December 31,
1997. The Company believes it has effectively positioned itself to capitalize on
the potential growth of online commerce by selectively targeting quality branded
manufacturers and strategic online partners.
22
<PAGE>
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 a large
majority of Internet users (73%) spend some portion of their time online
searching for information about a specific product or service.
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, rental and extensive personnel
costs, 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 or maintaining large "call centers." 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 24 hours a day, without the expense of
carrying inventory at a physical location. In addition, direct shipping
arrangements with suppliers allow the Company to avoid owning and maintaining
substantial inventories, thereby enabling the Company to reduce 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, guides and
online communities. 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."
23
<PAGE>
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.
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 Company intends to
increase the number of categories and products offered.
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.
Many products are 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
year ended December 31, 1997.
24
<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 Cuisinart Sabatier
Appliances, Kitchen Tools Black & Decker DeLonghi Scanpan
and Gadgets Bodum Joyce Chen Thermos
Braun KitchenAid VIA!
Calphalon Krups Vitantonio
Chantal Le Creuset Waring
Chef's Choice Oral-B Wusthof
Circulon Polder Zojirushi
Copco Rival Select
CONSUMER ELECTRONICS
TV's, VCR's, Phones, Audio, Bissell Minolta Panasonic
Cameras, Camcorder, Home Bose Mitsubishi Sanyo
Care, Computers, Office Equipment, Brother Nikon Seiko Instruments
Electronic Reference Device Canon Nintendo Sony Playstation
Fisher Olympus Telemania
Franklin Oreck Toshiba
Hewlett Packard Oregon Scientific Total Recall
JVC PalmPilot Ultradata
GOURMET FOOD
Chocolate, Candy, Baked Bittersweet Pastries Cheesecake Lady First Colony
Goods, Fresh Foods, Gift Bob's Brownstone Brownies Citterio Karl Bissinger
Baskets, Delicacies Caf--Tasse Crabtree & Evelyn Lazzaroni
Candy Cottage DiCamillo Maxim's de Paris
Capalbo's Erica's Rugelach Perugina
TABLETOP
China/Dinnerware, Bernardaud Oneida Schott Zwiesel
Silver/Flatware, Christofle Orrefors Spode
Crystal/Glassware Dansk Pfaltzgraff Towle
Daum Reed & Barton Villeroy & Boch
Denby Rosenthal Wallace Silversmith
Kosta Boda Royal Doulton Waterford
Lenox Royal Worcester Wedgwood
Limoge Imports Sasaki Yamazaki
Luigi Bormioli
JEWELRY, BEAUTY &
FASHION ACCESSORIES
Jewelry, Watches, Cosmetics, 1928 Gale Hayman Ray-Ban
Fragrance, Small Leather Goods, Adrienne Vittadini Hugo Bosca Reebok
Sun Glasses, Scarves, Handbags, Ahava Hush Puppies Revo
Men's Furnishings Aya Azrielant K. Bauman Design Seiko
Bharat Kenneth Cole Serengeti Eyewear
Burberrys Michael Graves Swiss Army
Cigar Savor Moschino Upper Canada
Crabtree & Evelyn Nature's One Vivian Alexander
DKNY NEI Wittnauer
Dart Mart Nikon Eyewear Zagat
Dolce & Gabbana Paco Rabanne Zelco
Fendi Perlier
Fossil Peter Brams
HOME FURNISHINGS
Sheets, Comforters, Pillows, AeroBed Godley-Schwan Perfect Fit Industries
Towels, Bath Accessories, Burlington Imperial Home Fashions Regal
Slipcovers, Lamps, Decorative Creative Bath Independent Vision Replogle
Pillows, Ready-to-Assemble Croscill John Boosh Revman Industries
Furniture, Globes, Clocks Crown Crafts Lady Slipper Designs Rug Barn
Down, Inc. MFA Seth Thomas
Early's of Whitney Newport Sure Fit
Faribo Pacific Coast Feather Ziro Designs
Galbraith & Paul
CHILDRENS
Accessories, Toys Classic Pooh Gerry Step 2
Evenflo In Step Teaching Togs
Hedstrom Kolcraft
Radio Flyer
SPORTS & FITNESS
Exercise Equipment, Sporting Goods, Bell Sports Huffy ProForm
Outdoor Living Budoff Jump King Weider
Felco Mueller Sports Weslo
</TABLE>
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<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's Gifts Wrapped & Ready boutique located within its online
stores offers a range of pre-wrapped gifts which are available for shipment
within 24 hours after an order is placed. These items are shipped from inventory
maintained at an independent warehouse facility or from the Company's suppliers.
The Company realized approximately 31% of its revenues from this boutique during
the quarter ended December 31, 1997 and anticipates substantial demand during
other gift giving periods such as Valentine's Day and Mother's and Father's Day.
The products offered in the Gifts Wrapped & Ready boutique will be regularly
updated to reflect consumer demand and the special requirements for each gift
giving period.
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 will enable 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
26
<PAGE>
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 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 gift
items sorted by theme and price which are available for shipment within 24 hours
after an order is placed. 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, guides and online
communities. 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 "Business -- Sales
and Marketing -- Store Promotion."
The Company also considers its relationships with its manufacturers
strategically important. As of December 31, 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.
27
<PAGE>
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 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
boutique, and packaging for shipments from certain suppliers. 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 commission on sales volume generated
from a participating website, by offering a commission on every customer
directed to CyberShop from the website, and by offering a discount on CyberShop
merchandise for employees of the participant. The Company has numerous
co-promotion arrangements with companies such as MasterCard, American Express,
Transmedia, Virtual Emporium, and New York Style 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
offers 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 many products in the stores.
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 approximately 3% 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. If, within 10 days
of purchase, a customer finds the product for a lower price from a nationally
recognized retailer, the Company will match that price or refund the difference.
This price matching policy applies only to specific models, in stock, with
United States warranties. Sales tax, shipping and handling charges are not
included in the price check and remain the responsibility of the customer. The
Company seeks to encourage online purchasing by offering free shipping and
handling on most shipments to one customer location 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.
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<PAGE>
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 shipments to one customer location totaling more than
$100 within the continental United States, a 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.
SUPPLIER RELATIONSHIPS
The Company believes its relationships with suppliers will be a key factor
to its success in the online retail industry. In general, except for the Gifts
Wrapped & Ready boutique, 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 supplier, who, in turn, ships the
products directly to the customer. The suppliers provide 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. CyberShop often receives 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 year ended December 31, 1997, sales of products from the
Company's top 50 manufacturers accounted for approximately 52% of the Company's
total revenues. 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
December 31, 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
12:00 p.m. EST on weekdays, and 10:00 a.m. to 11:00 p.m. EST on weekends
29
<PAGE>
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 five full-time
customer support and service personnel who are responsible for handling customer
inquiries, answering 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.
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 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.
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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
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 will 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.
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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, 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 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 March 1, 1998, the Company had 21 full-time employees (including
management), including six in operations and development, eight in merchandising
and marketing, five in customer service and two in general and administrative.
As of March 1, 1998, 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, marketing 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
CyberShopSM (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.
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 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.
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The Company has an oral agreement with Rainbow Packaging Company Inc.
("Rainbow") under which products for the Gifts Wrapped & Ready boutique and
certain other products acquired as inventory by the Company are placed in the
warehouse facilities of Rainbow located in North Babylon, N.Y. Rainbow is
responsible for gift wrapping products and shipping them in accordance with the
instructions of the Company. Rainbow is compensated for its services through a
per package charge plus reimbursement for all supplies required for wrapping and
shipment. The arrangement is terminable by either party at any time. The Company
believes that there are a number of other facilities that offer similar services
at competitive rates.
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
Tom-s Montgomery .................. 35 Vice President, Operations
Gary S. Finkel .................... 40 Vice President, Chief Financial Officer and Treasurer
Francis O'Connor .................. 37 Vice President and Chief Information Officer
Michael Kempner(1)(2)(3) .......... 40 Director
Warren Struhl(2)(3) ............... 36 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 May
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 Retail 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 Retail Buyer for the Ralph Lauren home furnishings
department, the blanket department, and the towel department. In 1992, Ms.
Markus was named as "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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Tom-s 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.
Gary S. Finkel has been the Vice President, Chief Financial Officer and
Treasurer of the Company since January 1998. From October 1995 to January 1998
Mr. Finkel was Vice President, Chief Financial Officer and Treasurer of AlphaNet
Solutions, an information technology services company which completed its
initial public offering in March 1996. From August 1989 to October 1995, Mr.
Finkel worked for Continental Health Affiliates, a publicly-held health care
provider, in various financial management positions, including Vice President
and Chief Financial Officer from February 1993 to October 1995. He also was Vice
President and Chief Financial Officer of Infu-Tech, a publicly-held subsidiary
of Continental Health Affiliates, from April 1992 to October 1995. Prior to
that, from 1982 to 1989, Mr. Finkel held various financial management positions
at Sony Corporation of America, and from 1979 to 1982 was at Price Waterhouse.
Mr. Finkel received his B.S. in Accounting from SUNY Binghamton in 1979 and is a
Certified Public Accountant.
Francis O'Connor has been Vice President and Chief Information Officer of
the Company since February 1998. Mr. O'Connor was Director of Software Group for
De La Rue Systems Americas, a leading worldwide supplier of cash handling
systems, from December 1994 to December 1997, where he led the software systems
group. From November 1993 to 1994, as Vice President of Professionals Choice
Sports Medicine Products, Inc., Mr. O'Connor oversaw and automated that
company's manufacturing and order processing functions. From 1988 to 1992, as
Director of Management Information Services of Jenny Craig International, a
weight loss company, he oversaw the rapid growth of the food distribution,
telecommunciations and and computer networks to facilitate the company's rapid
growth. Mr. O'Connor started his career with Periphonics, an integrated voice
response system manufacturer in 1983 as a systems engineer and later worked as a
sales engineer. Mr. O'Connor studied electrical engineering at Rochester
Institute of Technology and later received a B.A. in Computer Science from New
York Institute of Technology in 1982.
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 and Chief Executive Officer of
Genesis Direct Inc., a catalog and direct marketing company, since June 1995.
Mr. Struhl founded PaperDirect Inc., a mail catalog, in 1988 and was its
President from 1989 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.
Following the Offering, it is expected that Robert Matluck will be named a
director of the Company and a member of the Audit Committee. Mr. Matluck has
been a Managing Director of C.E. Unterberg, Towbin, since 1989 and Chief
Operating Officer of C.E. Unterberg, Towbin 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
35
<PAGE>
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.
Following the Offering it is expected that the Company will elect an
additional director.
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 has obtained 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 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, and (ii) such director or
officer had no reasonable cause to believe his or her conduct was unlawful. 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 (i) 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, (ii) they had no reasonable cause
to believe their conduct was unlawful, and (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.
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.
36
<PAGE>
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. Struhl
and Mr. Kempner are members of the Audit Committee. It is expected that Mr.
Matluck will become a member of the Audit Committee following the Offering and
Mr. Kempner will resign from such 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 1998 Stock Option Plan and 1998
Directors' Stock Option Plan.
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION 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)
Chairman of the Board of Directors,
Chief Executive Officer and Pres-
ident ............................ 1997 $162,500 -- -- -- --
Linda Wiatrowski
Vice President, General Merchan-
dise Manager ..................... 1997 $ 99,000 -- $ 33,000(2) 49,570 --
</TABLE>
(1) Effective upon consummation of the Offering, Jeffrey S. Tauber will receive
a base salary of $250,000, subject to periodic increases.
(2) Ms. Wiatrowski served as an independent contractor from January 1, 1997
through March 31, 1997.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with its Vice President,
Chief Financial Officer and Treasurer and its Vice President and Chief
Information Officer. See "-- Stock Plans" and "Certain Transactions."
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, 1997.
37
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------
PERCENT OFTOTAL
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 1997 SHARE GRANT DATE
- --------------------------- -------------- ---------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Jeffrey S. Tauber ......... -- -- -- -- --
Linda Wiatrowski .......... 49,570 29.8% $ 3.00 $ 3.00 9/10/04
</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 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1997 AT DECEMBER 31, 1997
------------------------------- ---------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE
- --------------------------- ------------- --------------- ---------------------
<S> <C> <C> <C>
Jeffrey S. Tauber ......... -- -- --
Linda Wiatrowski .......... 100,334 -- $368,518
</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.
As of December 31, 1997, the Company had granted options covering 273,634
shares of Common Stock having an average exercise price of $2.48 per share and
ranging from $1.67 to $3.00 per share to executive officers, employees and
consultants of the Company, including 100,334 shares of Common Stock to Ms.
Wiatrowski, 60,917 shares of Common Stock to Ms. Markus and 72,264 shares of
Common Stock to Mr. Montgomery. Such options are either fully vested or will
fully vest by September 1999. Such options have a five to seven year term,
except that in the event of the termination of the employment of the option
holder (i) for "cause," as defined in the option agreements, the option holders
may exercise the options for a period of three months after such termination if
the options are then vested, and (ii) for reasons other than "cause," the option
holder may exercise options at any time after termination if the options are
then vested.
1998 Stock Option Plan. In March 1998, the Board of Directors of the
Company adopted, and in 1998, the stockholders of the Company approved, the
Company's 1998 Stock Option Plan (the "1998 Option Plan"). The 1998 Option Plan
and the Directors' Plan (as hereinafter defined) are collectively referred to as
the "Stock Option Plans." Under the 1998 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 1998 Option Plan is 1,000,000 shares. Subject to
certain adjustments, options to acquire 65,000 and 64,000 shares of Common Stock
of the Company have been granted to Gary S. Finkel and Francis O'Connor,
respectively, under the 1998 Option Plan, at an exercise price equal to $5.00
per share. Such options vest one third annually over three years and expire five
years from the date of grant. See "Certain Transactions."
Options granted under the 1998 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 1998 Option Plan vest ratably over
a four-year period on each anniversary of the date of grant. At the Board'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 1998 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 upon the earlier of
38
<PAGE>
three months following such termination date or expiration of the option, and
any nonvested options shall be immediately forfeited. Pursuant to the terms of
the 1998 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. If qualified options
are granted to a person owning more than 10% of the Company's Common Stock, then
the exercise price of such options shall be no less than 110% of the fair market
value per share of Common Stock at the time of grant. In the event of a "change
of control" of the Company (as defined in the 1998 Option Plan) or the
termination of a participant's employment other than for cause, death,
disability or voluntary departure, the Board 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 1998 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 March 1998, the Board adopted and in ,
1998 the stockholders of the Company approved, the 1998 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. A Compensation Committee 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 terminates for
any reason other than death, all vested options may be exercised by such
director until 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; provided that such options may not be exercised after their expiration
date. In the case of a director who represents an institutional investor which
is entitled to the compensation paid by the Company to such director, option
grants shall be made directly to the institutional investor on whose behalf such
director serves on the Board.
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.
CERTAIN TRANSACTIONS
In November 1994, Jeffrey S. Tauber and Jane S. Tauber purchased an
aggregate of 1,702,407 shares of Common Stock for $200,000.
In January 1995, Jeffrey S. Tauber and Jane S. Tauber purchased an
aggregate of 1,044,848 shares of Common Stock for $139,442.
In February 1995, Donald J. Weiss purchased 179,169 shares of Common Stock
for $150,000.
In December 1995, Genesis Direct L.L.C. purchased 59,723 shares of Common
Stock 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
497,347 shares of Common Stock 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
Cairnton Partnership purchased an aggregate of 516,506 shares of Common Stock
for $1,550,000.
The Trustees of General Electric Pension Trust loaned the Company $500,000
at an interest rate of 15% per annum. The proceeds of the loan are being
utilized by the Company for working capital purposes. Jeffrey S. Tauber pledged
172,500 of his shares of Common Stock as security for the loan. The Company
intends to repay the principal and accrued interest on the loan with a portion
of the proceeds of this Offering. See "Use of Proceeds" and "Principal
Stockholders."
39
<PAGE>
<PAGE>
In January 1998 and February 1998, the Company entered into employment
agreements with Gary S. Finkel to serve as Vice President, Chief Financial
Officer and Treasurer and with Francis O'Connor to serve as Vice President and
Chief Information Officer of the Company, respectively. Both agreements are for
a term of one year, with automatic annual renewal thereafter unless terminated
by either party at least 60 days prior to the end of the term of the agreement.
Pursuant to the terms of the agreements, both Mr. Finkel and Mr. O'Connor are
required to devote their full time, efforts, skills and attention to the
Company's business and affairs. Mr. Finkel and Mr. O'Connor will receive a base
salary of $120,000 and $96,000 per annum, respectively, which salaries shall be
increased to $140,000 and $125,000 per annum, respectively, if, and as of the
date, the Offering is consummated. Subject to certain adjustments, Mr. Finkel
and Mr. O'Connor have been granted options to purchase 65,000 and 64,000 shares
of Common Stock, respectively, at an exercise price of $5.00 per share. Each of
Mr. Finkel's and Mr. O'Connor's employment agreement contains certain
confidentiality and non-competition provisions.
For options granted to other executive officers see "Management."
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.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth 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) ................................... 2,763,878 69.1% 43.9%
The Jeffrey S. Tauber Grantor Retained Annuity Trust(2) 522,424 13.1 8.3
Jane S. Tauber(3) ...................................... 2,763,878 69.1 43.9
The Jane S. Tauber Grantor Retained Annuity Trust(4) ... 522,424 13.1 8.3
Trustees of General Electric Pension Trust ............. 531,022 13.3 8.4
Linda Wiatrowski(5) .................................... 100,334 2.4 1.6
Michael Kempner ........................................ -- -- --
Warren Struhl(6) ....................................... -- -- --
All Directors and Executive Officers as a Group (8) Per-
sons)(7): ............................................. 2,997,407 70.8 45.9
</TABLE>
(1) Includes 522,424 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 1,381,939 shares of Common Stock held in the name of
Jeffrey S. Tauber's wife, Jane Tauber, including 522,424 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. Jeffrey S. Tauber has pledged to the
Trustees of General Electric Pension Trust 172,500 shares of Common Stock to
secure the Company's repayment of principal and interest on the $500,000
loan from the Trustees of General Electric Pension Trust to the Company. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Transactions."
(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 522,424 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 1,381,939 shares of Common Stock held in the name of
Jeffrey S. Tauber, Jane S. Tauber's husband, including 522,424 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) Represents fully vested stock options.
(6) Does not include 59,723 shares of Common Stock owned by Genesis Direct, Inc.
Warren Struhl is a director of Genesis Direct, Inc. and owns less than a 10%
interest in such company.
(7) Includes 233,515 shares of Common Stock issuable upon exercise of options,
of which 233,515 are currently exercisable. There are no additional options
which will become exercisable within 60 days after the date of this
Prospectus.
41
<PAGE>
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 4,000,000 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, 6,300,000 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 2,300,000 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 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 663,930 shares of
the Common Stock (collectively, the "Registration Rights Holders") have been
granted by the Company certain demand and piggyback registration
42
<PAGE>
rights. Subject to certain conditions, including the terms of the "lock up"
arrangement, 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 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 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 underwriters 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 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 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 6,300,000 shares of
Common Stock issued and outstanding (assuming the Underwriters' over-allotment
option is not exercised). Of such shares, the 2,300,000 shares of Common Stock
to be sold in this Offering will be immediately eligible for sale in the
43
<PAGE>
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 4,000,000 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 Underwriters, subject to certain exceptions, for a period
of a maximum of one year after the date of this Prospectus. After the "lock-up"
period 278,777 shares of Common Stock held by non-affiliates will be saleable
pursuant to Rule 144(k) and 3,721,223 shares of Common Stock will be saleable
pursuant to Rule 144. The Company also granted options covering 402,634 shares
of Common Stock prior to this Offering. The shares of Common Stock issuable upon
exercise of such options will be saleable under Rule 701.
Certain stockholders of the Company are entitled to both demand and
piggyback registration rights with respect to 663,930 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."
Upon completion of the Offering, the Company will issue to the Underwriters
the Underwriters' Warrants. The Underwriters' Warrants require that the Common
Stock for which such Underwriters' 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 the
Underwriters, and the Underwriters have agreed to purchase the 2,300,000 shares
of Common Stock offered hereby. In the Underwriting Agreement, the Underwriters
have agreed, subject to the terms and conditions set forth therein, to purchase
all 2,300,000 shares of Common Stock offered hereby if any such shares are
purchased.
44
<PAGE>
The Underwriters propose 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 Underwriters may allow, and
such dealers may reallow, a discount not in excess of $____ per share on sales
to certain other dealers. After the Offering, the offering price, discount price
and reallowance may be changed by the Underwriters.
The Company has granted the Underwriters an option which may be exercised
within 30 days after the date of this Prospectus, to purchase up to an
additional 345,000 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 Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
Upon completion of this Offering, the Company will sell to the Underwriters,
for their own accounts, the Underwriters' Warrants covering an aggregate of up
to 230,000 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
Underwriters will pay a price of $0.01 per warrant. The Underwriters' Warrants
may be exercised as to all or any lesser number of shares of Common Stock
commencing on the first anniversary of the date of this Offering until the fifth
anniversary of the date of this Offering and require that the Company register
the Common Stock for which such Underwriters' Warrants are exercisable within
one year from the date of this Prospectus. The Underwriters' Warrants are not
transferable by the warrant holders other than to officers and partners of the
Underwriters. The exercise price of the Underwriters' Warrants and the number of
shares of Common Stock for which such Underwriters' 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 Underwriters for a period of one year after the date of
this Prospectus, subject to certain exceptions.
In connection with the Offering, the Underwriters 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
which the Underwriters may bid for, or purchase, Common Stock for the purpose of
stabilizing the market price. The Underwriters 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 Underwriters may impose
"penalty bids" whereby it may reclaim from a dealer participating in this
Offering, the selling concession with respect to the Common Stock that it
distributed in this Offering, but subsequently purchased for the accounts of the
Underwriters 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 Underwriters have informed the Company that they do not intend to
confirm sales to any account over which they exercise 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 Underwriters.
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
45
<PAGE>
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 C.E.
Unterberg, Towbin, 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 Underwriters by
Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1997, and for the years ended December 31, 1995, 1996 and 1997, 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 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.
46
<PAGE>
CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants ............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 ......................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and
1997 ................................................................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December
31, 1995, 1996 and 1997 ............................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997 ................................................................................ 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
4,000,000 shares of $.001 par value common stock as described in Note 1 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 27, 1998 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 27, 1998
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,
1996 and 1997, and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1997. 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, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
F-2
<PAGE>
CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
- ---------------------------------------------------------------------- -------------------------------
1996 1997
--------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) .................................. $ 509,727 $ 787,171
Accounts receivable, net of allowance for doubtful accounts of
$10,000 as of December 31, 1996 and 1997 .......................... 39,260 66,163
Inventories (Note 2) ................................................ -- 30,700
------------ ----------
Total current assets .............................................. 548,987 884,034
Property and equipment, net (Notes 1 and 3) .......................... 116,314 131,768
Other assets ......................................................... 4,686 211,108
------------ ----------
Total assets ...................................................... $ 669,987 $1,226,910
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------------------------------------------------
Current liabilities:
Accounts payable .................................................... $ 148,096 $ 739,267
Accrued liabilities ................................................. 102,399 324,220
Deferred revenues ................................................... 147,000 135,000
Current portion of capital lease obligations (Note 4) ............... 8,147 13,000
------------ ----------
Total current liabilities ......................................... 405,642 1,211,487
Long-term liabilities:
Deferred rent ....................................................... 899 4,899
Capital lease obligations (Note 4) .................................. 12,049 15,196
------------ ----------
Total long-term liabilities ....................................... 12,948 20,095
------------ ----------
Commitments and contingencies (Note 4)
Stockholders' equity (deficit) (Note 1):
Members capital interest ............................................. 1,589,443 --
Preferred stock, $.001 par value, 5,000,000 authorized; 0 shares is-
sued and outstanding ................................................ -- --
Common stock, $.001, par value, 25,000,000 authorized; 4,000,000
shares issued and outstanding ....................................... -- 4,000
Additional paid-in capital ........................................... -- (8,672)
Accumulated deficit .................................................. (1,338,046) --
------------ ----------
Total stockholders' equity (deficit) .............................. 251,397 (4,672)
------------ ----------
Total liabilities and stockholders' equity (deficit) .............. $ 669,987 $1,226,910
============ ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-3
<PAGE>
CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997
------------- ------------- ---------------
<S> <C> <C> <C>
Revenues (Note 2):
Product sales ........................ $ 18,670 $ 272,560 $ 1,284,489
Set up fees .......................... 112,365 232,325 187,058
Other revenues ....................... 8,800 8,500 23,070
---------- ---------- ------------
Total revenues ..................... 139,835 513,385 1,494,617
Cost of revenues ...................... 13,769 155,274 933,187
---------- ---------- ------------
Gross profit ....................... 126,066 358,111 561,430
Operating expenses .................... 772,744 1,011,257 2,389,773
---------- ---------- ------------
Loss from operations ................. (646,678) (653,146) (1,828,343)
Other, net ............................ 6,022 3,214 22,274
---------- ---------- ------------
Net loss ............................. $ (640,656) $ (649,932) $ (1,806,069)
========== ========== ============
Pro forma net loss data
(unaudited) (Notes 2 and 5):
Net loss ............................. $ (640,656) $ (649,932) $ (1,806,069)
Pro forma income tax benefit ......... (256,262) (259,973) (722,428)
---------- ---------- ------------
Pro forma net loss ................... $ (384,394) $ (389,959) $ (1,083,641)
========== ========== ============
Pro forma net loss
per common share (unaudited) (Note 2):
Basic ................................ $ (0.11) $ (0.11) $ (0.27)
========== ========== ============
Diluted .............................. $ (0.11) $ (0.10) $ (0.26)
========== ========== ============
Pro forma weighted average
common shares outstanding (Note 2):
Basic ................................ 3,472,614 3,696,197 4,083,174
Diluted .............................. 3,472,614 3,760,746 4,160,363
</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 (DEFICIT)
<TABLE>
<CAPTION>
MEMBERS ADDITIONAL
COMMON CAPITAL PAID-IN ACCUMULATED
STOCK INTEREST CAPITAL DEFICIT
-------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1994 ................................. $ -- $ 200,000 $ -- $ (47,458)
Issuance of members capital interest ........................... -- 389,443 -- --
Net loss ....................................................... -- -- -- (640,656)
------ ------------ -------- ------------
Balance as of December 31, 1995 ................................. -- 589,443 -- (688,114)
Issuance of members capital interest ........................... -- 1,000,000 -- --
Net loss ....................................................... -- -- -- (649,932)
------ ------------ -------- ------------
Balance as of December 31, 1996 ................................. -- 1,589,443 -- (1,338,046)
Issuance of members capital interest ........................... -- 1,550,000 -- --
Net loss ....................................................... -- -- -- (1,806,069)
Contribution of members capital interest in exchange for the
issuance of 4,000,000 shares of common stock (Note 1). ....... 4,000 (3,139,443) (8,672) 3,144,115
------ ------------ -------- ------------
Balance as of December 31, 1997 ................................. $4,000 $ -- $ (8,672) $ --
====== ============ ======== ============
</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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 1997
-------------- -------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................................. $ (640,656) $ (649,932) $ (1,806,069)
Adjustments to reconcile net loss to net cash used in operating activ-
ities:
Depreciation ........................................................ 42,503 55,617 89,000
Increase (decrease) in cash from changes in:
Accounts receivable, net ........................................... (138,209) 98,949 (26,903)
Inventories ........................................................ -- -- (30,700)
Other assets ....................................................... -- (4,686) (206,422)
Accounts payable ................................................... 122,157 22,532 591,171
Accrued liabilities ................................................ 486 101,913 221,821
Deferred revenues .................................................. 305,000 (158,000) (12,000)
Due to officer ..................................................... (38,815) -- --
Deferred rent ...................................................... -- 899 4,000
---------- ---------- ------------
Net cash used in operating activities ............................ (347,534) (532,708) (1,176,102)
---------- ---------- ------------
Cash flows from investing activities:
Purchases of property and equipment .................................. (88,699) (67,812) (89,454)
---------- ---------- ------------
Cash flows from financing activities:
Proceeds from the issuance of members capital interest ............... 389,443 1,000,000 1,550,000
Proceeds from officer loan ........................................... -- 150,000 --
Repayment of officer loan ............................................ -- (150,000) --
Payments of capital lease obligations ................................ -- (440) (7,000)
---------- ---------- ------------
Net cash provided by financing activities ........................ 389,443 999,560 1,543,000
---------- ---------- ------------
Net increase (decrease) in cash .................................. (46,790) 399,040 277,444
Cash and cash equivalents, beginning of period ........................ 157,477 110,687 509,727
---------- ---------- ------------
Cash and cash equivalents, end of period .............................. $ 110,687 $ 509,727 $ 787,171
========== ========== ============
Supplemental cash flow information:
Cash paid for interest ............................................... $ -- $ 1,220 $ 4,000
========== ========== ============
Assets acquired under capital lease obligations ...................... $ -- $ 20,636 $ 15,000
========== ========== ============
</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 7).
The Company is an online retailer that offers brand name products from
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").
Prior to completion of the Public Offering (See Note 7), the members of
CyberShop L.L.C. contributed all of their members capital interests in exchange
for 4,000,000 shares of common stock of the Company. Both entities were under
common control, which resulted in the transaction being accounted for comparable
to a pooling of interests. This contribution resulted in a transfer of the
balances of members' capital interest and accumulated deficit to common stock
and additional paid in capital at the time of the contribution.
The Company is proposing an initial public offering of up to 2,300,000
shares of Common Stock. Prospective investors should consider, among other
things, the Company's history of losses, its limited operating history and its
uncertainty of future results. For additional information on these and other
factors, see "Risk Factors."
(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 over the term of the
vendor agreement, which usually ranges from one to two years. The Company
recognizes revenue on product sales when the goods are shipped to the customer.
Risk of loss passes to the Company upon shipment of products by the vendor, and
the Company bears the credit risk with respect to product sales. The Company
records the estimated gross profit which will be lost due to current period's
shipments being returned in future periods as a reduction of revenues and cost
of sales in the period of shipment.
Frequent Buyer Program
During the fourth quarter of 1997, the Company implemented a frequent buyer
program. This program allows customers to earn savings certificates to be
applied towards future purchases. These certificates are awarded based on points
earned from purchases. The reserve for credits towards future purchases is not
material as of December 31, 1997.
Warranty Reserves
Warranties on products offered by the Company are the responsibility of the
manufacturers. Accordingly, no warranty reserve has been recorded in the
accompanying consolidated financial statements.
F-7
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - (CONTINUED)
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.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the assets' estimated useful lives.
Deferred Offering Costs
Included in other assets in the accompanying consolidated balance sheets as
of December 31, 1997 is approximately $196,000 related to deferred costs
associated with the Company's initial public offering (see Note 7). Upon the
completion of the initial pubic offering, these costs plus any other offering
costs, will be reclassified to additional paid-in capital.
Deferred Revenues
Deferred revenues as of December 31, 1997 relates to payments from customers
for products not yet shipped and unamortized set up fee revenues.
Income Taxes
The stockholders of CyberShop L.L.C. had elected to be treated as a limited
liability company for both Federal and state income tax purposes for all periods
presented. The net loss for those periods will be included in the individual
income tax returns of the stockholders (see Note 5).
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 liability using
enacted tax rates.
Long-Lived Assets
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of
Long-Lived Assets". 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 base
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
F-8
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - (CONTINUED)
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. Pro forma net loss reflects the tax effect of the
Company's operating losses as if it operated as a C Corporation from its
inception (see Note 5).
SFAS 128, "Earnings per Share" which is 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.
(3) PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Office equipment and software ........... $ 191,637 $ 279,693
Furniture and fixtures .................. 24,990 41,388
---------- ----------
216,627 321,081
Less: Accumulated depreciation .......... (100,313) (189,313)
---------- ----------
$ 116,314 $ 131,768
========== ==========
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES:
Capital Leases
Included in property and equipment is certain office equipment under capital
leases which expire through November 2001. Future minimum lease payments as of
December 31, 1997 are as follows-
<TABLE>
<S> <C>
1998 ................................................... $ 14,344
1999 ................................................... 14,154
2000 ................................................... 3,130
2001 ................................................... 2,478
--------
Total minimum lease payments ........................... 34,106
Less- Amount representing interest ..................... (5,910)
--------
Present value of future minimum lease payments ......... 28,196
Less- Current portion .................................. 13,000
--------
Long-term portion of capital lease obligations ......... $ 15,196
========
</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 and other operating leases as of
December 31, 1997.
F-9
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) COMMITMENTS AND CONTINGENCIES: - (CONTINUED)
<TABLE>
<S> <C>
1998 ............... $ 40,248
1999 ............... 41,561
2000 ............... 41,692
2001 ............... 36,932
2002 ............... 38,409
Thereafter ......... $154,254
</TABLE>
Rent expense for the years ended December 31, 1995, 1996 and 1997 amounted
to $0, $14,434 and $36,629, respectively.
Marketing Agreements
The Company entered into marketing agreements with America Online, Inc.
("AOL") pursuant to which AOL will market the products offered by the Company.
Under the terms of such agreements, the Company will pay a fee of approximately
$500,000 during 1998. The agreements are for 15 and 16 month periods.
Accordingly, the Company has recognized expenses associated with these
agreements on a straight-line basis over the life of the agreements.
(5) 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 1).
The following unaudited pro forma information has been determined based upon
the provisions of SFAS No. 109, "Accounting for Income Taxes". This information
reflects the income tax benefit 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.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Federal tax benefit at statutory rate ......... $ (217,823) $ (220,977) $ (614,064)
State income benefit net of Federal benefit . (38,439) (38,996) (108,364)
---------- ---------- ----------
$ (256,262) $ (259,973) $ (722,428)
========== ========== ==========
</TABLE>
(6) STOCK OPTIONS:
A summary of nonqualified stock options outstanding at December 31, 1996 and
1997 is presented in the table below-
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- ---------
<S> <C> <C>
Outstanding at January 1, 1996 ........... -- $ --
Granted .................................. 107,443 1.67
------- -----
Outstanding at December 31, 1996 ......... 107,443 1.67
Granted .................................. 166,191 3.00
------- -----
Outstanding at December 31, 1997 ......... 273,634 $ 2.48
======= ======
</TABLE>
As of December 31, 1997, there were 249,674 options exerciseable with a
weighted average exercise price of $2.48. The above options which were not
exercisable at December 31, 1997 vest ratably over a two year period and expire
five years from the date of grant.
F-10
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(6) STOCK OPTIONS: - (CONTINUED)
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
approximately $8,000 and $19,000 for the years ended December 31, 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 years ended December 31,
1996 and 1997 was $0.21 and $0.36, respectively. The fair value was estimated
using the Black-Scholes option pricing model based on the weighted average
market price of $1.67 in 1996 and $3.00 in 1997 and the following weighted
average assumptions: risk free interest rate of 6.5%, no volatility, no assumed
dividends and an expected life of two years. There were no options granted for
any periods prior to the year ended December 31, 1996.
(7) SUBSEQUENT EVENTS (UNAUDITED):
Stock Option Plans
The Company adopted the 1998 Stock Option Plan (the "1998 Option Plan",
subject to stockholders approval). Under the 1998 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 1998 Option Plan is 1,000,000 shares.
The Company adopted the 1998 Directors' Stock Option Plan (the "Directors'
Plan", subject to stockholders approval). 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 options to purchase 3,000 shares of common stock annually at an exercise
price equal to fair market value on the date of the grant. The maximum number of
shares of common stock reserved for issuance under the Directors' Plan is 70,000
shares.
Employment Agreements
In January and February 1998, the Company entered into one year employment
agreements with its Vice President, Chief Financial Officer and Treasurer and
its Vice President and Chief Information Officer, respectively. The agreements
provide for a base salary of $140,000 and $125,000 upon completion of the
Offering referred to below ($120,000 and $96,000 prior to completion of the
Offering).
Secured Loan
The Trustees of General Electric Pension Trust loaned the Company $500,000
at an interest rate of 15% per annum. The loan matures on the earlier of the
completion of a public offering, the raising of additonal equity or debt by the
Company or March 31, 1999. The proceeds of the loan are being utilized by the
Company for working capital purposes. Jeffrey S. Tauber pledged 172,500 of his
shares of Common Stock as security for the loan. See "Use of Proceeds,"
"Principal Stockholders" and "Certain Transactions."
Public Offering
The Company is undertaking a public offering of 2,300,000 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 INSIDE COVER
This page presents a sampling of manufacturer logos for some of the brands
sold by CyberShop.
<PAGE>
================================================================================
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 UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED 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 CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ............................. 3
Risk Factors ................................... 6
Use of Proceeds ................................ 15
Dividend Policy ................................ 15
Dilution ....................................... 16
Capitalization ................................. 17
Selected Financial Data ........................ 18
Management's Discussion and Analysis of Fi-
nancial Condition and Results of Opera-
tions ....................................... 19
Business ....................................... 22
Management ..................................... 34
Certain Transactions ........................... 39
Principal Stockholders ......................... 41
Description of Capital Stock ................... 42
Shares Eligible for Future Sale ................ 43
Underwriting ................................... 44
Legal Matters .................................. 46
Experts ........................................ 46
Additional Information ......................... 46
Index to Consolidated Financial Statements...... F-1
</TABLE>
-----------------------------------
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.
================================================================================
<PAGE>
================================================================================
2,300,000 SHARES
[GRAPHIC OMITTED]
CYBERSHOP INTERNATIONAL, INC.
COMMON STOCK
-----------------------------------
PROSPECTUS
-----------------------------------
C.E. UNTERBERG, TOWBIN
FAHNESTOCK & CO. INC.
, 1998
================================================================================
<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 .................. $ 6,141
Nasdaq SmallCap Market listing fee ............................. $ 10,000
NASD filing fee ................................................ $ 2,352
Blue Sky fees and expenses (including attorneys' fees) ......... $ *
Accounting fees and expenses ................................... $125,000
Legal fees and expenses ........................................ $225,000
Printing and engraving expenses ................................ $100,000
Transfer agent and registrar fees .............................. $ *
Miscellaneous .................................................. $ *
--------
Total .......................................................... $534,000
========
</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 Underwriters.
(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 1,702,407 shares of Common Stock
to Jeffrey Tauber and Jane Tauber, for the aggregate offering price of $200,000.
In January 1995, CyberShop, L.L.C. issued 1,044,848 shares of Common Stock
to Jeffrey Tauber and Jane Tauber for the aggregate offering price of $139,442.
In February 1995, CyberShop, L.L.C. issued 179,169 shares of Common Stock to
Donald Weiss for the aggregate offering price of $150,000.
In December 1995, CyberShop, L.L.C. issued 59,723 shares of Common Stock to
Genesis Direct, L.L.C. for the aggregate offering price of $100,000.
In October 1996, CyberShop, L.L.C. issued 497,347 shares of Common Stock to
Trustees of GE Pension Trust, Porridge Partners II, Gerald A. Poch and Leonard
Fassler for the aggregate offering price of $1,000,000.
In June 1997, CyberShop, L.L.C. issued 516,506 shares of Common Stock to
Jeffrey Tauber, Big Wave N.V., Cairnton Partnership, Jane Tauber, Trustees of GE
Pension Trust, Gerald A. Poch and Leonard Fassler for the aggregate offering
price of $1,550,000.
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 Form of Contribution Agreement between the Company and the members of CyberShop,
L.L.C.*
10.4 Form of Officer and Director Indemnification Agreement.*
10.5 1998 Stock Option Plan of the Company.*
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.6 1998 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 and Fahnestock & Co. Inc., including Form of Warrant Certificate of the Com-
pany.*
10.10 Promissory Note, dated ______, from the Company to The Trustees of General Electric
Pension Trust .**
10.11 Employment Agreement, dated January 21, 1998, between the Company and Gary S.
Finkel.*
10.12 Employment Agreement, dated February 2, 1998, between the Company and Francis
O'Connor.*
10.13 Forms of Manufacturer's Agreements.*
10.14 Pledge Agreement, dated ________, between The Trustees of General Electric Pension
Trust, Jeffrey S. Tauber and 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>
- ----------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
# Filed in redacted form subject to a request for confidential treatment
pursuant to Rule 406 under the Securities Act being filed concurrently with
this Registration Statement. The portions of the Agreement which have been
omitted have been filed with the Commission.
(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, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 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.
II-3
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 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 Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in New York, New
York, on March 10, 1998.
CYBERSHOP INTERNATIONAL, INC.
By: /s/ Jeffrey S. Tauber
------------------------------------
Jeffrey S. Tauber, Chairman of the
Board, Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 10th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------- ---------------------------------------- ---------------
<S> <C> <C>
/s/ Jeffrey S. Tauber Chairman of the Board, Chief Executive March 10, 1998
- ----------------------- Officer and Director (Principal
Jeffrey S. Tauber Executive Officer)
/s/ Gary S. Finkel Vice President, Chief Financial March 10, 1998
- ----------------------- Officer and Treasurer
Gary S. Finkel (Principal Accounting Officer
and Principal Financial
Officer)
/s/ Michael Kempner Director March 10, 1998
- -----------------------
Michael Kempner
/s/ Warren Struhl Director March 10, 1998
- -----------------------
Warren Struhl
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CyberShop International, Inc.:
We have audited in accordance with generally accepted auditing standards,
the 1995, 1996 and 1997 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 27,
1998. 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, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997 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 27, 1998
II-6
<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 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
For the year ending December 31, 1997 ......... $10,000 $10,600 $ (10,600) $10,000
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
SEQUENTIAL
PAGE
NUMBER
EXHIBIT
NUMBER DESCRIPTION
--- ------------------------------------------------------------------------------------------
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 Form of Contribution Agreement between the Company and the members of CyberShop,
L.L.C.*
10.4 Form of Officer and Director Indemnification Agreement.*
10.5 1998 Stock Option Plan of the Company.*
10.6 1998 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 and Fahnestock & Co. Inc., including form of Warrant Certificate of the Company.*
10.10 Promissory Note, dated ______, from the Company to Trustees of General Electric Pension
Trust .**
10.11 Employment Agreement, dated January 21, 1998, between the Company and Gary S. Finkel.*
10.12 Employment Agreement, dated February 2, 1998, between the Company and Francis
O'Connor.*
10.13 Forms of Manufacturer's Agreements.*
10.14 Pledge Agreement, dated ________, between The Trustees of General Electric Pension Trust
Jeffrey P. Tauber and 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>
- ----------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
# Filed in redacted form subject to a request for confidential treatment
pursuant to Rule 406 under the Securities Act being filed concurrently with
this Registration Statement. The portions of the Agreement which have been
omitted have been filed with the Commission.
CyberShop International, Inc.
2,300,000 Shares */
Common Stock
($.001 par value)
Underwriting Agreement
New York, New York
, 1998
C.E Unterberg, Towbin
Fahnestock & Co. Inc.
c/o C.E. Unterberg, Towbin
Swiss Bank Tower
10 East 50th Street
22nd Floor
New York, NY 10022
Ladies and Gentlemen:
CyberShop International, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representatives") are acting as
representatives, 2,300,000 shares of Common Stock, $.001 par value ("Common
Stock") of the Company, (the "Underwritten Securities"). The Company also
proposes to grant to the Underwriters an option to purchase up to 345,000
additional shares of Common Stock (the "Option Securities"; the Option
Securities, together with the Underwritten Securities, being hereinafter called
the "Securities"). In addition, the Company proposes to issue to the
Representatives 230,000 warrants (the "Warrants") which will initially entitle
the Representatives to purchase 230,000 shares of Common Stock of the Company
pursuant to the terms of a Warrant Agreement dated as of [ ], 1998 between the
Company and the Representatives (the "Warrant Agreement"). To the extent there
are no additional Underwriters listed on Schedule I other than you, the term
Representatives as used herein shall mean you, as Underwriters, and the terms
Representatives and Underwriters shall mean either the singular or plural as the
context requires.
- --------
*/ Plus an option to purchase from CyberShop International, Inc. up to
345,000 additional shares to cover overallotments.
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2
The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "Business Day" shall mean any day other than a
Saturday, a Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New York City.
The term "Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective. "Execution Time" shall
mean the date and time that this Agreement is executed and delivered by the
parties hereto. "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) and any preliminary prospectus included in the
Registration Statement at the Effective Date that omits Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the Securities that is first
filed pursuant to Rule 424(b) after the Execution Time or, if no filing pursuant
to Rule 424(b) is required, shall mean the form of final prospectus relating to
the Securities included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement referred to in
paragraph 1(a), including exhibits and financial statements, as amended at the
Execution Time (or, if not effective at the Execution Time, in the form in which
it shall become effective) and, in the event any post-effective amendment
thereto or any Rule 462(b) Registration Statement becomes effective prior to the
Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended or any Rule 462(b) Registration Statement, as the case
may be. Such term shall include any Rule 430A Information deemed to be included
therein at the Effective Date as provided by Rule 430A. "Rule 424", "Rule 430A"
and "Rule 462(b)" refer to such rules under the Act. "Rule 430A Information"
means information with respect to the Securities and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A. "Rule 462(b) Registration Statement" shall mean
a registration statement and any amendments thereto filed pursuant to Rule
462(b) relating to the offering covered by the initial registration statement.
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, each Underwriter that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (file number
333-42707) on Form S-1, including a related preliminary prospectus, for
the registration under the Securities Act of 1933 (the
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3
"Act") of the offering and sale of the Securities. The Company may have
filed one or more amendments thereto, including a related preliminary
prospectus, each of which has previously been furnished to you. The
Company will next file with the Commission either (i) prior to the
Effective Date of such registration statement, a further amendment to
such registration statement (including the form of final prospectus) or
(ii) after the Effective Date of such registration statement, a final
prospectus in accordance with Rules 430A and 424(b)(1) or (4). In the
case of clause (ii), the Company has included in such registration
statement, as amended at the Effective Date, all information (other
than Rule 430A Information) required by the Act and the rules
thereunder to be included in such registration statement and the
Prospectus. As filed, such amendment and form of final prospectus, or
such final prospectus, shall contain all Rule 430A Information,
together with all other such required information, and, except to the
extent the Representatives shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior
to the Execution Time or, to the extent not completed at the Execution
Time, shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus) as
the Company has advised you, prior to the Execution Time, will be
included or made therein.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with
Rule 424(b) and on the Closing Date and on any date on which shares
sold in respect of the Underwriters' over-allotment option are
purchased, if such date is not the Closing Date (a "settlement date"),
the Prospectus (and any supplements thereto) will, comply in all
material respects with the applicable requirements of the Act and the
rules thereunder; on the Effective Date and at the Execution Time, the
Registration Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date and any settlement
date, the Prospectus (together with any supplement thereto) will not,
include any untrue statement of a material fact or omit to state a
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4
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or
warranties as to the information contained in or omitted from the
Registration Statement, or the Prospectus (or any supplement thereto)
in reliance upon and in conformity with information furnished herein or
in writing to the Company by or on behalf of any Underwriter through
the Representatives specifically for inclusion in the Registration
Statement or the Prospectus (or any supplement thereto).
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware; CyberShop L.L.C., a New Jersey limited liability company (the
"Subsidiary"), has been duly organized and is validly existing as a
limited liability company in good standing under the laws of the State
of New Jersey; each of the Company and the Subsidiary has the power and
authority to own its properties and conduct its business as described
in the Prospectus, and is duly qualified to do business as a foreign
corporation or limited liability company, as applicable, and is in good
standing, under the laws of each jurisdiction which requires such
qualification except where failure to so qualify would not have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and the
Subsidiary, taken as a whole.
(d) The Company's authorized equity capitalization is as set forth
in the Prospectus; the capital stock of the Company conforms in all
material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities being sold hereunder have been duly and validly authorized,
and, when issued and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be fully paid and nonassessable; the
Securities have been duly authorized for listing, subject to official
notice of issuance on the Nasdaq SmallCap Market; the certificates for
the Securities and the Warrants are in valid and sufficient form; the
holders of outstanding shares of capital stock of the Company and the
membership interests of the Subsidiary are not entitled to preemptive
or other rights to subscribe for the Securities and, except as set
forth in the Prospectus,
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5
no options, warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations into or
exchange any securities for, shares of capital stock of or ownership
interests in the Company or the Subsidiary are outstanding.
(e) There is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required.
(f) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation
of the Company enforceable in accordance with its terms.
(g) Neither the Company nor the Subsidiary is and, after giving
effect to the offering and sale of the Securities and the Warrants and
the application of the proceeds thereof as described in the Prospectus,
neither will be an "investment company" as defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act").
(h) No consent, approval, authorization, filing with or order of
any court or governmental agency or body is required in connection with
the transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters in the manner contemplated herein
and in the Prospectus.
(i) Neither the issue and sale of the Securities or the Warrants
nor the consummation of any other of the transactions herein
contemplated nor the fulfillment of the terms hereof will conflict
with, or result in a breach or violation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or the
Subsidiary pursuant to, (i) the charter or by-laws of the Company, (ii)
the charter or operating agreement of the Subsidiary, (iii) the terms
of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which the Company or the Subsidiary is a
party or bound or to which its property is subject, or (iv) any
statute, law, rule, regulation, judgment, order or decree applicable to
the Company or the Subsidiary of any court, regulatory body,
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6
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or the Subsidiary or any of its or
their properties.
(j) No holder of securities of the Company or the Subsidiary has
any right to the registration of such securities under the Registration
Statement.
(k) The consolidated financial statements and schedules of the
Company and the Subsidiary included in the Prospectus and the
Registration Statement present fairly in all material respects the
financial condition, results of operations and cash flows of the
Company and the Subsidiary as of the dates and for the periods
indicated, comply as to form with the applicable accounting
requirements of the Act and the rules and regulations thereunder and
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved (except as otherwise noted therein). The selected financial
data set forth under the caption "Selected Financial Data" in the
Prospectus and Registration Statement fairly present, on the basis
stated in the Prospectus and the Registration Statement, the
information included therein.
(l) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or the Subsidiary or its or their property is pending or, to
their knowledge, threatened that (i) could reasonably be expected to
have a material adverse effect on the performance of this Agreement or
the consummation of any of the transactions contemplated hereby or (ii)
could reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and the Subsidiary, taken as a whole, whether
or not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus (exclusive of
any supplement thereto) (except, in the case of this clause (ii), for
those that have been disclosed in the Prospectus); and no labor
disturbance by or dispute with the employees of the Company or the
Subsidiary exists or, to their knowledge, is threatened or is imminent
that could reasonably be expected to have a material adverse effect on
the condition (financial or otherwise), prospects, earnings, business
or properties of the Company and the Subsidiary, taken as a whole,
whether or not arising from transactions in the
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7
ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
(m) Each of the Company and the Subsidiary owns or leases all such
properties as are necessary to the conduct of its operations as
presently conducted; neither the Company nor the Subsidiary is in
violation of any law, rule or regulation of any Federal, state or local
governmental or regulatory authority applicable to it or is in
non-compliance with any term or condition of, or has failed to obtain
and maintain in effect, any license, certificate, permit or other
governmental authorization required for the ownership or lease of its
property or the conduct of its business, which violation,
non-compliance or failure would individually or in the aggregate have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and the
Subsidiary, taken as a whole, whether or not arising from transactions
in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto);
and neither the Company nor the Subsidiary has received notice of any
proceedings relating to the revocation or material modification of any
such license, certificate, permit or other authorization.
(n) Neither the Company nor the Subsidiary is in violation or
default of (i) any provision of its charter, by-laws or operating
agreement, as applicable, (ii) the terms of any material indenture,
contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is
subject, or (iii) any statute, law, rule, regulation, judgment, order
or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction
over the Company or the Subsidiary or any of its or their properties,
except where such violation or default would not have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and the Subsidiary,
taken as a whole.
(o) Arthur Andersen LLP, who have certified certain financial
statements of the Company and the Subsidiary and delivered their report
with respect to the audited consolidated financial statements and
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8
schedules included in the Prospectus, are independent public
accountants with respect to the Company and the Subsidiary within the
meaning of the Act and the applicable published rules and regulations
thereunder.
(p) There are no transfer taxes or other similar fees or charges
under Federal law or the laws of any state, or any political
subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the Warrant Agreement or
the issuance by the Company or sale by the Company of the Securities
and the Warrants.
(q) The Company and the Subsidiary have filed all foreign,
Federal, state and local tax returns that are required to be filed or
has requested extensions thereof (except in any case in which the
failure so to file would not have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and the Subsidiary, taken as a whole, whether
or not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus (exclusive of
any supplement thereto)) and has paid all taxes required to be paid by
it and any other assessment, fine or penalty levied against it, to the
extent that any of the foregoing is due and payable, except for any
such assessment, fine or penalty that is currently being contested in
good faith or as described in or as would not have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and the Subsidiary, taken as a
whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(r) No labor dispute with the employees of the Company or the
Subsidiary exists or is threatened or imminent that could result in a
material adverse change in the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and the
Subsidiary, taken as a whole, whether or not arising from transactions
in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(s) The Company and the Subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are
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9
prudent and customary in the businesses in which they are engaged;
neither the Company nor the Subsidiary has been refused any insurance
coverage sought or applied for; and neither the Company nor the
Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and the Subsidiary, taken as a
whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(t) Each of the Company and the Subsidiary possesses all
certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct
its business, and neither the Company nor the Subsidiary has received
any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a material adverse change in the condition
(financial or otherwise), prospects, earnings, business or properties
of the Company and the Subsidiary, taken as a whole, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(u) Neither the Company nor the Subsidiary is in violation of any
Federal or state law or regulation relating to occupational safety and
health or to the storage, handling or transportation of hazardous or
toxic materials; each of the Company and the Subsidiary has received
all permits, licenses or other approvals required of them under
applicable Federal and state occupational safety and health and
environmental laws and regulations to conduct their respective
businesses, and the Company and the Subsidiary are in compliance with
all terms and conditions of any such permit, license or approval,
except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals which
would not, singly or in the aggregate, result in a material adverse
change in the condition (financial or otherwise), prospects, earnings,
business
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10
or properties of the Company and the Subsidiary, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(v) The Company and the Subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(w) The Company and the Subsidiary own or have obtained licenses
for the patents, patent applications, trade and service marks, trade
secrets and other intellectual properties referenced or described in
the Prospectus as being owned by or licensed to them (collectively, the
"Intellectual Property"). Except as set forth in the Prospectus under
the caption "Business--Technology," (a) there are no rights of third
parties to any such Intellectual Property; (b) there is no material
infringement by third parties of any such Intellectual Property; (c)
there is no pending or threatened action, suit, proceeding or claim by
others challenging the Company's or the Subsidiary's rights in or to
any such Intellectual Property, and each of the Company and the
Subsidiary is unaware of any facts which would form a reasonable basis
for any such claim; (d) there is no pending or threatened action, suit,
proceeding or claim by others challenging the validity or scope of any
such Intellectual Property, and each of the Company and the Subsidiary
is unaware of any facts which would form a reasonable basis for any
such claim; (e) there is no pending or threatened action, suit,
proceeding or claim by others that the Company or the Subsidiary
infringes or otherwise violates any patent, trademark, copyright, trade
secret or other proprietary rights of others, and each of the Company
and the Subsidiary is unaware of any other fact which would form a
reasonable basis for any such claim; (f) there is no U.S. patent or
published U.S. patent application which contains claims
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that dominate or may dominate any Intellectual Property described in
the Prospectus as being owned by or licensed to the Company or the
Subsidiary or that interferes with the issued or pending claims of any
such Intellectual Property; and (g) there is no prior art of which the
Company or the Subsidiary is aware that may render any U.S. patent held
by the Company or the Subsidiary invalid or any U.S. patent application
held by the Company or the Subsidiary unpatentable which has not been
disclosed to the U.S. Patent and Trademark Office. Each of the Company
and the Subsidiary owns the Intellectual Property or has the rights to
the Intellectual Property that is necessary to conduct its business as
described in the Prospectus.
(x) All of the membership interests of the Subsidiary have been
duly and validly authorized and issued and are fully paid and
nonassessable, and all outstanding membership interests of the
Subsidiary are owned directly by the Company free and clear of any
perfected security interest and, to the knowledge of the Company,
after due inquiry, any other security interests, claims, liens or
encumbrances.
(y) The Subsidiary is not currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any
other distribution on such Subsidiary's membership interests, from
repaying to the Company any loans or advances to such Subsidiary from
the Company or from transferring any of such Subsidiary's property or
assets to the Company except as described in or contemplated by the
Prospectus.
(z) The Subsidiary is the only significant subsidiary of the
Company as defined by Rule 1-02 of Regulation S-X.
(aa) The Warrant Agreement has been duly authorized by the Company
and, when duly executed and delivered by the Company in accordance with
its terms, will constitute a valid and legally binding obligation of
the Company in accordance with its terms; the Warrants will conform in
all material respects to the description of the Warrants in the
Prospectus and in the Warrant Agreement; the Warrants to be issued and
sold by the Company to the Representatives pursuant to the Warrant
Agreement have been duly and validly authorized and, when duly
executed, issued and delivered as contemplated by the Warrant Agreement
against payment therefor will be duly and validly issued, fully paid
and will constitute the valid and
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binding obligations of the Company, entitled to the benefits of the
Warrant Agreement and enforceable in accordance with their terms.
(bb) When the Securities are delivered and paid for pursuant to
this Agreement on the Closing Date, the Warrants will be exercisable
for shares of Common Stock of the Company ("Warrant Shares") in
accordance with their terms subsequent to [ ], 1999; the Warrant Shares
initially issuable upon the exercise of such Warrants have been duly
authorized and reserved for issuance upon such exercise in accordance
with the terms of the Warrants and, when issued upon such exercise,
will be validly issued, fully paid and nonassessable; and the
stockholders of the Company have no preemptive rights with respect to
the Warrant Shares.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell (i) to each Underwriter, and each Underwriter agrees, severally
and not jointly, to purchase from the Company, at a purchase price of $[ ] per
share, the amount of the Underwritten Securities set forth opposite such
Underwriter's name in Schedule I hereto and (ii)to each Representative, and each
Representative agrees to purchase from the Company, at a purchase price of $.01
per Warrant, the amount of Warrants set forth opposite such Representative's
name in schedule I hereof.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
300,000 shares of Option Securities at the same purchase price per share as the
Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telefax notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as to which
the several
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13
Underwriters are exercising the option and the settlement date. Delivery of
certificates for the shares of Option Securities, and payment therefor, shall be
made as provided in Section 3 hereof. The number of shares of the Option
Securities to be purchased by each Underwriter shall be the same percentage of
the total number of shares of the Option Securities to be purchased by the
several Underwriters as such Underwriter is purchasing of the Underwritten
Securities, subject to such adjustments as you in your absolute discretion shall
make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the Underwritten
Securities, the Warrants and the Option Securities (if the option provided for
in Section 2(b) hereof shall have been exercised on or before the third Business
Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
[ ], 1998, or such time on such later date not more than three Business Days
after the foregoing date as the Representatives shall designate, which date and
time may be postponed by agreement between the Representatives and the Company
or as provided in Section 9 hereof (such date and time of delivery and payment
for the Securities being herein called the "Closing Date"). Delivery of the
Securities shall be made to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same day funds to an account specified by
the Company. Delivery of the Underwritten Securities and the Option Securities
shall be made through the facilities of the Depository Trust Company unless the
Representatives shall otherwise instruct. Delivery of the Warrants shall be made
to the Representatives for the Representatives' own account against payment by
the Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same day funds to an account specified by
the Company.
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representatives on the
date specified by the Representatives (which shall be within three Business Days
after exercise of said option), against payment by the several Underwriters
through the Representatives thereof to or upon the order of the Company by wire
transfer payable in same day funds to an account specified by the Company.
Delivery of the Option Securities shall be made through facilities of the
Depository Trust
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14
Company unless the Representatives shall otherwise instruct.
If settlement for the Option Securities occurs after the Closing Date,
the Company will deliver to the Representatives on the settlement date for the
Option Securities, and the obligation of the Underwriters to purchase the Option
Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Prospectus or any Rule
462(b) Registration Statement unless the Company has furnished you a
copy for your review prior to filing and will not file any such
proposed amendment or supplement to which you reasonably object.
Subject to the foregoing sentence, if the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the
Prospectus is otherwise required under Rule 424(b), the Company will
cause the Prospectus, properly completed, and any supplement thereto to
be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. Upon your
request, the Company will cause the Rule 462(b) Registration Statement,
properly completed, to be filed with the Commission pursuant to Rule
462(b) and will provide evidence satisfactory to the Representatives of
such filing. The Company will promptly advise the Representatives (i)
when the Registration Statement, if not effective at the Execution
Time, shall have become effective, (ii) when the Prospectus, and any
supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration
Statement shall have been filed with the
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15
Commission, (iii) when, prior to termination of the offering of the
Securities, any amendment to the Registration Statement shall have been
filed or become effective, (iv) of any request by the Commission or its
staff for any amendment of the Registration Statement, or any Rule
462(b) Registration Statement, or for any supplement to the Prospectus
or of any additional information, (v) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that
purpose and (vi) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its best efforts to
prevent the issuance of any such stop order or the suspension of any
such qualification and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act, any event occurs as a result
of which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the rules thereunder, the Company
promptly will (i) prepare and file with the Commission, subject to the
second sentence of paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect such
compliance and (ii) supply any supplemented Prospectus to you in such
quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an
earnings statement or statements of the Company which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel
for the Underwriters, without charge, signed copies of the Registration
Statement (including exhibits thereto) and to each other Underwriter a
copy of the Registration Statement (without exhibits thereto) and, so
long as delivery of a prospectus by an Underwriter or dealer may be
<PAGE>
16
required by the Act, as many copies of each Preliminary Prospectus and
the Prospectus and any supplement thereto as the Representatives may
reasonably request. The Company will pay the expenses of printing or
other production of all documents relating to the offering.
(e) The Company will arrange, if necessary, for the qualification
of the Securities for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in
effect so long as required for the distribution of the Securities and
will pay the fee of the National Association of Securities Dealers,
Inc., in connection with its review of the offering.
(f) The Company will not, for a period of one year following the
Execution Time, without the prior written consent of C.E. Unterberg,
Towbin, offer, sell or contract to sell, or otherwise dispose of (or
enter into any transaction which is designed to, or could be expected
to, result in the disposition (whether by actual disposition or
effective economic disposition due to cash settlement or otherwise) by
the Company or any affiliate of the Company or any person in privity
with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other shares of Common
Stock or any securities convertible into, or exchangeable for, shares
of Common Stock; provided, however, that the Company may issue and sell
Common Stock pursuant to any employee stock option plan, stock
ownership plan or dividend reinvestment plan of the Company in effect
at the Execution Time and the Company may issue Common Stock issuable
upon the conversion of securities or the exercise of warrants
outstanding at the Execution Time.
6. Conditions to the Obligations of the Underwriters. The obligations
of the Underwriters to purchase the Underwritten Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Representatives agree in writing to a later time, the
<PAGE>
17
Registration Statement will become effective not later than (i) 6:00 PM New York
City time on the date of determination of the public offering price, if such
determination occurred at or prior to 3:00 PM New York City time on such date or
(ii) 9:30 AM on the Business Day following the day on which the public offering
price was determined, if such determination occurred after 3:00 PM New York City
time on such date; if filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b), the Prospectus, and any such supplement, will
be filed in the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been instituted
or threatened.
(b) The Company shall have furnished to the Representatives the opinion
of Rubin Baum Levin Constant & Friedman, counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus, and is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification, except where the failure to so qualify would not have a
material adverse effect on the condition (financial or otherwise),
prospects earnings, business or properties of the Company and the
Subsidiary, taken as a whole;
(ii) the Subsidiary has been duly organized and is validly
existing as a limited liability company in good standing under the laws
of the State of New Jersey, with limited liability company power and
authority to own its properties and conduct its business as described
in the Prospectus, and is duly qualified to do business as a foreign
limited liability company and is in good standing under the laws of
each jurisdiction which requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the
condition (financial or otherwise), prospects earnings, business or
properties of the Company and the Subsidiary, taken as a whole;
(iii) the Company's authorized equity capitalization and the
membership interests of the Subsidiary are as set forth in the
Prospectus; the
<PAGE>
18
capital stock of the Company and the membership interests of the
Subsidiary conform in all material respects to the descriptions thereof
contained in the Prospectus; the outstanding shares of Common Stock
have been duly and validly authorized and issued and are fully paid and
nonassessable; all of the membership interests of the Subsidiary are
owned directly by the Company free and clear of any perfected security
interest and, to the knowledge of such counsel, after due inquiry, any
other security interests, claims, liens or encumbrances; the Securities
have been duly and validly authorized, and, when issued and delivered
to and paid for by the Underwriters pursuant to this Agreement, will be
fully paid and nonassessable; the Company has been notified by the
Nasdaq SmallCap Market that the Securities are duly authorized for
listing, subject to official notice of issuance on the Nasdaq SmallCap
Market; the certificates for the Securities are in valid and sufficient
form; and the holders of outstanding shares of capital stock of the
Company and the membership interests of the Subsidiary are not entitled
to preemptive or other rights to subscribe for the Securities; and
except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or rights
to convert any obligations into or exchange any securities for, shares
of capital stock of or membership or ownership interests in the Company
or the Subsidiary are outstanding;
(iv) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or the Subsidiary of a character required to be disclosed in
the Registration Statement which is not adequately disclosed in the
Prospectus, and there is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required;
(v) based solely upon the advice of the Commission, the
Registration Statement has become effective under the Act; any required
filing of the Prospectus, and any supplements thereto, pursuant to Rule
424(b) has been made in the manner and within the time period required
by Rule 424(b); to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued, no proceedings for that purpose have been instituted or
threatened and
<PAGE>
19
the Registration Statement and the Prospectus (other than the financial
statements and other financial and statistical information contained
therein as to which such counsel need express no opinion) comply as to
form in all material respects with the applicable requirements of the
Act and the rules thereunder; and solely on the basis of such counsel's
work in connection with this matter, including such counsel's
participation in conferences at which the Registration was discussed,
prepared and reviewed and examination of the documents referred to
therein, such counsel has no reason to believe that on the Effective
Date or at the Execution Time the Registration Statement contains or
contained any untrue statement of a material fact omits or omitted to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus as of
its date and on the Closing Date includes any untrue statement of a
material fact or omitted or omits to state a material fact necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading (in each case, other than the
financial statements and other financial information contained therein,
as to which such counsel need not express an opinion);
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Company is not and, after giving effect to the offering
and sale of the Securities and the Warrants and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act;
(viii) no consent, approval, authorization filing with or order of
any court or governmental agency or body is required in connection with
the transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters in the manner contemplated in this
Agreement and in the Prospectus;
(ix) to such counsel's knowledge, neither the issue and sale of
the Securities and the Warrants, nor the consummation of any other of
the transactions herein contemplated nor the fulfillment of the terms
hereof will conflict with, result in a breach or violation, or
<PAGE>
20
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or the Subsidiary pursuant to, (i) the charter or
by-laws of the Company, (ii) the charter or operating agreement of the
Subsidiary, (iii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition or covenant or instrument to which the
Company or the Subsidiary is a party or bound or to which its property
is subject, or (iv) any statute, law, rule, regulation, judgment, order
or decree applicable to the Company or the Subsidiary of any court,
regulatory body, administrative agency, governmental body, arbitrator
or other authority having jurisdiction over the Company or the
Subsidiary or any of its or their properties;
(x) no holders of securities of the Company have rights to the
registration of such securities under the Registration Statement; and
(xi) the Warrant Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company in accordance with its terms; the Warrant
Agreement and the Warrants conform in all material respects to the
descriptions thereof contained in the Prospectus; the Warrants have
been duly and validly authorized, executed, issued and delivered and
constitute the valid and binding obligations of the Company, entitled
to the benefits of the Warrant Agreement and enforceable in accordance
with their terms; the certificates for the Warrants are in valid and
sufficient form; the Warrants are exercisable for the Warrant Shares of
the Company in accordance with their terms; the Warrant Shares
initially issuable upon the exercise of the Warrants have been duly
authorized and reserved for issuance upon such exercise and, when
issued upon such exercise, will be validly issued, fully paid and
nonassessable; the stockholders of the Company have no preemptive
rights with respect to the Warrant Shares.
In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws of any jurisdiction other than the State of Delaware, State
of New York or the Federal laws of the United States, to the extent they deem
proper and specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of
<PAGE>
21
the Company and public officials. References to the Prospectus in this paragraph
(b) include any supplements thereto at the Closing Date.
(c) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the Closing
Date, with respect to the issuance and sale of the Securities, the Registration
Statement, the Prospectus (together with any supplement thereto) and other
related matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the President
and the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have carefully
examined the Registration Statement, the Prospectus, any supplements to the
Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied in all material respects with all the
agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there
has been no material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and the Subsidiary, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(e) At the Execution Time and at the Closing Date, Arthur Anderson LLP
shall have furnished to the Representatives letters, dated respectively as of
the Execution Time and as of the Closing Date, in form and
<PAGE>
22
substance satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Act and the applicable
published rules and regulations thereunder and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included in the Registration Statement
and the Prospectus and reported on by them comply in form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company; carrying out certain
specified procedures (but not an examination in accordance with
generally accepted auditing standards) which would not necessarily
reveal matters of significance with respect to the comments set forth
in such letter; a reading of the minutes of the meetings of the
stockholders, directors and the executive, audit and compensation
committees of the Company and the Operating Agreement, as amended, of
the Subsidiary ; and inquiries of certain officials of the Company who
have responsibility for financial and accounting matters of the Company
and the Subsidiary as to transactions and events subsequent to December
31, 1997, nothing came to their attention which caused them to believe
that:
(1) with respect to the period subsequent to December 31,
1997, there were any changes, at a specified date not more than
five days prior to the date of the letter, in the long-term
liabilities of the Company or the Subsidiary or capital stock of
the Company or decreases in the stockholders' equity of the
Company and the Subsidiary or decreases in working capital of the
Company as compared with the amounts shown on the December 31,
1997, consolidated balance sheet included in the Registration
Statement and the Prospectus, or for the period from January 1,
1998 to such specified date there were any decreases, as compared
with the corresponding period in the preceding year in net
revenues or income before income taxes or in total or per share
amounts of net income of the Company and the Subsidiary, operating
income, net interest income, except in all instances for changes
or decreases set forth in such letter, in which case the letter
shall be accompanied by an explanation by the Company as to
<PAGE>
23
the significance thereof unless said explanation is not deemed
necessary by the Representatives; or
(2) the information included in the Registration Statement
and Prospectus in response to Regulation S-K, Item 301 (Selected
Financial Data), Item 302 (Supplementary Financial Information)
and Item 402 (Executive Compensation) is not in conformity with
the applicable disclosure requirements of Regulation S-K; and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and the Subsidiary) set forth
in the Registration Statement and the Prospectus, including the
information set forth under the captions "Summary Financial
Information", "Dilution", "Capitalization", "Selected Financial Data",
"Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Business", "Management", "Certain
Transactions", "Principal Stockholders" and "Description of Capital
Stock" in the Prospectus, agrees with the accounting records of the
Company and the Subsidiary, excluding any questions of legal
interpretation.
References to the Prospectus in this paragraph (e) include any
supplement thereto at the date of the letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraph (e) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the condition
(financial or otherwise), earnings, business or properties of the Company and
the Subsidiary, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto) the effect of which, in any
case referred to in clause (i) or (ii) above, is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the
<PAGE>
24
Registration Statement (exclusive of any amendment thereof) and the Prospectus
(exclusive of any supplement thereto).
(g) At the Execution Time, the Company shall have furnished to the
Representatives a letter substantially in the form of Exhibit A hereto from each
officer, director stockholder and option holder of the Company addressed to the
Representatives.
(h) The Company shall have caused the Securities to be eligible for
trading on the Nasdaq SmallCap Market upon issuance.
(i) At the time of Closing, the Company shall have executed and
delivered the Warrant Agreement to the Representatives.
(j) Prior to the Closing Date, the Company shall have furnished to the
Representatives such further information, certificates and documents as the
Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of such
cancelation shall be given to the Company in writing or by telephone or
facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, New York, on the
Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through C.E. Unterberg, Towbin on
<PAGE>
25
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person who controls any Underwriter
within the meaning of either the Act or the Securities Exchange Act of 1934 (the
"Exchange Act") against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the Act,
the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement for the registration of the Securities as originally
filed or in any amendment thereof, or in any Preliminary Prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or arise out of or are based upon any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with, or relating
in any manner to, the Common Stock or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon matters covered above and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that (i) the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion therein or in the section of the
Prospectus entitled "Underwriting" and (ii) such indemnity with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter (or any
director, officer, employee or agent of such Underwriter or any person
controlling such Underwriter) from whom the person asserting any such loss,
claim, damage or liability purchased the Securities that are the subject thereof
if such person did not receive a copy of the
<PAGE>
26
Prospectus (or the Prospectus as supplemented) excluding documents incorporated
therein by reference at or prior to the confirmation of the sale of such
Securities to such person in any case where such delivery is required under the
Act and any untrue statement or omission of a material fact contained in any
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
supplemented). This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to written information furnished to the Company by or on behalf of
such Underwriter through the Representatives specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any Underwriter may otherwise have. The
Company acknowledges that the statements set forth in the last paragraph of the
cover page regarding delivery of the Securities, the stabilization legend in
block capital letters on page 2 and under the heading "Underwriting" constitute
the only information furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary Prospectus or the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below);
<PAGE>
27
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 8 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and the Underwriters agree to contribute to
the aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company and one or more of the Underwriters
may be subject in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and by the Underwriters on the
other from the offering of the Securities; provided, however, that in no case
shall any Underwriter (except as may be provided in any agreement among
underwriters relating to the offering of the Securities) be responsible for any
amount in excess of the underwriting discount or commission applicable to the
Securities purchased by such Underwriter hereunder. If the
<PAGE>
28
allocation provided by the immediately preceding sentence is unavailable for any
reason, the Company and the Underwriters shall contribute in such proportion as
is appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by the
Company shall be deemed to be equal to the total net proceeds from the offering
(before deducting expenses), and benefits received by the Underwriters shall be
deemed to be equal to the total underwriting discounts and commissions, in each
case as set forth on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether any untrue or any
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information provided by the Company on the
one hand or the Underwriters on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), 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. For purposes of
this Section 8, each person who controls an Underwriter within the meaning of
either the Act or the Exchange Act and each director, officer, employee and
agent of an Underwriter shall have the same rights to contribution as such
Underwriter, and each person who controls the Company within the meaning of
either the Act or the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).
9. Default by an Underwriter. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the
<PAGE>
29
aggregate amount of Securities set forth opposite the names of all the remaining
Underwriters) the Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase; provided, however, that in the event that the
aggregate amount of Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase shall exceed 10% of the aggregate amount of
Securities set forth in Schedule I hereto, the remaining Underwriters shall have
the right to purchase all, but shall not be under any obligation to purchase
any, of the Securities, and if such nondefaulting Underwriters do not purchase
all the Securities, this Agreement will terminate without liability to any
nondefaulting Underwriter or the Company. In the event of a default by any
Underwriter as set forth in this Section 9, the Closing Date shall be postponed
for such period, not exceeding five Business Days, as the Representatives shall
determine in order that the required changes in the Registration Statement and
the Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Underwriter of
its liability, if any, to the Company and any nondefaulting Underwriter for
damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq SmallCap Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq SmallCap Market shall have been
suspended or limited or minimum prices shall have been established on either of
such Exchange or SmallCap Market, (ii) a banking moratorium shall have been
declared either by Federal or New York State authorities or (iii) there shall
have occurred any outbreak or escalation of hostilities, declaration by the
United States of a national emergency or war or other calamity or crisis the
effect of which on financial markets is such as to make it, in the sole judgment
of the Representatives, impractical or inadvisable to proceed with the offering
or delivery of the Securities as contemplated by the Prospectus (exclusive of
any supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf
<PAGE>
30
of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Securities. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed and confirmed to them, care of C.E. Unterberg, Towbin,
Swiss Bank Tower, 10 East 50th Street, 22nd Floor, New York, New York, 10022;
or, if sent to the Company, will be mailed, delivered or telefaxed and confirmed
to it at 130 Madison Avenue, New York, New York 10016, attention of Jeffrey
Tauber.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience only
and shall not affect the construction hereof.
<PAGE>
31
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
By: ..............................................
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
C.E. Unterberg, Towbin
By: .................................................
For itself, Fahnestock & Co. Inc. and the
other several Underwriters named in
Schedule I to the foregoing Agreement.
<PAGE>
SCHEDULE I
NUMBER OF SHARES NUMBER OF WARRENTS
UNDERWRITERS TO BE PURCHASED TO BE PURCHASED
C.E. Unterberg, Towbin . . . . . . . 1,380,000 138,000
Fahnestock & Co. Inc. . . . . . . . 920,000 92,000
--------- -------
Total . . . . . . . . . 2,300,000 230,000
========= =======
<PAGE>
EXHIBIT A
[Letterhead of officer, director, shareholder or option
holder of CyberShop International, Inc.]
CyberShop International, Inc.
Public Offering of Common Stock
, 1998
C.E. Unterberg, Towbin
Fahnestock & Co. Inc.
C/O C.E. Unterberg, Towbin
Swiss Bank Tower
10 East 50th Street, 22nd Floor
New York, New York 10022
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between CyberShop
International, Inc., a Delaware corporation (the "Company"), and you as the
Underwriter named therein, relating to an underwritten public offering (the
"Offering") of Common Stock, $.001 par value (the "Common Stock"), of the
Company.
In order to induce you to enter into the Underwriting Agreement, the
undersigned will not, without the prior written consent of C.E. Unterberg,
Towbin, 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 equivalent position or liquidate or decrease a call equivalent
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, for a period of one year after the
date of this Agreement, other than (i) shares of Common Stock obtained by any
purchases in the open market by the undersigned following consummation of the
Offering, (ii) any shares of Common Stock to be sold hereunder, (iii) any option
or warrant or the conversion of a security outstanding on the date hereof and
referred to in the Prospectus to which this Agreement relates, (iv) shares of
Common Stock disposed of as bona fide gifts, and (v) the transfer of shares of
Common Stock by the undersigned to
<PAGE>
2
(a) any spouse, parents, siblings or lineal descendants of the undersigned, (b)
any trust for the benefit of the undersigned, (c) any distributee, legatee or
devisee of the undersigned who acquires its shares by will or operation of law
upon the death or dissolution of the undersigned or (d) any current holder of
Common Stock; provided that the transferee in each of the preceding clauses (iv)
and (v) agrees in writing to be bound by the terms of this Agreement to the same
extent as the undersigned.
If for any reason the Underwriting Agreement shall be terminated prior
to the Closing Date (as defined in the Underwriting Agreement), the agreement
set forth above shall likewise be terminated.
Yours very truly,
[Signature of officer,
director, shareholder or
option holder]
[Name and address of officer,
director, shareholder or
option holder]
EXHIBIT 4.1
CYBERSHOP INTERNATIONAL, INC.
COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 23251X10 5
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001 EACH OF THE
COMMON STOCK OF
CYBERSHOP INTERNATIONAL, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate properly
endorsed.
This Certificate is not valid until coutersigned by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
SEAL
SECRETARY CHAIRMAN
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish charge to each stockholder who so requests a
copy of the provisions setting forth the powers, designations, pereferences and
relative, participating, optional, or other special reights of each class of
stock or series thereof which the Corporation is authorized to issue and the
qualifications, limitations or restrictions of such preferences and/or rights
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN-COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenantswith right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -Custodian-
(Cust) (Minor)
under Uniform Gifts to
Minors Act (State)
Additional abbreviations may also be used through not in the above list.
For value received,_____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME ANE ADDRESS INCLUDING ZIP CODE OF
- --------------------------------------------------------------------------------
ASSIGNEE)
- --------------------------------------------------------------------------------
- ---------------------------------- Shares of the Common Stock represented by the
within Certificate, and do hereby irrevocably constitute and appoint
- ------------------------------------------------------------- Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
<PAGE>
Dated_____________________
NOTICE:_________________________________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO
S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
Exhibit 5.1
[RUBIN BAUM LEVIN CONSTANT & FRIEDMAN LETTERHEAD]
________, 1998
CyberShop International, Inc.
130 Madison Avenue
New York, NY 10016
Ladies and Gentlemen:
We have acted as counsel to you in connection with (i) an underwritten
public offering of up to 2,300,000 shares (the "Company Shares") of common
stock, par value $.001 per share of CyberShop International, Inc., a Delaware
corporation (the "Company") (the "Common Stock"), together with an additional
345,000 shares of Common Stock if and to the extent the underwriters exercise an
over-allotment option granted by the Company (the "Over-Allotment Shares"), and
(ii) the preparation and filing of the registration statement on Form S-1, File
No. 333-42707 (the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), which you are filing with the Securities and
Exchange Commission with respect to the Company Shares and the Over-Allotment
Shares (collectively, the "Shares").
We have examined the Registration Statement and such documents and records
of the Company and other documents as we have deemed necessary for the purpose
of this opinion. Based upon the foregoing, we are of the opinion that upon the
happening of the following events:
(a) the filing and effectiveness of the Registration Statement and any
amendments thereto,
(b) due execution by the Company and registration by its registrar of the
Shares,
(c) the offering and sale of the Shares as contemplated by the
Registration Statement, and
(d) receipt by the Company of the consideration required for the Shares
contemplated by the Registration Statement,
the Shares will be duly authorized, validly issued, fully paid and
nonassessable.
We are members of the bar of the State of New York, and the opinion
expressed herein is limited to questions arising under the laws of the State of
New York, the General Corporation Law of the State of Delaware and the Federal
law of the United States, and we disclaim any opinion whatsoever with respect to
matters governed by the laws of any other jurisdiction.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto, including any and all
post-effective amendments and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, and to the reference to our firm in the Prospectus of the
Registration Statement under the heading "Legal Matters."
Very truly yours,
/s/ RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
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 ........................... 1,439,171 21.492%
Jeffrey Tauber
211 Gates Avenue
Montclair, New Jersey 07042
T.I.N. ###-##-####
- ----------------------------------------------------------------------------------
Initial Member ........................... 1,439,172 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 ........................... 166,048 2.476%
Donald J. Weiss
50 Hartshorn Drive
Short Hills, New Jersey 07078
T.I.N. ###-##-####
- ----------------------------------------------------------------------------------
Initial Member ........................... 133,952 2.00%
The Donald J. Weiss 1997 Grantor
Retained Annuity Trust
c/o Donald J. Weiss
50 Hartshorn Drive
Short Hills, New Jersey 07078
- ----------------------------------------------------------------------------------
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 ............... 83,392 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
Agreement of Lease, made as of this 19th day of August 1996, between
Andim LTD., c/o RVP Management Corp., 130 Madison Ave, New York, N.Y.
10016
party of the first part, hereinafter referred to as OWNER, and
CyberShop, Inc.
party of the second part, hereinafter referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner
The entire third floor
in the building known as 130 Madison Avenue
in the Borough of Manhattan, City of New York, for the term of Ten (10) years
(or until such term shall sooner cease and expire as hereinafter provided)
to commence on the 1st day of September nineteen hundred and ninety six, and to
end on the 31st day of August two thousand and six both dates inclusive, at an
annual rental of $32,400 from September 1st, 1998 till August 31st, 2006 payable
monthly at $2,700, and from September 1st, 1998 till August 31st, 2006 increased
by four (4%) percent per annum. See attached rider.
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the Owner or such other place as Owner may designate,
without any set off or deduction whatsoever, except that Tenant shall pay the
first monthly installment(s) on the execution hereof (unless this lease be a
renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
Rent: 1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy: 2. Tenant shall use and occupy demised premises for Offices and for
no other purpose.
Tenant Alterations: 3. Tenant shall make no changes in or to the demised
premises of any nature without Owner's prior written consent. Tenant may make
non-structural cosmetic alterations at a cost not to exceed $20,000 upon Owners
consent, which shall, not be unreasonably withheld. Subject to the prior written
consent of Owner, and to the provisions of this article, Tenant, at Tenant's
expense, may make alterations, installations, additions or improvements which
are non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved in each instance by Owner. Tenant shall,
before making any alterations, additions, installations or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner and Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty Days thereafter,
at Tenant's expense, by payment or filing the bond required by law. All fixtures
and all paneling, partitions, railings and like installations, installed in the
premises at any time, either by Tenant or by Owner on Tenant's behalf, shall,
upon installations, become the property of Owner and shall remain upon and be
surrendered with the demised premises unless Owner, by notice to Tenant no later
than twenty days prior to the date fixed as the termination of this lease,
elects to relinquish Owner's right thereto and to have them removed by Tenant,
in which event the same shall be removed from the premises by Tenant prior to
the expiration of the lease, at Tenant's expense. Nothing in this Article shall
be construed to give Owner title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be required by
Owner, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the building due to such removal. All property
permitted or required to be removed, by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed form
the premises by Owner, at Tenant's expense.
Maintenance and Repairs: 4. Tenant shall, throughout the term of this lease,
take good care of the demised premises and the fixtures and appurtenances
therein. Tenant shall be responsible for all damage or injury to the demised
premises or any other part of the building and the systems and equipment
thereof, whether requiring structural or nonstructural repairs caused by or
resulting from carelessness, omission, neglect or improper conduct of Tenant,
Tenant's subtenants, agents, employees, invitees or licensers, or which arise
out of any work, labor, service or equipment done for or supplied to Tenant or
any subtenant or arising out of the installation, user or operation of the
property or equipment of Tenant or any subtenant. Tenant shall also repair all
<PAGE>
damage to the building and the demised premises caused by the moving of Tenant's
fixtures, furniture and equipment. Tenant shall promptly make, at Tenant's
expense, all repairs in and to the demised premises for which Tenant is
responsible, using only the contractor for the trade or trades in question,
selected from a list of at least two contractors per trade submitted by Owner.
Any other repairs in or to the building or the facilities and systems thereof
for which Tenant is responsible shall be performed by Owner at the Tenant's
expense. Owner shall maintain in good working order and repair the exterior and
the structural portions of the building, including the structural portions of
its demised premises, and the public portions of the building interior and the
building plumbing, electrical, heating and ventilating systems (to the extent
such systems presently exist) serving the demised premises. Tenant agrees to
give prompt notice of any defective condition in the premises for which Owner
may be responsible hereunder. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner or others
making repairs, alterations, additions or improvements in or to any portion of
the building or the demised premises or in and to the fixtures appurtenances or
equipment thereof; provided, however, that except in the case of an emergency,
Owner shall give to Tenant at least three (3) business days prior written notice
of any such repair alteration, addition or improvement to the building or the
Demised Premises or in and to any fixtures or equipment therein, which would
materially interrupt the Tenant's use and enjoyment of the Demised Premises. It
is specifically agreed that Tenant shall not be entitled to any setoff or
reduction of rent by reason of any failure of Owner to comply with the covenants
of this or any other article of this Lease. Tenant agrees that Tenant's sole
remedy at law in such instance will be by way of an action for damages for
breach of contract. The provisions of this Article 4 shall not apply in the case
of fire or other casualty which are dealt with in Article 9 hereof.
Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or allow
any window in the demised premises to be cleaned from the outside in violation
of Section 202 of the Labor Law or any other applicable law or of the Rules of
the Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads: 6. Prior to the commencement
of the lease term, if Tenant is then in possession, and at all times thereafter,
Tenant, at Tenant's sole cost and expense, shall promptly comply with all
present and future laws, orders and regulations of all state, federal, municipal
and local governments, departments, commissions and boards and any direction of
any public officer pursuant to law, and all orders, rules and regulations of the
New York Board of Fire Underwriters, Insurance Services Office, or any similar
body which shall impose any violation, order or duty upon Owner or Tenant with
respect to the demised premises, whether or not arising out of Tenant's use or
manner of use thereof, (including Tenant's permitted use) or, with respect to
the building if arising out of Tenant's manner of use of the premises or the
building (including the use permitted under the lease). Notwithstanding anything
to the contrary contained in this Lease, Tenant shall not be required to make
any repairs or alterations to any portion of the Building other than the Demised
Premises in order to comply with the Americans with Disabilities Act of 1991, as
the same may be applicable and amended from time to time during the term of
Lease, require Tenant to make structural repairs or alterations unless Tenant
has, by its manner of use of the demised premises or method of operation
therein, violated any such laws, ordinance, orders, rules, regulations or
requirements with respect thereto. Tenant may, after securing Owner to Owner's
satisfaction against all damages, interest, penalties and expenses, including,
but not limited to, reasonable attorney's fees, by cash deposit or by surety
bond in an amount and in a company satisfactory to Owner, contest and appeal any
such laws, ordinances, orders, rules, regulations or requirements provided same
is done with all reasonable promptness and provided such appeal shall not
subject Owner to prosecution for a criminal offense or constitute a default
under any lease or mortgage under which Owner may obligated, or cause the
demised premises or any part thereof to be condemned or vacated. Tenant shall
not do or permit any act or thing to be done in or to the demised premises which
is contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner with respect to the demised premises or the building of which
the demised premises form a part, or which shall or might subject Owner to any
liability or responsibility to any person or for property damage. Tenant shall
not keep anything in the demised premises except as now or hereafter permitted
by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating
Organization or other authority having jurisdiction, and then only in such
manner and such quantity so as not to increase the rate for the fire insurance
applicable to the building, nor use the premises in a manner which will increase
the insurance rate for the building or any property located therein over that in
effect prior to the commencement of Tenant's occupancy. Tenant shall pay all
costs, expenses, fines, penalties, or damages, which may be imposed upon Owner
by reason of Tenant's failure to comply with the provisions of this article and
if by reason of such failure the fire insurance rate shall, at the beginning of
this lease or at any time thereafter, be higher than it otherwise would be, then
Tenant shall reimburse Owner, as additional rent hereunder, for that portion of
all fire insurance premiums thereafter paid by Owner which shall have been
charged because of such failure by Tenant. In any action or proceeding wherein
Owner and Tenant are parties, a schedule or "make-up" of rate for the building
or demised premises issued by the New York Fire Insurance Exchange, or other
body making fire insurance rates applicable to said premises shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rates then applicable to said premises. Landlord has submitted to
Tenant the Certificate of Occupancy for the Building. Tenant shall not place a
load upon any floor of the demised premises exceeding the floor load per square
foot area which it was designed to carry and which is allowed by law.
Subordination: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
Property Loss, Damage Reimbursement Indemnity: 8. Owner or its agents shall not
be liable for any damage to property of Tenant or of others entrusted to
employees of the building, nor for loss of or damage to any property of Tenant
by theft or otherwise, nor for any injury or damage to persons or property
resulting from any cause of whatsoever nature, unless caused by or due to the
negligence of Owner its agents, servants or employees. Owner or its agents will
not be liable for any such damage caused by other tenants or persons in, upon or
about said building or caused by operations in construction of any private,
public or quasi public work. If at any time any windows of the demised premises
are temporarily closed, darkened or bricked up (or permanently closed, darkened
or bricked up, if required by law) for any reason whatsoever including, but not
limited to Owner's own acts, Owner shall not be liable for any damages. Tenant
may sustain thereby and Tenant shall not be entitled to any compensation
therefor nor abatement or diminution of rent nor shall the same release Tenant
from its obligations hereunder nor constitute an eviction. Tenant shall
indemnify and save harmless Owner against and from all liabilities, obligations,
damages, penalties, claims, costs and expenses for which Owner shall not be
reimbursed by insurance, including reasonable attorneys' fees, paid, suffered or
incurred as a result of any breach by Tenant, Tenant's agents, contractors,
employees, invitees, or licensees, of any covenant or condition of this lease,
or the carelessness, negligence or improper conduct of the Tenant, Tenant's
agents, contractors, employees, invitees or licensees. Tenant's liability under
this lease extends to the acts and omissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any sub-tenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
Destruction, Fire and Other Casualty: 9. (a) If the demised premises or any part
thereof shall be damaged by fire or other casualty, Tenant shall give immediate
notice thereof to Owner and this lease shall continue in full force and effect
except as hereinafter set forth. (b) If the demised premises are partially
damaged or rendered partially unusable by fire or other casualty, the damages
thereto shall be repaired by and at the expense of Owner and the rent and other
items of additional rent, until such repair shall be substantially completed,
shall be apportioned from the day following the casualty according to the part
of the premises which is usable. (c) If the demised premises are totally damaged
or rendered wholly unusable by fire or other casualty, then the rent and other
items of additional rent as hereinafter expressly provided shall be
proportionately paid up to the time of the casualty and thenceforth shall cease
until the date when the premises shall have been repaired and restored by Owner
(or sooner reoccupied in part by Tenant then rent shall be apportioned as
provided in subsection (b) above), subject to Owner's right to elect not to
restore the same as hereinafter provided. (d) If the demised premises are
rendered wholly unusable or (whether or not the demised premises are damaged in
whole or in part) if the building shall be so damaged that Owner shall decide to
demolish it or to rebuild it, then, in any of such events, Owner may elect to
terminate this lease by written notice to Tenant, given within 90 days after
such fire or casualty, or 30 days after adjustment of the insurance claim for
such fire or casualty, whichever is sooner, specifying a date for the expiration
of the lease, which date shall not be more than 60 days after the giving of such
notice, and upon the date specified in such notice the term of this lease shall
expire as fully and completely as if such date were the date set forth above for
the termination of this lease and Tenant shall forthwith quit, surrender and
vacate the premises without prejudice however, to Landlord's rights and remedies
against Tenant under the lease provisions in effect prior to such termination,
and any rent owing shall be paid up to such date and any payments of rent made
by Tenant which were on account of any period subsequent to such date shall be
returned to Tenant. Unless Owner shall serve a termination notice as provided
for herein, Owner shall make the repairs and restorations under the conditions
of (b) and (c) hereof, with all reasonable expedition, subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and moveable equipment, furniture, and
other property. Tenant's liability for rent shall resume five (5) days after
written notice from Owner that the premises are substantially ready for Tenant's
occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability
that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, including Owner's obligation to restore under
subparagraph (b) above, each party shall look first to any insurance in its
favor before making any claim against the other party for recovery for loss or
damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery with respect to
subparagraphs (b), (d), and (e) above, against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The release
and waiver herein referred to shall be deemed to include any loss or damage to
the demised premises and/or to any personal property, equipment, Trade fixtures,
goods and merchandise located therein. The foregoing release and waiver shall be
in force only if both releasors' insurance policies contain a clause providing
that such a release or waiver shall not invalidate the insurance. If, and to the
extent, that such waiver can be obtained only by the payment of additional
premiums, then the party benefitting from the waiver shall pay such premium
within ten days after written demand or shall be deemed to have agreed that the
party obtaining insurance coverage shall be free of any further obligation under
the provisions hereof with respect to waiver of subrogation. Tenant acknowledges
that Owner will not carry insurance on Tenant's furniture and/or furnishings or
any fixtures or equipment, improvements, or appurtenances removable by Tenant
and agrees that Owner will not be obligated to repair any damage thereto or
replaced the same. (f) Tenant hereby waives the provisions of Section 227 of the
Real Property Law and agrees that the provisions of this article shall govern
and control in lieu thereof. Notwithstanding anything to the contrary contained
in Article 9, in the event that the Demised Premises or the common area of the
Building through which Tenant has access to the Demised Premises are
substantially or totally damaged or substantially or totally unusable by reason
of a fire or other casualty and (a) cannot or is not repaired or restored by
Owner within one hundred eighty (180) days subject to force majeure and Tenant
delays after such fire or casualty or (b) if such damage occurs within the last
nine (9) months of the term of this Lease regardless of whether or not the
damage can be repaired or restored within one hundred twenty (120) days subject
to force majeure and Tenant delays of the date of the fire or other casualty,
Tenant may elect to terminate this Lease by written notice to Owner (i) given
within ten (10) business days of the fire or other casualty (y) if the Demised
Premises cannot be repaired or restored by Owner within one hundred eighty (180)
days subject to force majeure and Tenant delays after such fire or casualty, or
(z) if the damage occurs within the last (9) months of the term of this Lease
regardless of whether or not the damage can be repaired or restored within forty
five (45) days of the date of the fire or other casualty or (ii) within one
hundred eighty (180) days subject to force majeure and Tenant delays of the date
of such fire or other casualty in the event that the Demised Premises are not
repaired or restored by Owner within two hundred ten (210) days after such fire
or casualty.
Eminent Domain: 10. If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate form the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease and assigns to
Owner, Tenant's entire interest in any such award. Tenant shall have the right
to make an independent claim to the condemning authority for the value of
Tenant's moving expenses and personal property, Trade fixtures and equipment,
provided Tenant is entitled pursuant to the terms of the lease to remove such
property, trade fixture and equipment at the end of the term and provided
further such claim does not reduce Owner's award. Notwithstanding anything to
the contrary contained in this Article 10, in the event the term of this Lease
shall cease and terminate as a result of any acquisition or condemnation by
Eminent Domain, Tenant shall have the right to make a claim for the value of
Tenant's alteration, additions, improvements, fixtures and equipment to the
extent (i) Tenant has paid for same and the same cannot be removed and used
elsewhere by Tenant
Electric Current: 12. Rates and conditions in respect to submeeting or rent
inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain. Owner shall, at Owner's sole cost and expense, maintain at all times
during the term of this Lease the existing feeders to the building and the
risers and wiring of the building serving the Demised Premises so that at all
times during the term of this Lease, 100 amperes of electrical current can be
furnished to the Demised Premises.
Access to Premises: 13. Owner or Owner's agents shall have the right (but shall
not be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times, upon reasonable advance notice to Tenants to
examine to the same and to make such repairs, replacements and improvements as
Owner may deem necessary and reasonably desirable to the demised premises or to
any other portion of the building or which Owner may elect to perform. Tenant
shall permit Owner to use and maintain and replace pipes and conduits in and
through the demised premises and to erect new pipes and conduits therein
provided they are concealed within the walls, floor, or ceiling. Owner may,
during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof Owner shall have he right to
enter the demised premises at reasonable hours upon reasonable advance notice to
Tenants for the purposes of showing the same to prospective purchasers or
mortgagees of the building, and during the last six months of the term for the
purpose of showing the same to prospective tenants. If Tenant is not present to
open and permit an entry into the demised premises, Owner or Owner's agents may
enter the same whenever such entry may be necessary upon reasonable advance
notice to Tenant by master key or forcibly and provided reasonable care is
exercised to safeguard Tenant's property, such entry shall not render Owner or
its agents liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant shall have
removed all or substantially all of Tenant's property therefrom Owner may
immediately enter, alter, renovate or redecorate the demised premises without
limitation or abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease or Tenant's
obligations hereunder.
Vault, Vault Space, Area: 14. No Vaults, vault space or area, whether or not
enclosed or covered, not within the property line of the building is leased
hereunder, anything contained in or indicated on any sketch, blue print or plan,
or anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by an
federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant.
Occupancy: 15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is except with respect to matters which are the subject of the express
representation by Owner contained in this lease subject to the riders annexed
hereto with respect to Owner's work, if any. In any event Owner makes no
representation as to the condition of the premises; provided, however, Owner
does represent that to the best of its knowledge (i) Owner has not received any
notice of any violations or insurance requirements with respect to the demised
premises which may or could adversely affect the rights of Tenant hereunder,
(ii) there are no outstanding building permits or alteration applications with
respect to the demised premises, (iii) Landlord shall be responsible for any
violations of record as of the date hereof.
Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be canceled by Owner by the sending of a written
notice to Tenant within a reasonable time afer the happening of any one or more
of the following events: (1) the commencement of a case in bankruptcy or under
the laws of any state naming Tenant as the debtor; or (2) the making by Tenant
of an assignment or any other arrangement for the benefit of creditors under any
state statute. Neither Tenant nor any person claiming through or under Tenant,
or by reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the fair and reasonable rental value of the demised premises
for the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so fair re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default: 17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payment of rent or additional rent; or if
the demised premises become vacant or deserted; or if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the demised premises shall be taken or occupied by someone other than Tenant; or
if this lease be rejected under SECTION 235 of Title 11 of the U.S. Code
(bankruptcy code); or if Tenant shall fail to move into or take possession of
the premises within thirty (30) days after the commencement of the term of this
lease, then, in any one or more of such events, upon Owner serving a written
fifteen (15) days notice upon Tenant specifying the nature of said default and
upon the expiration of said fifteen (15) days, if Tenant shall have failed to
comply with or remedy such default, or if such default or omission complained of
shall be of a nature that the same cannot be completely cured or remedied within
said fifteen (15) day period, and shall not have diligently commenced curing
such default within such fifteen (15) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such default,
then Owner may serve a written ten (10) days notice of cancellation of this
lease upon Tenant, and upon the expiration of said ten (10) days, this lease and
the term thereunder shall end and expire as fully and completely as if the
expiration of such ten (10) day period were the day herein definitely fixed for
the end and expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall remain liable
as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been
given, and the term shall expire as aforesaid; or if Tenant shall make default
in the payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and disposes Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension of this lease, Owner may cancel and terminate such
renewal or extension agreement by written notice.
Remedies of Owner and Waiver of Redemption: 18. In case of any such default,
re-entry, expiration and/or dispossess by summary proceedings or other wise, (a)
the rent shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration, (b) Owner may re-let the premises or any part or
parts thereof, either in the name of Owner or otherwise, for a term or terms,
which may at Owner's option be less than or exceed the period which would
otherwise have constituted the balance of the term of this lease and may grant
concessions or free rent or charge a higher rental than that in this lease,
and/or (c) Tenant or the legal representatives of Tenant shall also pay Owner as
liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and/or covenanted to be paid and the net amount, if any, of rents
collected on account of the lease or leases of the demised premises for each
month of the period which would otherwise have constituted the balance of the
term or this lease. The failure of Owner to re-let the premises or any part or
parts thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses as Owner may incur in connection with re-letting, such as legal
expenses, reasonable attorneys' fees, brokerage, advertising and for keeping the
demised premises in good order or for preparing the same for re-letting. Any
such liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease and any suit brought to collect the amount of
the deficiency for any month shall not prejudice in any way the rights of Owner
to collect the deficiency for any subsequent month by a similar proceeding.
Owner, in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decoration in the demised premises as Owner, in Owner's sole judgement,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate ro be construed to release Tenant from liability
hereunder as aforesaid the demised premises, or in the event that the demised
premises are re-let. Owner shall in no event be liable in any way whatsoever for
failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy, in law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for any cause, or in the event of Owner obtaining
possession of demised premises, by reason of the violation by Tenant of any of
the covenants and conditions of this lease, or otherwise.
Fees and Expenses: 19. If Tenant shall default in the observance or performance
of any term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease, after
notice if required and upon expiration of any applicable grace period if any,
(except in an emergency), then, unless otherwise provided elsewhere in this
lease, Owner may immediately or at any time thereafter and without notice
perform the obligation of Tenant thereunder. If Owner, in connection with the
foregoing or in connection with any default by Tenant in the covenant to pay
rent hereunder, makes any expenditures or incurs any obligations for the payment
of money, including but not limited to reasonable attorneys' fees, in
instituting, prosecuting or defending any action or proceeding, and prevails in
any such action or proceeding then Tenant will reimburse Owner for such sums so
paid or obligations incurred with interest and costs. The foregoing expenses
incurred by reason of Tenant's default beyond any applicable notice and/or grace
period shall be deemed to be additional rent hereunder and shall be paid by
Tenant to Owner within ten (10) days of rendition of any bill or statement to
Tenant therefor. If Tenant's lease term shall have expired at the time of making
of such expenditures or incurring of such obligations, such sums shall be
recoverable by Owner, as damages.
Building Alterations and Managements: 20. Owner shall have the right at any time
without the same constituting an eviction and without incurring liability to
Tenant therefor to change the arrangement and/or location of public entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets or other
public parts of the building and to change then name, number or designation by
which the building may be known. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner or other
Tenants making any repairs in the building or any such alterations, additions
and improvements. Furthermore, Tenant shall not have any claim against Owner by
reason of Owner's imposition of such controls of the manner of access to the
building by Tenant's social or business visitors as the Owner may deem necessary
for the security of the building and its occupants.
No Representations by Owner: 21. Neither Owner nor Owner's agents have made any
representations or promises with respect to the physical condition of the
building, the land upon which it is erected or the demised premises, the rents,
leases, expenses of operation or any other matter or thing affecting or related
to the premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition and
agrees to take the same "as is" and acknowledges that the taking of possession
or the demised premises by Tenant shall be conclusive evidence that the said
premises and the building of which the same form a part were in good and
satisfactory condition at the time such possession was so taken, except as to
latent defects and any matter which is the subject of an Owner representation
expressly set forth in this Lease. All understandings and agreements heretofore
made between the parties hereto are merged in this contract, which alone fully
and completely expresses the agreement between Owner and Tenant and any
executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of it in whole or in part, unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
End of Term: 22. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property. Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If the
last day of the term of this lease or any renewal thereof, falls on Sunday, this
lease shall expire at noon on the preceding Saturday unless it be a legal
holiday in which case it shall expire at noon on the preceding business day.
Quiet Enjoyment: 23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, within
any applicable grace period, Tenant may peaceably and quietly enjoy the premises
hereby demised, subject, nevertheless, to the terms and conditions of this lease
including, but not limited to, Article 31 hereof and to the ground leases,
underlying leases and mortgages hereinbefore mentioned.
Failure to Give Possession: 24. If Owner is unable to give possession of the
demised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, under tenant or
occupants or if the demised premises are located in a building being
constructed, because such building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been procured or for any other reason, Owner shall not be
subject to any liability for failure to give possession on said date and the
validity of the lease shall not be impaired under such circumstances, nor shall
the same be construed in any wise to extend the term of this lease, but the rent
payable hereunder shall be abated (provided Tenant is not responsible for
Owner's inability to obtain possession or complete construction) until after
Owner shall have given Tenant written notice that the Owner is able to deliver
possession in condition required by this lease. If permission is given to Tenant
to enter into the possession of the demises premises or to occupy premises other
than the demised premises prior to the date specified as the commencement of the
term of this lease, Tenant covenants and agrees that such possession and/or
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease except the obligation to pay the fixed annual rent set
forth in the preamble to this lease. The provisions of this article are intended
to constitute "an express provision to the contrary" within the meaning of
Section 223-a of the New York Real Property Law.
No Waiver: 25. The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease or
of any of the Rules or Regulations, set forth or hereafter adopted by Owner,
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Owner of rent and/or additional rent with knowledge of the breach of
any covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner
of a lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance of such rent
or pursue any other remedy in this lease provided. No act or thing done by Owner
or Owner's agents during the term hereby demised shall be deemed an acceptance
of a surrender of said premises, and no agreement to accept such surrender shall
be valid unless in writing signed by Owner. No employee of Owner or Owner's
agent shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of Trail by Jury: 26. It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall and they hereby do waive trial
by jury in any action proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any proceeding or
action for possession including a summary proceeding for possession of the
premises, Tenant will not interpose any counterclaim of whatever nature or
description in any such proceeding including a counterclaim under Article 4
except for statutory mandatory counterclaims.
Inability to Perform: 27. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of tenant to be performed shall in no wise be affected, impaired or excused
because Owner is unable to fulfill any of its obligations under this lease or to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make, or is delayed in making any repair, additions,
alternations or decorations or is unable to supply or is delayed in supplying
any equipment, fixtures, or other materials if Owner is prevented or delayed
from so doing by reason of strike or labor troubles or any cause whatsoever
including, but not limited to, government preemption or restrictions or by
reason of any rule, order or regulation of any department or subdivision thereof
of any government agency or by reason of the conditions which have been or are
affected, either directly or indirectly, by war or other emergency.
Bills and Notices: 28. Except as otherwise in this lease provided, a bill,
statement, notice or communication which Owner may desire or be required to give
to Tenant, shall be deemed sufficiently given or rendered if, in writing,
delivered to Tenant personally or sent by registered or certified mail addressed
to Tenant at the building of which the demised premises form a part or at the
last known residence address or business address of Tenant or left at any of the
aforesaid premises addressed to Tenant, and the time of the rendition of such
bill or statement and of the giving of such notice or communication shall be
deemed to be the time when the same is delivered to Tenant, mailed, or left at
the premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first herein
above given or at such other address as Owner shall designate by written notice.
Services Provided by Owners: 29. Owner shall provide: (a) necessary elevator
facilities on business days from 8 a.m. to 6 p.m. and have one elevator subject
to call at all other times; (b) heat to the demised premises when and as
required by law, on business days from 8 a.m. to 6 p.m.; (c) water for ordinary
lavatory purposes, but if tenant uses or consumes water for any other purposes
or in unusual quantities (of which fact Owner shall be the sole judge), Owner
may install a water meter at Tenant's expense which Tenant shall thereafter
maintain at Tenant's expense in good working order and repair to register such
water consumption and Tenant shall pay for water consumed as shown on said meter
as additional rent as and when bills are rendered; (d) cleaning service for the
demised premises on business days at Owner's expense provided that the same are
kept in order by Tenant. If, however, said premises are to be kept clean by
Tenant, it shall be done at Tenant's sole expense, in a manner reasonably
satisfactory to Owner and no one other than persons approved by Owner shall be
permitted to enter said premises or the building of which they are a part for
such purpose. Tenant shall pay Owner the cost of removal of any of Tenant's
refuse and rubbish from the building; (e) If the demised premises are serviced
by Owner's air conditioning/cooling and ventilating system, air
conditioning/cooling will be furnished to tenant from May 15th through September
30th on business days (Mondays through Fridays, holidays excepted) from 8:00
a.m. to 6:00 p.m., and ventilation will be furnished on business days during the
aforesaid hours except when air conditioning/cooling is being furnished as
aforesaid. If Tenant requires air conditioning/cooling or ventilation for more
extended hours or on Saturdays, Sundays or on holidays, as defined under Owner's
contract with Operating Engineers Local 94-94A, Owner will furnish the same at
Tenant's expense. RIDER to be added in respect to rates and conditions for such
additional service; (f) Owner reserves the right to stop services of the
heating, elevators, plumbing, air-conditioning, electric, power systems or
cleaning or other services, if any, when necessary by reason of accident or for
repairs, alterations, replacements or improvements necessary or desirable in the
judgment of Owner for as long as may be reasonably required by reason thereof;
provided, however, that owner agrees to give Tenant not less than three (3)
business days prior notice of any repairs, alterations, replacements or
improvements to the building or the building systems which may materially
interrupt the Tenant's use and enjoyment of the Demised Premises, except in the
case of an emergency. If the building of which the demised premises are a part
supplies manually operated elevator service, Owner at any time may substitute
automatic control elevator service and proceed diligently with alterations
necessary therefor without in any wise affecting this lease or the obligation of
Tenant hereunder.
Captions: 30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
Definitions: 31. The term "office", or "offices", wherever used in this lease,
shall not be construed to mean premises used as a store or stores, for the sale
or display, at any time, of goods, wares or merchandise, of any kind; or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Owner" means a landlord or
lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner, hereunder. the words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays,
Sundays and all days as observed by the State or Federal Government as legal
holidays and those designated as holidays by the applicable building service
union employees service contract or by the applicable Operating Engineers
contract with respect to HVAC service. Wherever it is expressly provided in this
lease that consent shall not be unreasonably withheld, such consent shall not be
unreasonably delayed.
Adjacent Excavation-Shoring: 32. If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to be made, Tenant upon
not less than five (5) business days prior written notice to Tenant, unless due
to an emergency shall afford to the person causing or authorized to cause such
excavation, license to enter upon the demised premises for the purpose of doing
such work as said person shall deem necessary to preserve the wall or the
building of which demised premises form a part from injury or damage and to
support the same by proper foundations without any claim for damages or
indemnity against Owner, or diminution or abatement of rent.
Rules and Regulations: 33. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules or regulations shall be given in such manner as Owner may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within fifteen (15) days
after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
Security: 34. Tenant has deposited with Owner the sum of $5,400 being paid by
Hard Rock Travel as security for the faithful performance and observance by
Tenant of the terms, provisions and conditions of this lease; it is agreed that
in the event Tenant defaults in respect of any of the terms, provisions and
conditions of this lease, including, but not limited to, the payment of rent and
additional rent, Owner may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of any rent and
additional rent or any other sum as to which Tenant is in default or for any sum
which Owner may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this lease,
including but not limited to, any damages or deficiency in the re-letting of the
premises, whether such damages or deficiency accrued before or after summary
proceedings or other re-entry by Owner. In the event that Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants and conditions of
this lease, the security shall be returned to Tenant after the date fixed as the
end of the Lease and after delivery of entire possession of the demised premises
to Owner. In the event of a sale of the land and building or leasing of the
building, of which the demised premises form a part, Owner shall have the right
to transfer the security to the vendee or lessee and Owner shall thereupon be
released by Tenant from all liability for the return of such security; and
Tenant agrees to look to the new Owner solely for the return of said security,
and it is agreed that the provisions hereof shall apply to every transfer or
assignment made of the security to a new Owner. Tenant further covenants that it
will not assign or encumber or attempt to assign or encumber the monies
deposited herein as security and that neither Owner nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted assignment
or attempted encumbrance.
Estoppel Certificate: 35. Tenant, at any time, and from time to time, upon at
least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to
Owner, and/or to any other person, firm or corporation specified by Owner, a
statement certifying that this Lease is unmodified and in full force and effect
(or, if there have been modifications, that the same is in full force and effect
as modified and stating the modifications), stating the dates to which the rent
and additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
Owner, at any time, and from time to time, but not more than once per year upon
at least ten (10) days prior notice by Tenant, shall execute, acknowledge and
deliver to Tenant, and or to any other person, firm, corporation specified by
Tenant a statement certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), stating the dates to
which the rent an additional rent have been paid, the total amount of security
held and the interest thereon if any, and stating to Landlord's knowledge
whether or not there exists any default by Tenant under the Lease, and, if so,
specifying each such default.
Successors and Assigns: 36. The covenants, conditions and agreements contained
in this lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns. Tenant shall look
only to Owner's estate and interest in the land and building, for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) against Owner in the event of any default by Owner hereunder,
and no other property or assets of such Owner (or any partner, member, officer
or director thereof, disclosed or undisclosed), shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this lease, the relationship of Owner and
Tenant hereunder, or Tenant's use and occupancy of the demised premises.
- --------------------------------
Space to be filled in or deleted
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
WITNESS FOR OWNER:
- ------------------------------- -------------------------------
WITNESS FOR TENANT:
- ------------------------------- -------------------------------
AGENT FOR LANDLORD
-------------------------------
-------------------------------
CYBERSHOP JEFFREY TAUBER
<PAGE>
ACKNOWLEDGMENTS
CORPORATE OWNER
STATE OF NEW YORK, s.s.:
County of
On this day of , 19 , before me personally came , to me known,
who being by me duly sworn, did depose and say that he resides in that he is the
of the corporation described in and which
executed the foregoing instrument, as OWNER; that he knows the seal of said
corporation; the seal affixed to said instrument is such corporate seal; that it
was so affixed by order of the Board of Directors of said corporation, and that
he signed his name thereto by like order.
INDIVIDUAL OWNER
STATE OF NEW YORK, s.s.:
County of
On this day of , 19 , before me personally came to be
known and known to me to be the individual described in and who,
as OWNER, executed the foregoing instrument and acknowledged to me that
he executed the same.
CORPORATE TENANT
STATE OF NEW YORK, s.s.:
County of
On this day of , 19 , before me personally came ,
to me known, who being by me duly sworn, did depose and say that he resides in
that he is the of
the corporation described in and which executed the foregoing instrument, as
TENANT; that he knows the seal of said corporation; the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
INDIVIDUAL TENANT
STATE OF NEW YORK, s.s.:
County of
On this day of , 19 , before me personally came
to be known and known to me to be the individual described in
and who, as TENANT, executed the foregoing instrument and acknowledged to me
that executed the same.
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to Owner
making the within lease with Tenant, the undersigned guarantees to Owner,
Owner's successors and assigns, the full performance and observance of all the
covenants, conditions and agreements, therein provided to be performed and
observed by Tenant, including the "Rules and Regulations" as therein provided,
without requiring any notice of non-payment, non-performance, or non-
observance, or proof, or notice, or demand, whereby to charge the undersigned
therefor, all of which the undersigned hereby expressly waives and expressly
agrees that the validity of this agreement and the obligations of the guarantor
hereunder shall in no wise be terminated, affected or impaired by reason of the
assertion by Owner against Tenant of any of the rights or remedies reserved to
Owner pursuant to the provisions of the within lease. The undersigned further
covenants and agrees that this guaranty shall remain and continue in full force
and effect as to any renewal, modification or extension of this lease and during
any period when Tenant is occupying the premises as a "statutory tenant." As a
further inducement to Owner to make this lease and in consideration thereof,
Owner and the undersigned covenant and agree that in any action or proceeding
brought by either Owner or the undersigned against the other on any matters
whatsoever arising out of, under, or by virtue of the terms of this lease or of
this guarantee that Owner and the undersigned shall and do hereby waive trial by
jury.
Dated: 19
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- ------------------------------------------------------------------
Guarantor
- ------------------------------------------------------------------
Witness
- ------------------------------------------------------------------
Guarantor's Residence
- ------------------------------------------------------------------
Business Address
- ------------------------------------------------------------------
Firm Name
State of New York ) ss,:
COUNTY OF )
On this day of , 19 , before
me personally came______________________________________________________________
to me known and known to me to be the individual described in, and who executed
the foregoing Guaranty and acknowledged to me that he executed the same.
----------------------------------------
Notary
<PAGE>
IMPORTANT - PLEASE READ
-----------------------
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
Tenant or used for any purpose other than for ingress or egress from the demised
premises and for delivery of merchandise and equipment in a prompt and efficient
manner using elevators and passageways designated for such delivery by Owner.
There shall not be used in any space, or in the public hall of the building,
either by any Tenant or by jobbers or others in the delivery or receipt of
merchandise, any hand trucks, except those equipped with rubber tires and
sideguards. If said premises are situated on the ground floor of the building,
Tenant thereof shall further, at Tenant's expense, keep the sidewalk and curb in
front of said premises clean and free from ice, snow, dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug, or other article shall be hung or shaken out of any window of
the building and no Tenant shall sweep or throw or permit to be swept or thrown
from the demised premises any dirt or other substances into any of the corridors
or halls, elevators, or out of the doors or windows or stairways of the building
and Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the demised premises, or permit or suffer the demised
premises to be occupied or used in a manner offensive or objectionable to Owner
or other occupants of the building by reason of noise, odors, and/or vibrations,
or interfere in any way with other Tenants or those having business therein, nor
shall any bicycles, vehicles, animals, fish, or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of the
building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premise if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability, and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part of the
demised premises or the building of which they form a part. No boring, cutting
or stringing of wires shall be permitted, except with the prior written consent
of Owner, and as Owner may direct. No Tenant shall lay linoleum, or other
similar floor covering, so that the same shall come in direct contact with the
floor of the demised premises, and, if linoleum or other similar floor covering
is desired to be used an interlining of builder's deadening felt shall be first
affixed to the floor, by a paste or other material, soluble in water, the use of
cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of any
description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
<PAGE>
9. Canvassing, soliciting and peddling in the building is prohibited and each
Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building all persons who do not
present a pass to the building signed by Owner. Owner will furnish passes to
persons for whom any Tenant requests same writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Tenant shall not have a claim against
Owner by reason of Owner excluding from the building any person who does not
present such pass.
11. Owner shall have the right to prohibit any advertising by any Tenant which
in Owner's opinion, tends to impair the reputation of the building or its
desirability as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the demised
premises, any inflammable, combustible, explosive, or hazardous fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the demised premises.
13. If the building contains central air conditioning and ventilation, Tenant
agrees to keep all windows closed at all times and to abide by all rules and
regulations issued by Owner with respect to such services. If Tenant requires
air conditioning or ventilation after the usual hours, Tenant, shall give notice
in writing to the building superintendent prior to 3:00 p.m. in the case of
services required on week days, and prior to 3:00 P.M. on the day prior in case
of after hours service required on weekends or on holidays. Tenant shall
cooperate with Owner in obtaining maximum effectiveness of the cooling system by
lowering and closing venetian blinds and/or drapes and curtains when the sun's
rays fall directly on the windows of the demised premises.
14. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Owner's prior written
consent. If such safe, machinery, equipment, bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto and shall be done during such hours as Owner may designate.
15. Refuse and Trash. (1) Compliance by Tenant. Tenant covenants and agrees, at
its sole cost and expense, to comply with all present and future laws, orders,
and regulations of all state, federal, municipal, and local governments,
departments, commissions and boards regarding the collection, sorting,
separation and recycling of waste products, garbage, refuse and trash. Tenant
shall sort and separate such waste products, garbage, refuse and trash into such
categories as provided by law. Each separately sorted category of waste
products, garbage, refuse and trash shall be placed in separate receptacles
reasonably approved by Owner. Such separate receptacles may, at Owner's option,
be removed from the demised premises in accordance with a collection schedule
prescribed by law. Tenant shall remove, or cause to be removed by a contractor
acceptable to Owner, at Owner's sole discretion, such items as Owner may
expressly designate. (2) Owner's Rights in Event of Noncompliance. Owner has the
option to refuse to collect or accept from Tenant waste products, garbage,
refuse or trash (a) that is not separated and sorted as required by law or (b)
which consists of such items as Owner may expressly designate for Tenant's
removal, and to require Tenant to arrange for such collection at Tenant's sole
cost and expense, utilizing a contractor satisfactory to Owner. Tenant shall pay
all costs, expenses, fines, penalties, or damages that may be imposed on Owner
or Tenant by reason of Tenant's failure to comply with the provisions of this
Building Rule 15, and, at Tenant's sole cost and expense, shall indemnity,
defend and hold Owner harmless (including reasonable legal fees and expenses)
from and against any actions, claims and suits arising from such noncompliance,
utilizing counsel reasonably satisfactory to Owner.
<PAGE>
Address
Premises
================================================================================
TO
================================================================================
STANDARD FORM OF
OFFICE LEASE
The Real Estate Board of New York, Inc.
(c) Copyright 1994. All rights Reserved.
Reproduction in whole or in
part prohibited.
================================================================================
Dated 19
Rent per Year
Rent Per Month
Term
From
To
Drawn by
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Checked by
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Entered by
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Approved by
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<PAGE>
Precedence
41. Wherever the provisions of the printed portion of this Lease may be
inconsistent with the provisions of this rider, the provisions of this rider
shall supersede said printed Lease and shall be deemed to take precedence in all
respects.
Electricity
42. Landlord agrees to provide tenant with basic operating light fixtures in the
ceiling from which tenant can draw light. Landlord also agrees to install at
Landlord's sole cost and expense, switches for turning on and off the light.
Anything else contained in this lease not withstanding, Landlord is under no
obligation to furnish to or for tenant any electric current, wiring, or other
equipment other than that already stated in this paragraph. Tenant will make
it's own arrangements at its sole cost and expense to obtain electric current in
the leased premises from the date of the signing of this lease. Notwithstanding
anything to the contrary contained in this Paragraph 42, Landlord represents
that all electrical wiring and electrical sockets exist in the demised premises
and are in proper working order on the date of possession, or the beginning of
the term, whichever is earlier. Further, Tenant's electrical use will not
overload the building's electrical system.
Late Charges
43. All rent for each month is due on the first of that month. In the event that
any payment herein provided for by Tenant to Landlord shall become overdue for a
period in excess of fifteen (15) days, then at Owner's option a "late charge"
for such period immediately due and owing to landlord as additional rent by
reason of the failure of Tenant to make prompt payment, at the rate of $.03 for
each dollar so overdue. However, in the event said late charge shall be imposed
three (3) times in any year during the term, thereafter the grace period
hereunder shall be reduced to ten (10) days and the late charge hereunder shall
be increased to $.05 for each dollar so overdue.
Insurance
44. Tenant agrees at all times during the term of this Lease, at its sole cost
and expense, to carry general liability insurance for the benefit of landlord
indemnifying landlord against loss and liability in connection with personal
injury or death or property damage from any accident in or about the demised
premises and the appurtenances. Such insurance at the commencement of the term
hereof and thereon shall provide protection to the limit of at least $1,000,000
in the event of injury to persons or property. Such insurance shall be carried
by an insurance company or companies reasonably acceptable to landlord, and
Tenant shall from time to time deliver to landlord the policy or policies of
insurance or certificates thereof evidencing the payment of the premium
therefore and shall furnish to landlord at least ten (10) days prior to the
expiration of any such policy a new policy or certificate in lieu thereof with
evidence of the payment or premium therefore. In the event Tenant shall fail to
provide the aforesaid insurance, landlord shall have the right but not the
obligation, after giving Tenant seven (7) days written notice by certified mail,
to procure and pay for such insurance, and Tenant shall reimburse landlord the
cost thereof together with interest at the then maximum legal rate on the amount
payment from the date of payment to the date of reimbursement.
Fire Insurance
45. Tenant agrees at all times during the term of this lease, at his sole cost
and expense to carry his own Fire Insurance in connection with any personal
injury or property damage from any accident in or about the demised premises and
appurtenances. Such insurance from the commencement of this lease and thereon
shall provide protection to the demised premises as long as this lease is in
effect. Tenant shall deliver to landlord a photocopy of said policy within
thirty (30) days of the commencement of this lease. In the event that Tenant
shall fail to provide said insurance, landlord may at his discretion after
giving Tenant seven (7) days written notice by certified mail, to procure and
pay for such insurance, and Tenant shall reimburse landlord the cost thereof
together with a two hundred dollar ($200.00) service fee.
Notices
46. All notices, demands and requests required under this Lease shall be in
writing and shall be deemed to have been properly given if personally served or
sent by United States registered or certified mail, postage prepaid, addressed
as follows:
To landlord:
c/o RVP Management Corp.
130 Madison Avenue - 2nd Floor
New York, NY 10016
To Tenant:
or such other addresses landlord or Tenant, as the case may be, shall from time
to time designate by notice given to the other. All notice properly addressed
shall be deemed served on the date of mailing or date of personal service, as
provided in this Article.
USE OF PREMISES
47. Tenant shall not commence using premises for any purpose which may require
any form of license, authority or variance (including but not limited to zoning)
without first obtaining such license authority or variance from the proper
authorities.
Brokerage
48. Landlord and Tenant warrant and represent to each other that they have had
no dealings of any kind whatsoever with any broker or other party in connection
with this Lease other than Madison International R.E., and each party hereby
agrees to indemnify and hold the other party harmless from and against any and
all claims, loss, liability, cost and expenses (resulting from any claim or
demand for commissions or other compensation by any other broker, finder or
similar person who claims to have brought about this lease) arising as a result
of a breach of the indemnifying party's representations as set forth herein. The
provisions of this Article shall survive the termination of this Lease.
Assignment
49. Tenant may not sublet, assign or transfer by operation of law or otherwise
any portion of tenant's interest in this Lease with out express written consent
from landlord. Such written consent shall not be unreasonably withheld. Any
attempts to assign or sublet premises without written consent shall be null and
void.
REFUSE DISPOSAL
50. Tenant shall make arrangements at his sole cost and expense for the disposal
and transport of any refuse generated by himself or his business at the above
described leased location. If Tenant does not arrange for proper disposal of his
garbage and refuse, landlord shall have the right but not the obligation after
giving Tenant seven (7) days prior notice by certified mail, to arrange for the
transport and disposal of same, and Tenant shall be obligated to reimburse the
landlord for the cost thereof together with a $200.00 service fee.
SECURITY DEPOSIT
51. Tenant shall pay the equivalent of two months rent or $5,400.00 as security
deposit at the time of the signing of this lease. This security deposit shall be
increased each year (on May 1st) as the monthly rent herein increases as per
Article No. 58 of this rider. All other monthly rent shall be due on the First
of the month for which rent is applied as described in Article No. 1 & 59.
52. The Tenant shall pay as additional rent $20.00 per month for the sprinkler
system. In the event the charge made for the said system is increased above the
amount paid at the time of the execution of this lease, the tenant agrees to pay
one-sixth (1/6) of such increase each month in addition to the said $20.00.
53. In the event of an interruption in elevator service because of the
conversion of the elevator to self-service operation, the Tenant shall have no
claim against the Landlord or anyone else for interruption to his business.
54. Tenant will be responsible for his electrical consumption and will maintain
his own account with Consolidated Edison.
55. In the event of a conflict between the language of the body of the lease and
riders hereto, the language of the rider will prevail.
WATER DAMAGE
56. Not withstanding anything herein to the contrary, Landlord shall not be
responsible for any water damage sustained by tenant and tenant hereby covenants
to carry its own insurance covering water damage.
BROKEN LEASE
57. If the Tenant breaks or attempts to terminate his lease either by giving
notice or by actually moving from the premises, Tenant agrees to forfeit his
entire security deposit to Landlord in addition to any and all other rent that
may be due at that time for the demised premises. - Notwithstanding anything to
the contrary contained in this Article 57, Tenant shall have the option to
terminate this Lease Agreement at the end of year five (5) by providing Landlord
with ninety (90) days written notice of termination.
RENT SCHEDULE
58. The rent for the demised premises is as follows:
YEAR ANNUAL MONTHLY YEAR ANNUAL MONTHLY
1 $32,400.00 $2,700.00 6 $37,903.42 $3,158.62
2 $32,400.00 $2,700.00 7 $39,419.55 $3,284.96
3 $33,696.00 $2,808.00 8 $40,996.34 $3,416.36
4 $35,043.84 $2,920.32 9 $42,636.19 $3,553.02
5 $36,445.59 $3,037.13 10 $44,341.64 $3,695.14
TAX INCREASES
59. The tenant agrees to pay as additional rent annually during the terms of his
lease 16.67% of any increase in Real Estate Taxes as such term is hereinafter
defined above those for the fiscal year 1996/1997.
Such additional rent shall be paid when the tax becomes fixed and within ten
(10) days after demand therefor by the landlord and shall be collectible as
additional rent. For the final year of the lease terms the tenant shall be
obligated to pay only a pro-rata share of such percentage of any such increase
in taxes. Tax bills (except as hereinafter provided) shall be conclusive
evidence of the amount of such taxes and shall be used for the calculation of
the amounts to be paid by the tenant.
The term "Real Estate Taxes" shall mean all the real estate taxes and
assessments, special or otherwise, levied, assessed or imposed by Federal, State
or Local Governments against or upon the building of which the demised premises
form a part and the land upon which it is erected. If due to a future change in
the method of taxation any franchise, income, profit or other tax, or other
payments, shall be levied against landlord in whole or in part in substitution
for or in lieu of any tax which would otherwise constitute a Real Estate Tax,
such franchise, income, profit or other tax or payment shall be deemed to be a
Real Estate Tax for the purpose hereof. If landlord should incur expenses in
connection with landlord's endeavor to reduce or prevent increases in assessed
valuation, tenant shall be obligated by pay as additional rent the amount
computed by multiplying the percent set forth in line two (2) hereof times such
expense of landlord, and such amount shall be due and payable upon demand by
landlord and collectible in the same manner as annual rent. The obligation to
make any payments of additional rent pursuant to this Article shall survive the
expiration other termination of this lease.
EXCULPATORY CAUSE
60. In any action brought to enforce the obligations of landlord under this
lease, any judgment or decree shall be enforceable against landlord only to the
extent of landlord's interest in the building of which the demised premises form
a part, and no such judgment shall be the basis of execution on, or be a lien on
assets of landlord other than its interest in said building.
IN WITNESS WHEREOF, THE LANDLORD AND TENANT HAVE RESPECTIVELY SIGNED AND SEALED
THIS LEASE AND ATTACHED RIDER THE DAY AND YEAR FIRST ABOVE WRITTEN.
ANDIM LTD.
BY
----------------------------------------
CYBERSHOP, INC.
BY
----------------------------------------
WITNESSED BY:
- ------------------------------------------
- ------------------------------------------
CONTRIBUTION AGREEMENT
AGREEMENT, dated as of February __, 1998, between CyberShop
International, Inc., a Delaware corporation (the "Company"), and each of the
parties whose names appear on Schedule A attached hereto and made a part hereof
("Schedule A") (hereinafter referred to individually as a "Member" and
collectively as the "Members").
W I T N E S S E T H:
WHEREAS, as of the date hereof, each Member owns Membership Interests
("Membership Interests") in CyberShop, L.L.C., a New Jersey limited liability
company (the "LLC");
WHEREAS, each Member has agreed to contribute all of its Membership
Interests (the "Contribution"), the number of which Membership Interests is set
forth next to such Member's name on Schedule A (the "Contributed Interests"), in
exchange for the number of shares of par value $.001 common stock of the Company
set forth next to such Member's name on Schedule A (the "Shares"); and
WHEREAS, upon the consummation of the Contribution, the LLC will
become a wholly-owned subsidiary of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
representations and covenants herein contained and for other good and valuable
consideration, the parties hereto agree as follows:
1. Subject to the terms and conditions hereof, the Company hereby
agrees to issue to
<PAGE>
each Member and each Member hereby agrees to accept, in exchange for all of such
Member's Contributed Interests, the number of Shares set forth next to such
Member's name on Schedule A.
2. Upon execution and delivery of this Agreement: (a) each Member
shall deliver to the Company at the Company's offices located at 130 Madison
Avenue, New York, NY 10016 the certificate(s) representing all of such Member's
Contributed Interests with such evidence of authority to transfer as shall be
necessary to transfer such Contributed Interests; and (b) the Company shall
deliver to each Member a certificate representing the number of Shares set forth
opposite such Member's name on Schedule A.
3. Each Member severally and not jointly or jointly and severally
represents and warrants to the Company as follows:
(a) Such Member is the sole owner of such Member's
Contributed Interests free and clear of any liens, claims, security interests,
and encumbrances of any kind or nature whatsoever and will have the complete
power to transfer and deliver the Contributed Interests to the Company, as
contemplated in Paragraph 2 of this Agreement, free and clear of all liens,
claims, security interests, and encumbrances.
(b) The execution, delivery and performance by such Member of
this Agreement are within the powers of such Member, have been duly authorized
and will not constitute or result in a breach or default under, violation of, or
conflict with, any law, statute, rule, regulation, ordinance, order, judgment,
injunction, decree, or other similar restriction, or any contract, agreement,
lease, mortgage, deed of trust, instrument, permit or other undertaking, to
which such Member is a party or by which such Member is bound, and, in respect
of Genesis Direct Inc. and Big Wave, NV, will not violate any provisions of its
articles of incorporation, by-laws or similar
2
<PAGE>
instruments. The signature of such Member on this Agreement is genuine, and the
signatory has legal competence and capacity to execute the same, and in respect
of Genesis Direct Inc.; Big Wave, NV; Jeffrey S. Tauber, Grantor Retained
Annuity Trust; Jane S. Tauber, Grantor Retained Annuity Trust; Trustees of
General Electric Pension Trust; Porridge LLC (f.k.a. Porridge Partners II); and
Cairnton Partnership, the signatory has been duly authorized to execute the
same, and this Agreement constitutes a legal, valid and binding obligation of
such Member, enforceable in accordance with its terms.
(c) Such Member or such Member's representative has had full
and complete access to the officers and directors of the Company and to such
business, financial, or other information concerning the Company which such
Member or such Member's representative deemed necessary or appropriate to make a
determination to enter into this Agreement and to effect the Contribution.
(d) Such Member or such Member's representative has such
knowledge and experience in financial and business matters and is capable of
utilizing the information that is available to such Member or such Member's
representative concerning the Company to evaluate the merits and risks of an
investment in the Company and such Member is able to bear the economic risk of
such investment.
(e) Such Member has been advised that the Shares being issued
to such Member hereunder have not been registered under the Securities Act of
1933, as amended (the "Act"), nor has the Company agreed to so register any
Shares, except as provided in that certain Registration Rights Agreement dated
as of October 18, 1996, by and among the Trustees of General Electric Pension
Trust, Leonard J. Fassler, Gerald A. Poch, Porridge LLC and CyberShop L.L.C. and
Amendment No. 1 dated as of June 3, 1997 thereto (the "Registration Rights
3
<PAGE>
Agreement"), and, accordingly, such shares are restricted securities, as such
term is used in the Act, and such Member will not be able to sell or otherwise
dispose of the Shares, unless they are subsequently registered under the Act or
an exemption from the registration requirements thereunder is available.
(f) The Shares acquired by such Member hereunder are being
acquired for such Member's sole benefit and account, for purposes of investment
only and with no present intent to sell or view to distribute the same.
(g) Such Member acknowledges that the Contribution may
involve tax consequences. Such Member acknowledges that it must retain its own
professional advisors to evaluate the tax and other consequences of the
Contribution.
(h) Except as provided on Schedule B hereto, such Member
represents that it is not a "member" of the National Association of Securities
Dealers, Inc. (the "NASD") or a "person associated with a member" and that it
does not have any association or other affiliation, through share ownership or
otherwise, with a member of the NASD within the meaning of the NASD Conduct
Rules.
4. The Company represents and warrants to each Member as follows:
(a) It is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware.
(b) The Company has the corporate power and has taken all
necessary corporate action to execute, deliver and perform this Agreement and to
enable it to issue the Shares. The Shares to be issued by the Company hereunder
will be duly authorized and, upon issuance to each Member pursuant to this
Agreement, are duly and validly issued and outstanding, fully paid, and
4
<PAGE>
non-assessable.
(c) The execution, delivery and performance by the Company of
this Agreement will not constitute or result in a breach or default under,
violation of, or conflict with, its Certificate of Incorporation or By-laws or
any contract, agreement, lease, mortgage, deed of trust, instrument, or permit
or other undertaking to which it is a party or by which it is bound, or any law,
statute, rule, regulation, ordinance, order, judgment, injunction, decree, or
other restriction.
5. The representations and warranties given by each Member and the
Company as set forth in Paragraphs 3 and 4 hereof shall survive the execution
hereof and the consummation of the transactions contemplated hereby.
6. Each Member severally and not jointly or jointly and severally
covenants to the Company that such Member shall not sell, transfer, or otherwise
dispose of any of the Shares issued to such Member hereunder (a) without
registration thereof under the Act (unless, in the opinion of counsel to such
Member, an exemption from such registration is available), or (b) in violation
of any law.
7. Each Member consents:
(a) that each certificate representing the Shares to be
issued to such Member hereunder will be impressed with the following legend
indicating that they are not registered under the Act and reciting that any
transfer is restricted:
"The securities represented by this certificate have been purchased
for investment and have not been registered under the Securities Act
of 1933, as amended, or any state securities laws, and may not be
pledged, transferred or otherwise disposed of unless registered under
the Act or unless an exemption from registration is available
thereof."
5
<PAGE>
(b) that stop transfer instructions in respect of the Shares
will be issued to any transfer agent, transfer clerk, or other agent, at any
time acting for the Company;
(c) to the Contribution, in accordance with Article VI,
Section 1.5 (v) of the Third Amended and Restated Operating Agreement of the
LLC; and
(d) to the proposed initial public offering of the securities
of the Company, in accordance with Article VI, Section 1.5 (vii) of the Third
Amended and Restated Operating Agreement of the LLC, as described in the draft
of Registration Statement annexed hereto with such modifications thereto as the
Managing Member of the LLC may agree to upon advice from counsel.
8. The parties hereto confirm and agree that the common stock of the
Company received in exchange for the Membership Interests shall be deemed
"Registrable Securities" as that term is defined in Section 1(a) of that certain
Registration Rights Agreement.
9. This Agreement contains the entire understanding of the parties and
supersedes and merges all and any prior discussions, understandings and
agreements of any and every nature among them with respect to the subject matter
hereof, and may not be altered, amended, waived, terminated, or discharged in
any way whatsoever except by subsequent written agreement executed by the party
charged therewith. A waiver by any of the parties of any terms or conditions of
this Agreement, or of any breach thereof, shall not be deemed a waiver of such
term or condition for the future or of any other term or condition hereof, or of
any subsequent breach hereof.
10. The parties hereto, will, upon the reasonable request of another
party, execute and deliver any additional documents necessary or desirable to
complete the transactions described herein.
11. Subject to any restrictions on transfer, this Agreement shall
inure to the benefit of the
6
<PAGE>
parties hereto and their successors and assigns.
12. The parties hereto agree that it is their intention that the
Contribution, as contemplated by this Agreement, falls within the scope of
Section 351 of the Internal Revenue Code of 1986, as amended.
13. This Agreement may be executed simultaneously in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
14. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CYBERSHOP INTERNATIONAL, INC.
By:
---------------------------
Name:
Title:
MEMBERS:
------------------------------
JEFFREY TAUBER
------------------------------
JANE S. TAUBER
------------------------------
DONALD J. WEISS
------------------------------
GENESIS DIRECT INC.
By:
---------------------------
Name:
Title:
THE JEFFREY S. TAUBER GRANTOR
RETAINED ANNUITY TRUST
By:
---------------------------
Jane S. Tauber, Trustee
THE JANE S. TAUBER GRANTOR
RETAINED ANNUITY TRUST
By:
---------------------------
Jeffrey S. Tauber, Trustee
THE DONALD J. WEISS 1997 GRANTOR
RETAINED ANNUITY TRUST
By:
---------------------------
Donald J. Weiss, Trustee
TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By:
---------------------------
Name:
Title:
--------------------------------
GERALD A. POCH
--------------------------------
LEONARD J. FASSLER
--------------------------------
PORRIDGE LLC
By:
-----------------------------
Name: Arthur J. Samberg
Title: General Partner
7
<PAGE>
BIG WAVE, NV
By:
-----------------------------
Name:
Title:
CAIRNTON PARTNERSHIP
By:
-----------------------------
Name:
Title:
SCHEDULE A
<TABLE>
<CAPTION>
MEMBERSHIP
INTERESTS OWNED SHARES TO BE
PRIOR TO THE ISSUED IN THE
NAME AND ADDRESS OF MEMBER CONTRIBUTION CONTRIBUTION
-------------------------- ------------ ------------
<S> <C> <C>
Jeffrey S. Tauber 1,439,171 859,515
211 Gates Avenue
Montclair, New Jersey 07042
Jane S. Tauber 1,439,172 859,515
211 Gates Avenue
Montclair, New Jersey 07042
The Jeffrey S. Tauber Grantor 874,746 522,424
Retained Annuity Trust
c/o Jeffrey Tauber
211 Gates Avenue
Montclair, New Jersey 07042
The Jane S. Tauber Grantor 874,746 522,424
Retained Annuity Trust
c/o Jane S. Tauber
211 Gates Avenue
Montclair, New Jersey 07042
Donald J. Weiss 166,048 99,169
50 Hartshorn Drive
Short Hills, New Jersey 07078
The Donald J. Weiss 1997 Grantor 133,952 80,000
Retained Annuity Trust
c/o Donald J. Weiss
50 Hartshorn Drive
Short Hills, New Jersey 07078
Genesis Direct Inc. 100,000 59,723
100 Plaza Drive
4th Floor
Secaucus, New Jersey 07094
Attention: Warren Struhl
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MEMBERSHIP
INTERESTS OWNED SHARES TO BE
PRIOR TO THE ISSUED IN THE
NAME AND ADDRESS OF MEMBER CONTRIBUTION CONTRIBUTION
-------------------------- ------------ ------------
<S> <C> <C>
Trustees of General Electric 889,143 531,022
Pension Trust
3003 Summer Street
Stamford, Connecticut 06904-7900
Attention: David Wiederecht and
Steve Levanti
Porridge Partners II 83,392 49,804
c/o Dawson-Samberg
354 Pequot Avenue
Southport, Connecticut 06490
Leonard J. Fassler 69,575 41,552
Sage Securities
70 West Red Oak Lane
White Plains, New York 10604
Gerald A. Poch 69,575 41,552
GE Capital ITS
700 Canal Street
Stamford, Connecticut 06902
Big Wave NV 279,037 166,650
c/o Hecht and Company
111 West 40th Street
New York, NY 10018
Cairnton Partnership 279,037 166,650
54 Park Street
Sydney
2000, New South Wales
Australia 1028
Attention: Michael Karagiannis
Total 6,697,594 4,000,000
</TABLE>
9
<PAGE>
SCHEDULE B
Following is a list of registered broker-dealers affiliated with General
Electric Company ("GE"):
o GE INVESTMENT DISTRIBUTORS, INC. , 777 Long Ridge Road, Stamford, CT
06927, is a wholly-owned subsidiary of GE Financial Assurance Holdings
Inc., which in turn is a wholly-owned subsidiary of General Electric
Capital Corporation ("GECC"), which in turn is a wholly-owned subsidiary
of General Electric Capital Services, Inc. ("GECS"), which in turn is a
wholly-owned subsidiary of GE.
o GECC CAPITAL MARKETS GROUP, INC., 260 Long Ridge Road, Stamford, CT
06927, a wholly-owned subsidiary of GECC, which in turn is a
wholly-owned subsidiary of GECS, which in turn is a wholly-owned
subsidiary of GE.
o CAPITAL BROKERAGE CORP., 6610 West Broad Street, Richmond, VA 23230, a
wholly-owned subsidiary of GNA Corporation ("GNA"), which in turn is a
wholly-owned subsidiary of GECC, which in turn is a wholly-owned
subsidiary of GECS, which in turn is a wholly-owned subsidiary of GE.
o GNA DISTRIBUTORS, INC., 601 Union Street, Suite 5600, Seattle, WA 98101,
a wholly-owned subsidiary of GNA, which in turn is a wholly-owned
subsidiary of GECC, which in turn is a wholly-owned subsidiary of GECS,
which in turn is a wholly-owned subsidiary of GE.
o FORTH FINANCIAL SECURITIES CORPORATION, 6610 West Broad Street,
Richmond, VA 23230, an indirect control affiliate of GNA, which in turn
is a wholly-owned subsidiary of GECC, which in turn is a wholly-owned
subsidiary of GECS, which in turn is a wholly-owned subsidiary of GE.
o PAINEWEBBER, INC. ("PW"), 1285 Avenue of the Americas, New York, NY
10019, a non-control affiliate of GE. GECS owns 100% of the common stock
of Kidder, Peabody Group Inc., which in turn owns 100% of the common
stock of Kidder, Peabody & Co. Incorporated, which in turn owns
approximately 22.4% of the issued and outstanding common stock of
PaineWebber Group Inc. ("PaineWebber") and Fixed Rate Preferred Stock in
the aggregate amount of $2,500,000. PaineWebber in turn owns 100% of the
common stock of PW.
o MITCHELL HUTCHINS ASSET MANAGEMENT, INC., 1285 Avenue of the Americas,
New York, NY 10019, a wholly-owned subsidiary of PW, which in turn is a
non-control affiliate of GE.
o KIDDER PEABODY & CO. INCORPORATED, 60 Broad Street, New York, NY 10004,
a wholly-owned subsidiary of Kidder Peabody Group, Inc., which in turn
is a wholly-owned subsidiary of GECS, which in turn is a wholly-owned
subsidiary of GE, was de-registered as broker-dealer, effective May 6,
1996.
10
FORM OF OFFICER AND DIRECTOR INDEMNIFICATION AGREEMENT
This agreement, made and entered into as of the __th day of
___________, 1998 ("Agreement"), by and between CyberShop International, Inc., a
Delaware corporation (the "Corporation"), and ______________ ("Indemnitee"):
RECITALS
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, officers or in other capacities unless they are provided with
adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of the Corporation; and
WHEREAS, the current difficulty of obtaining adequate insurance and
the uncertainties relating to indemnification have increased the difficulty of
attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation has determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Corporation's stockholders and that the Corporation should act
to assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Corporation free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Corporation on the condition that
Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
ARTICLE I
Definitions
For purposes of this Agreement, the following terms shall have the
meaning given here:
1.01 "Board" means the Board of Directors of the Corporation.
- 1 -
<PAGE>
1.02 "Change in Control" means a change in control of the Corporation
occurring after the Effective Date (as defined herein) of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the Corporation is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if after the Effective Date (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest; (ii) the Corporation is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the Board
thereafter; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (including for this
purpose any new director whose election or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
1.03 "Corporate Status" describes the status of a 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, employee benefit plan or
enterprise.
1.04 "Disinterested Director" means a director of the Corporation who
is not a party to, as of any time of determination thereof, the Proceeding (as
defined herein) in respect of which indemnification is sought by the Indemnitee.
1.05 "Effective Date" means the date a registration statement filed
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended, registering securities issued by the Corporation, is
effective.
1.06 "Enterprise" shall mean the Corporation and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the request of the
Corporation as a director, officer, employee or agent.
1.07 "Expenses" shall include but not be limited to all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other disbursements
or expenses of the types actually and reasonably incurred by him in connection
with prosecuting, defending, preparing to prosecute or defend, investigating, or
being or preparing to be a witness in a Proceeding.
- 2 -
<PAGE>
1.08 "Good Faith" shall mean Indemnitee having acted in good faith and
in a manner Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal Proceeding,
having had no reasonable cause to believe Indemnitee's conduct was unlawful.
1.09 "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporate law and neither presently is,
nor in the past five years has been, retained to represent: (i) the Corporation
or Indemnitee in any matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
1.10 "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other threatened, pending or
completed proceeding whether civil, criminal, administrative or investigative,
other than one initiated by Indemnitee. For purposes of the foregoing sentence,
a "Proceeding" shall not be deemed to have been initiated by Indemnitee where
Indemnitee seeks pursuant to Article VIII of this Agreement to enforce
Indemnitee's rights under this Agreement or his rights to indemnification under
the Certificate of Incorporation or Bylaws of the Corporation or Delaware law,
or were Indemnitee seeks to enforce any rights he may have under any directors'
and officers' liability insurance policy maintained by the Corporation.
ARTICLE II
Term of Agreement
This Agreement shall continue until and terminate upon the later of:
(i) 10 years after the date that Indemnitee shall have ceased to serve as a
director, officer, employee and/or agent of the Enterprise; or (ii) the final
termination of all Proceedings commenced prior to the date referred to in (i)
above in respect of which Indemnitee is granted rights of indemnification or
advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee
pursuant to Article VIII of this Agreement relating thereto.
ARTICLE III
Services by Indemnitee, Notice of Proceedings
3.01 Services. Indemnitee agrees to serve as a director and/or officer
of the Corporation. Indemnitee may at any time and for any reason resign from
such position.
- 3 -
<PAGE>
3.02 Notice of Proceeding. Indemnitee agrees promptly to notify the
Corporation in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
ARTICLE IV
Indemnification
4.01 In General. In connection with any Proceeding, the Corporation
shall indemnify, and advance Expenses to, Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may thereafter from
time to time permit.
4.02 Proceedings Other Than Proceedings by or in the Right of the
Corporation. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4.02 if, by reason of Indemnitee's Corporate Status,
Indemnitee was or is, or is threatened to be made, a party to any Proceeding,
other than a Proceeding by or in the right of the Corporation. Indemnitee shall
be indemnified against Expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection with such Proceeding or any claim, issue or matter therein, if
Indemnitee acted in Good Faith.
4.03 Proceedings by or in the Right of the Corporation. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4.03
if, by reason of Indemnitee's Corporate Status, Indemnitee was or is, or is
threatened to be made, a party to any Proceeding brought by or in the right of
the Corporation to procure a judgment in its favor. Indemnitee shall be
indemnified against Expenses, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection with such Proceeding or any claim, issue or matter therein, if
Indemnitee acted in Good Faith. Notwithstanding the foregoing, no such
indemnification shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee 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 Proceeding shall have been brought
determines that, despite the adjudication of liability but in view of all the
circumstances of the case, the Indemni tee is fairly and reasonably entitled to
indemnity for such portion of the settled amount, Expenses, judgments, and fines
as such court deems proper.
4.04 Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee shall
be indemnified against all Expenses actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection therewith.
- 4 -
<PAGE>
ARTICLE V
Advancement of Expenses
Notwithstanding any provision to the contrary in Article VI, the
Corporation shall advance all reasonable Expenses which, by reason of
Indemnitee's Corporate Status, were charged to or incurred by or on behalf of
Indemnitee in connection with any Proceeding, within twenty days after the
receipt by the Corporation of a statement or statements from Indemnitee
requesting such advance or advances whether prior to or after final disposition
of such Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by Indemnitee and shall include or be preceded or accompanied
by an undertaking by or on behalf of Indemnitee to repay any Expenses if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses.
ARTICLE VI
Procedures for Determination of
Entitlement to Indemnification
6.01 Initial Request. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Corporation a written request, including therein
or therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Corporation
shall promptly advise the Board in writing that Indemnitee has requested
indemnification.
6.02 Method of Determination. A determination (if required by
applicable law) with respect to Indemnitee's entitlement to indemnification
shall be made by the Board by a majority vote of the Disinterested Directors
(even though less than a quorum). In the event that there are no Disinterested
Directors, or if a majority of the Disinterested Directors so directs, the
determination shall be made by Independent Counsel in a written opinion to the
Board, a copy of which shall be delivered to Indemnitee, or by the stockholders
of the Corporation, as determined by such quorum of Disinterested Directors or
by a majority of the Board, as the case may be. If a Change in Control has
occurred and Indemnitee so requests, the determination shall be made by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee.
6.03 Selection, Payment, Discharge of Independent Counsel. In the
event the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 6.02 of this Agreement, the Independent
Counsel shall be selected, paid, and discharged in the following manner:
- 5 -
<PAGE>
(a) The Independent Counsel shall be selected by the Board, and
the Corporation shall give written notice to Indemnitee
advising Indemnitee of the identity of the Independent
Counsel so selected.
(b) Following the initial selection described in clause (a) of
this Section 6.03, Indemnitee may, within seven days after
such written notice of selection has been given, deliver to
the Corporation a written objection to such selection. Such
objection may be as serted only on the ground that the
Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section
1.09 of this Agreement, and the objection shall set forth
with particularity the factual basis of such assertion.
Absent a proper and timely objection, the person so selected
shall act as Independent Counsel. If such written objection
is made, the Independent Counsel so selected may not serve
as Independent Counsel unless and until a court has
determined that such objection is without merit or
Indemnitee has delivered a written withdrawal of such
objection to the Corporation.
(c) Either the Corporation or Indemnitee may petition the Court
of Chancery of the State of Delaware or other court of
competent ju risdiction if the parties have been unable to
agree on the selection of Independent Counsel (if
applicable) within 20 days after submission by Indemnitee of
a written request for indemnification pursuant to Section
6.01 of this Agreement. Such petition may request a
determination whether an objection to the party's selection
is without merit and/or seek the appointment as Independent
Counsel of a person selected by the Court or by such other
person as the Court shall designate. A person so appointed
shall act as Independent Counsel under Section 6.02 of this
Agreement.
(d) The Corporation shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent
Counsel in connection with acting pursuant to this
Agreement, and the Corporation shall pay all reasonable fees
and expenses incident to the procedures of this Section
6.03, regardless of the manner in which such Independent
Counsel was selected or appointed.
6.04 Cooperation. Indemnitee shall cooperate with the person, persons
or entity making the determination with respect to Indemnitee's entitlement to
indemnification under this Agreement, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected
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<PAGE>
from disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such determination. Any costs or expenses (including reasonable
attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with
the person, persons or entity making such determination shall be borne by the
Corporation (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Corporation hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
6.05 Payment. If it is determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination.
ARTICLE VII
Presumptions and Effect of Certain Proceedings
7.01 Burden of Proof. In making a determination with respect to
entitlement to indemnification hereunder, the person or persons or entity making
such determination shall presume that Indemnitee is entitled to indemnification
under this Agreement if Indemnitee has submitted a request for indemnification
in accordance with Section 6.01 of this Agreement, and the Corporation shall
have the burden of proof to overcome that presumption in connection with the
making by any person, persons or entity of any determination contrary to that
presumption.
7.02 Effect of Other Proceedings. The termination of any Proceeding or
of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in Good Faith.
7.03 Reliance as Safe Harbor. For purposes of any determination of
Good Faith, Indemnitee shall be deemed to have acted in Good Faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. The provisions of this Section 7.03 shall not be deemed to be
exclusive or to limit in any way the other circumstances in which the Indemnitee
may be deemed to have met the applicable standard of conduct set forth in this
Agreement.
7.04 Actions of Others. The knowledge and/or actions, or failure to
act, of any director, officer, agent or employee of the Enterprise shall not be
imputed to Indemnitee for purposes of determining the right to indemnification
under this Agreement.
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<PAGE>
ARTICLE VIII
Remedies of Indemnitee
8.01 Application. This Article VIII shall apply in the event of a
Dispute. For purposes of this Article, "Dispute", shall mean any of the
following events:
(a) a determination is made pursuant to Article VI of this
Agreement that Indemnitee is not entitled to indemnification
under this Agreement;
(b) advancement of Expenses is not timely made pursuant to
Article V of this Agreement;
(c) the determination of entitlement to be made pursuant to
Section 6.02 of this Agreement had not been made within 60
days after re ceipt by the Corporation of the request for
indemnification;
(d) payment of indemnification is not made pursuant to Section
4.05 of this Agreement within ten (10) days after receipt by
the Corporation of written request therefor; or
(e) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is
entitled to indem nification pursuant to Article VI of this
Agreement.
8.02 Adjudication. In the event of a Dispute, Indemnitee shall be
entitled to an adjudication in the Court of Chancery of the State of Delaware or
in any other court of competent jurisdiction, of Indemnitee's entitlement to
such indemnification and advancement of Expenses. Alternatively, Indemnitee, at
Indemnitee's option, may seek an award in arbitration to be con ducted by a
single arbitrator sitting in New York, New York, pursuant to the rules of the
Amer ican Arbitration Association. The Corporation shall not oppose Indemnitee's
right to seek any such adjudication or award in arbitration.
8.03 De Novo Review. In the event that a determination shall have been
made pursuant to Article VI of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Article VIII shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. In any such proceeding or arbitration, the
Corporation shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
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<PAGE>
8.04 Corporation Bound. If a determination shall have been made
pursuant to Article VI of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration absent a prohibition of such indemnification
under applicable law.
8.05 Procedures Valid. The Corporation shall be precluded from
asserting in any judicial proceeding or arbitration commenced pursuant to this
Article VIII that the procedures and presumptions of this Agreement are not
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Corporation is bound by all the provisions of this
Agreement.
8.06. Expenses of Adjudication. In the event that Indemnitee, pursuant
to this Article VIII, seeks a judicial adjudication of or an award in
arbitration to enforce Indemnitee's rights under, or to recover damages for
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Corporation and shall be indemnified by the Corporation against, any and all
expenses (of the types described in the definition of Expenses in Section 1.07
of this Agreement) actually and reasonably incurred by Indemnitee in such
adjudication or arbitration, but only if Indemnitee prevails therein. If it
shall be determined in such adjudication or arbitration that Indemnitee is
entitled to receive part but not all of the indemnification of advancement or
expenses sought, the expenses incurred by Indemnitee in connection with such
adjudication or arbitration shall be appropriately prorated.
ARTICLE IX
Non-Exclusivity, Insurance, Subrogation
9.01 Non-Exclusivity. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Certificate of Incorporation, the By-Laws, any
agreement, a vote of stockholders or a resolution of Disinterested Directors, or
otherwise. No amendment, alteration, rescission or replacement of this Agreement
or any provision hereof shall be effective as to Indemnitee with respect to any
action taken or omitted by such Indemnitee in Indemnitee's Corporate Status
prior to such amendment, alteration, rescission or replacement.
9.02 Insurance. The Corporation may maintain an insurance policy or
policies against liability arising out of this Agreement or otherwise.
9.03 Subrogation. In the event of any payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such
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<PAGE>
rights, including execution of such documents as are necessary to enable the
Corporation to bring suit to enforce such rights.
9.04 No Duplicative Payment. The Corporation shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable hereunder
if and to the extent that Indemnitee has otherwise actually received such
payment under any insurance policy, contract, agreement or otherwise.
ARTICLE X
General Provisions
10.01 Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's heirs, executors and administrators.
10.02 Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation,
each portion of any Section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable,
that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of
any Section of this Agreement containing any such provision
held to be invalid, illegal or unenforceable, that is not
itself invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
10.03 No Adequate Remedy. The parties declare that it is impossible to
measure in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement. Therefore, if
either party shall institute any action or proceeding to enforce the provisions
hereof, such party against whom such action or proceeding is brought hereby
waives the claim or defense that such party has an adequate remedy at law, and
such party shall not urge in any such action or proceeding the claim or defense
that the other party has an adequate remedy at law.
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<PAGE>
10.04 Identical Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
10.05 Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
10.06 Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
10.07 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
If to Indemnitee, to:
As shown with Indemnitee's signature below.
If to the Corporation, to:
CyberShop International, Inc.
130 Madison Avenue
New York, NY 10016
Attn: Chairman Of The Board
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attn: Walter M. Epstein, Esq.
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
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<PAGE>
10.08 Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
10.09 Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties hereto in reference to all the
matters herein agreed upon. This Agreement replaces in full all prior
indemnification agreements or understandings of the parties hereto, and any and
all such prior agreements or understandings are hereby rescinded by mutual
agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CYBERSHOP INTERNATIONAL, INC.
By
--------------------------------
Its
-------------------------------
INDEMNITEE
----------------------------------
Print name:
Address:
--------------------------
--------------------------
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CYBERSHOP INTERNATIONAL, INC.
1998 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of the CyberShop International, Inc. 1998 Stock Option
Plan (the "Plan") is to advance the interests of CyberShop International, Inc.,
a Delaware corporation (the "Company"), by providing an opportunity for
ownership of the stock of the Company by employees, agents and directors of, and
consultants to, the Company or of any subsidiary corporation (herein called
"subsidiary" or "subsidiaries"), as defined in Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code") and the Treasury regulations
promulgated thereunder (the "Regulations"). Such employees, agents and directors
of, and consultants to, the Company or any subsidiary are hereinafter referred
to individually as an "Eligible Person" and collectively as "Eligible Persons".
By providing an opportunity for such stock ownership, the Company seeks to
attract and retain qualified personnel, and otherwise to provide additional
incentive for optionees to promote the success of its business.
2. STOCK SUBJECT TO THE PLAN.
(a) The total number of shares of the authorized but unissued or
treasury shares of the common stock, par value of $.001 per share, of the
Company (the "Common Stock") for which options may be granted under the Plan
(the "Options") shall be 1,000,000, subject to adjustment as provided in Section
13 hereof.
(b) If an Option granted or assumed hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for subsequent Option grants
under the Plan.
(c) Common Stock issuable upon exercise of an Option may be subject to
such restrictions on transfer, repurchase rights or other conditions or
restrictions as shall be determined by the Board of Directors of the Company
(the "Board").
3. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board. No member of the
Board shall act upon any matter affecting any Option granted or to be granted to
himself or herself under the Plan; provided, however, that nothing contained
herein shall be deemed to prohibit a member of the Board from acting upon any
matter generally affecting the Plan or any Options granted thereunder. A
majority of the members of the Board shall constitute a quorum, and any action
may be taken by a majority of those present and voting at any meeting. The
decision of the Board as to all questions of interpretation and application of
the Plan shall be final, binding and conclusive on all persons. The Board, in
its sole discretion, may grant Options to purchase
<PAGE>
shares of the Common Stock only as provided in the Plan, and shares shall be
issued upon exercise of such Options as provided in the Plan. The Board shall
have authority, subject to the express provisions of the Plan, to determine the
Eligible Persons who shall be issued Options, the times when Options shall be
granted and within which they may be exercised, the prices at which Options
shall be exercised, the number of shares of Common Stock to be subject to each
Option and whether an Option shall be treated as an incentive stock option or a
non-qualified stock option. The Board shall also have the authority, subject to
the express provisions of the Plan, to amend the Plan, to determine the terms
and provisions of the respective option agreements, which may but need not be
identical, to construe the respective option agreements and the Plan, and to
make all other determinations in the judgment of the Board necessary or
desirable for the administration of the Plan. The Board may correct any defect
or supply any omission or reconcile any inconsistency in the Plan or in any
option agreement in the manner and to the extent it shall deem expedient to
implement the Plan and shall be the sole and final judge of such expediency.
(b) The Board, in its discretion, may delegate its power, duties and
responsibilities to a committee, consisting solely of two or more "Non-Employee
Directors" (as hereinafter defined). If a committee is so appointed, all
references to the Board herein shall mean and relate to such committee. The
existence of such a committee shall not affect the power or authority of the
Board to administer the Plan. For the purposes of the Plan, the term
"Non-Employee Director" shall have the meaning ascribed to it in paragraph
(b)(3) of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as such term is interpreted from time to time.
4. TYPE OF OPTION.
Options granted pursuant to the Plan shall be authorized by action of
the Board and may be designated as either incentive stock options meeting the
requirements of Section 422 of the Code or non-qualified stock options which are
not intended to meet the requirements of such Section 422 of the Code, the
designation to be in the sole discretion of the Board. Options designated as
incentive stock options that fail to continue to meet the requirements of
Section 422 of the Code shall be redesignated as non-qualified stock options
automatically without further action by the Board on the date of such failure to
continue to meet the requirements of Section 422 of the Code.
5. ELIGIBILITY.
Options designated as incentive stock options may be granted only to
Eligible Persons who are officers or employees of the Company or of any
subsidiary. Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted incentive stock options pursuant
to the Plan. Options designated as non-qualified stock options may be granted to
any Eligible Person.
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<PAGE>
The Board shall take into account such factors as it may deem relevant
in determining the number of shares of Common Stock to be included in an Option
to be granted to any Eligible Person.
6. RESTRICTIONS ON OPTIONS.
Incentive stock options (but not non-qualified stock options) granted
under this Plan shall be subject to the following restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value of
the shares of Common Stock with respect to which incentive stock options are
granted (determined as of the date the incentive stock options are granted),
exercisable for the first time by an individual during any calendar year shall
not exceed $100,000. If an incentive stock option is granted pursuant to which
the aggregate fair market value of shares with respect to which it first becomes
exercisable in any calendar year by an individual exceeds such $100,000
limitation, the portion of such option which is in excess of the $100,000
limitation shall be treated as a non-qualified stock option pursuant to Section
422(d)(1) of the Code. In determining the fair market value under this clause
(a), the provisions of Section 8 hereof shall apply. In the event that an
individual is eligible to participate in any other stock option plan of the
Company or any subsidiary of the Company which is also intended to comply with
the provisions of Section 422 of the Code, such $100,000 limitation shall apply
to the aggregate number of shares for which incentive stock options may be
granted under this Plan and all such other plans.
(b) Ten Percent Stockholder. If any Eligible Person to whom an
incentive stock option is granted pursuant to the provisions of the Plan is on
the date of grant the owner of stock (as determined under Section 424(d) of the
Code) possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any subsidiary of the Company, then the following
special provisions shall be applicable to the incentive stock options granted to
such individual:
(i) The Option price per share subject to such Options shall
be not less than 110% of the fair market value of the shares of Common Stock
with respect to which Options are granted (determined as of the date such Option
was granted). In determining the fair market value under this clause (i), the
provisions of Section 8 hereof shall apply.
(ii) The Option by its terms shall not be exercisable after
the expiration of five years from the date such Option is granted.
7. OPTION AGREEMENT; DISQUALIFYING DISPOSITIONS.
(a) Each Option shall be evidenced by an option agreement, in a form
approved from time to time by the Board (the "Agreement"), duly executed on
behalf of the Company and by
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<PAGE>
the optionee to whom such Option is granted, which Agreement shall comply with
and be subject to the terms and conditions of the Plan. The Agreement may
contain such other terms, provisions and conditions which are not inconsistent
with the Plan as may be determined by the Board; provided that Options
designated as incentive stock options shall meet all of the conditions for
incentive stock options as defined in Section 422 of the Code. No Option shall
be granted within the meaning of the Plan and no purported grant of any Option
shall be effective until the Agreement shall have been duly executed on behalf
of the Company and the optionee.
(b) If an optionee makes a "disposition" (within the meaning of
Section 424(c) of the Code) of shares of Common Stock issued upon exercise of an
incentive stock option within two years from the date of grant or within one
year from the date the shares of Common Stock are transferred to the optionee,
the optionee shall, within ten days of disposition, notify the Board and deliver
to it any withholding and employment taxes due. However, if the optionee is a
person subject to Section 16(b) of the Exchange Act, delivery of any withholding
and employment taxes due may be deferred until ten days after the date any
income on the disposition is recognized under Section 83 of the Code. The
Company may cause a legend to be affixed to certificates representing shares of
Common Stock issued upon exercise of incentive stock options to ensure that the
Board receives notice of disqualifying dispositions.
8. OPTION PRICE.
(a) The Option price or prices of shares of the Common Stock for
Options designated as non-qualified stock options shall be as determined by the
Board.
(b) Subject to the conditions set forth in Section 6(b) hereof, the
Option price or prices of shares of the Company's Common Stock designated as
incentive stock options shall be at least the fair market value of such Common
Stock on the date the Option is granted as determined by the Board in accordance
with the Regulations promulgated under Section 422 of the Code.
(c) If such shares are then listed on any national securities
exchange, the fair market value shall be the mean between the high and low sales
prices, if any, on the largest such exchange on the date of the grant of the
Option or, if there are no such sales on such date, shall be determined by
taking a weighted average of the means between the highest and lowest sales
prices on the nearest date before and the nearest date after the date of grant
in accordance with Section 25.2512-2 of the Regulations. If the shares are not
then listed on any such exchange, the fair market value of such shares shall be
the mean between the closing "Bid" and the closing "Ask" prices, if any, as
reported in the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") for the date of the grant of the Option, or, if there are no
such prices on such date, shall be determined by taking a weighted average of
the means between the highest and lowest sales prices on the nearest date before
and the nearest date after the date of grant in accordance with Section
25.2512-2 of the Regulations. If the shares are not then either listed on any
such exchange or quoted in NASDAQ, the fair market value shall be the mean
between the average of the "Bid" and "Ask" prices, if any, as reported in the
National
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<PAGE>
Association of Securities Dealers National Daily Quotation Service for the date
of the grant of the Option, or, if there are no such prices on such date, shall
be determined by taking a weighted average of the means between the highest and
lowest sales prices on the nearest date before and the nearest date after the
date of grant in accordance with Section 25.2512-2 of the Regulations. If the
fair market value cannot be determined under the preceding three sentences, it
shall be determined in good faith by the Board in accordance with Section 422 of
the Code.
9. MANNER OF PAYMENT; MANNER OF EXERCISE.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such Options, (ii) shares of
Common Stock owned by the optionee having a fair market value (at the date of
exercise) equal in amount to the exercise price of the Options being exercised,
or (iii) any combination of (i) and (ii). The fair market value of any shares of
Common Stock which may be delivered upon exercise of an Option shall be
determined by the Board in accordance with Section 8 hereof.
(b) To the extent that an Option is exercisable, Options may be
exercised in full at one time or in part from time to time, by giving written
notice, signed by the person or persons exercising the Option, to the Company,
stating the number of shares with respect to which the Option is being
exercised, accompanied by payment in full for such shares as provided in Section
9(a) hereof. No exercise of an Option may be made for fewer than 100 full shares
of Common Stock unless such exercise is made for the entire fractional amount of
a share remaining to be purchased pursuant to such Option. Upon such exercise,
delivery of a certificate for paid-up, non-assessable shares shall be made by
the Company to the person or persons exercising the Option within 20 business
days after receipt of such notice by the Company.
10. EXERCISE OF OPTIONS.
Each Option granted under the Plan shall, subject to Sections 11(b),
13 and 16 hereof, be exercisable at such time or times and during such period as
shall be set forth in the Agreement; provided, however, that except as otherwise
provided pursuant to the provisions of Section 6(b) hereof, no Option granted
under the Plan shall have a term in excess of ten years from the date of grant.
11. TERM OF OPTIONS; EXERCISABILITY.
(a) Term.
(i) Each Option shall expire on a date determined by the
Board which is not more than ten years from the date of the granting thereof,
except (a) as otherwise provided pursuant to the provisions of Section 6(b)
hereof, and (b) for earlier termination as herein provided.
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<PAGE>
(ii) Except as otherwise provided in this Section 11, an
Option granted to any optionee who ceases to be an Eligible Person for any
reason shall terminate on the earlier of (i) three (3) months after the date
such optionee ceased to be an Eligible Person, or (ii) the date on which the
Option expires by its terms.
(iii) If an optionee ceases to be an Eligible Person because
the Company has terminated his or her status with the Company for cause (as such
term is defined in any employment or similar agreement between such optionee and
the Company or, if there is no such agreement, or such agreement does not
contain provisions relating to termination or removal for cause, as such term is
defined by the law of the State of Delaware), such Option will, to the extent
not terminated, be deemed to have terminated on the date immediately preceding
the date the optionee ceased to be an Eligible Person.
(iv) If an optionee ceases to be an Eligible Person because
the optionee has become disabled (within the meaning of Section 22(e)(3) of the
Code), such Option shall terminate on the earlier of (i) one year after the date
such optionee ceased to be an Eligible Person, or (ii) the date on which the
Option expires by its terms.
(v) In the event of the death of any optionee, such Option
shall terminate on the earlier of (i) one year after the date of death, or (ii)
the date on which the Option expires by its terms.
(b) Exercisability.
(i) Except as otherwise provided in this Section 11(b), an
Option granted to an optionee who thereafter ceases to be an Eligible Person
shall be exercisable only to the extent that the right to purchase shares under
such Option is exercisable on the date such optionee ceased to be an Eligible
Person
(ii) An Option granted to an optionee who ceases to be an
Eligible Person because he or she has become disabled (as such term is defined
in any employment or similar agreement between such optionee and the Company or,
if there is no such agreement, or such agreement does not contain provisions
relating to termination or removal for disability, as determined by the Board)
shall be immediately exercisable as to the full number of shares covered by such
Option, whether or not under the provisions of the Plan or Agreement such Option
was otherwise exercisable as of the date of disability.
(iii) In the event of the death of an optionee, the Option
granted to such optionee may be exercised as to the full number of shares
covered by such Option, whether or not under the provisions of the Plan or
Agreement the optionee was otherwise exercisable at the date of his or her
death, by the executor, administrator or personal representative of such
optionee, or by any person or persons who acquired the right to exercise such
Option by bequest or inheritance or by reason of the death of such optionee.
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<PAGE>
(iv) In addition to the acceleration of the exercisability of
Options pursuant to this Section 11(b) and Section 13(b)(ii) hereof, the Board
shall have the right, in the exercise of its discretion and for any reason, and
with the consent of the optionee, to accelerate the date on which Options shall
be exercisable.
12. TRANSFERABILITY.
The right of any optionee to exercise any Option granted to him or her
shall not be assignable or transferable by such optionee other than by will or
the laws of descent and distribution, and any such Option shall be exercisable
during the lifetime of such optionee only by him or her. Any Option granted
under the Plan shall be null and void and without effect upon the bankruptcy of
the optionee to whom the Option is granted, or upon any attempted assignment or
transfer, except as herein provided, including, without limitation, any
purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, or levy of execution, attachment, trustee
process or similar process, whether legal or equitable, upon such Option. The
Board shall have discretion to grant any Option that is not designated as an
incentive stock option, free of any or all of the restrictions described in this
Section.
13. RECAPITALIZATION, REORGANIZATIONS AND THE LIKE.
(a) In the event that the outstanding shares of the Common Stock are
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any reorganization, recapitalization,
reclassification, stock split, combination of shares, or dividends payable in
capital stock, appropriate and equitable adjustment shall be made by the Board,
in its sole discretion, in the number and kind of shares as to which Options may
be granted under the Plan and as to which outstanding Options or portions
thereof then unexercised shall be exercisable. Such adjustment in outstanding
Options shall be made without change in the total price applicable to the
unexercised portion of such Options and with a corresponding adjustment in the
Option price per share.
(b) (i) In addition, unless otherwise determined by the Board in its
sole discretion, in the case of any (I) merger or consolidation pursuant to
which the Company's stockholders shall receive cash or securities of another
corporation and less than 50% of the outstanding capital stock of the surviving
corporation pursuant to such merger or consolidation shall be owned by the
stockholders of the Company, (II) sale or conveyance to another entity of all or
substantially all of the property and assets of the Company or (III) Change in
Control of the Company, the Company shall, or shall cause such surviving
corporation or the purchaser(s) of the Company's assets to, deliver to the
optionee the same kind of consideration that is delivered to the stockholders of
the Company as a result of such merger, consolidation, sale, conveyance or
Change in Control, or the Board may cancel all outstanding Options in exchange
for consideration in cash or marketable securities, which consideration in both
cases shall be equal in value to the value of those shares of stock or other
securities the optionee would have received had the Option been
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<PAGE>
exercised (but only to the extent then exercisable) and had no disposition of
the shares acquired upon such exercise been made prior to such merger,
consolidation, sale, conveyance or Change in Control, less the Option price
therefor or, in lieu thereof, the Board shall give the optionee at least twenty
days prior written notice of any such transaction in order to enable the
optionee to exercise the exercisable portion, if any, of the Option. Upon
receipt of such consideration effective on the date specified in such notice,
all Options (whether or not then exercisable) shall immediately terminate and be
of no further force or effect. The value of the stock or other securities the
optionee would have received if the Option had been exercised shall be
determined in good faith by the Board, and in the case of shares of Common
Stock, in accordance with the provisions of Section 8 hereof.
(ii) The Board shall also have the power and right to
accelerate the exercisability of any Options, notwithstanding any limitations in
this Plan or in the Agreement upon such merger, consolidation, sale, conveyance
or Change in Control.
(c) A "Change in Control" shall be deemed to have occurred if any
person, or any two or more persons acting as a group, and all affiliates of such
person or persons, who prior to such time Beneficially Owned (as defined in Rule
13d-3 under the Exchange Act) less than 40% of the then outstanding Common
Stock, shall acquire such additional shares of Common Stock in one or more
transactions, or series of transactions, such that following such transaction or
transactions, such person or group and affiliates Beneficially Own 50% or more
of the Common Stock outstanding.
(d) If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old Option, or substitution of a new option for the old
Option, in conformity with the provisions of such Section 424(a) of the Code and
the Regulations thereunder, and any such option shall not reduce the number of
shares otherwise available for issuance under the Plan. In the event of such
issuance or assumption, the provisions of Section 13(b) hereof shall not be
applicable.
14. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any optionee any right with respect to the continuation of his
or her employment by the Company or any subsidiary or interfere in any way with
the right of the Company or any subsidiary, subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the Option holder from the rate
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or
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absence in military or government service, shall constitute termination of
employment for purposes of any Option shall be determined by the Board at the
time of such occurrence.
15. WITHHOLDING.
The Company's obligation to deliver shares upon the exercise of any
Option granted under the Plan shall be subject to the Option holder's
satisfaction of any applicable federal, state and local income and employment
tax withholding requirements. The Company and optionee may agree to withhold
shares of Common Stock purchased upon exercise of an Option to satisfy the
above-mentioned withholding requirements.
16. RESTRICTIONS ON EXERCISE OF OPTIONS AND ISSUANCE OF SHARES.
(a) Notwithstanding the provisions of Sections 9 and 11 hereof, an
Option cannot be exercised, and the Company may delay the issuance of shares
covered by the exercise of an Option and the delivery of a certificate for such
shares, until one of the following conditions shall be satisfied:
(i) The shares with respect to which such Option has been
exercised are at the time of the issuance of such shares effectively registered
or qualified under applicable federal and state securities acts now in force or
as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that the
issuance of such shares is exempt from registration and qualification under
applicable federal and state securities acts now in force or as hereafter
amended.
(b) The Company shall be under no obligation to qualify shares or to
cause a registration statement or a post-effective amendment to any registration
statement to be prepared for the purpose of covering the issuance of shares in
respect of which any Option may be exercised or to cause the issuance of such
shares to be exempt from registration and qualification under applicable federal
and state securities acts now in force or as hereinafter amended, except as
otherwise agreed to by the Company in writing in its sole discretion.
17. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION.
Unless and until the shares to be issued upon exercise of an Option
granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended (the "1933 Act"), as now in force or hereafter amended, the
Company shall be under no obligation to issue any shares covered by any Option
unless the person who exercises such Option, in whole or in part, shall give a
written representation and undertaking to the Company which is satisfactory in
form and scope to counsel for the Company and upon which, in the opinion of such
counsel, the Company may reasonably rely, that he or she is acquiring the shares
issued pursuant to such exercise of the Option for his or her own account as an
investment and not with a view to, or
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for sale in connection with, the distribution of any such shares, and that he or
she will make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the 1933 Act, or any
other applicable law, and that if shares are issued without such registration, a
legend to this effect may be endorsed upon the securities so issued.
In the event that the Company shall, nevertheless, deem it necessary
or desirable to register under the 1933 Act or other applicable statutes any
shares with respect to which an Option shall have been exercised, or to qualify
any such shares for exemption from the 1933 Act or other applicable statutes,
then the Company may take such action and may require from each optionee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus, offering circular or
any other document that is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
18. LOANS.
At the discretion of the Board, the Company may loan to the optionee,
or pay to the optionee as a bonus, some or all of the purchase price of the
shares acquired upon exercise of an Option, the terms of such loans or bonus to
be at the discretion of the Board.
19. MODIFICATION OF OUTSTANDING OPTIONS.
Subject to any applicable limitations contained herein, the Board may
authorize the amendment of any outstanding Option with the consent of the
optionee when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
Without limiting the foregoing, the Board shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding Options under the Plan and to grant in
substitution therefor new Options under the Plan covering the same or different
numbers of Shares and having, at the discretion of the Board and subject to
Sections 6 and 8 hereof, an exercise price, in the case of Options designated as
non-qualified stock options, as shall be determined by the Board and, in the
case of Options designated as incentive stock options, of not less than one
hundred percent (100%) of the fair market value of the Common Stock on the new
grant date.
20. APPROVAL OF BOARD AND STOCKHOLDERS.
The Plan shall become effective upon adoption by the Board and the
stockholders of the Company; provided, however, that the Plan shall be submitted
for approval by the stockholders of the Company within 12 months after the date
of adoption of the Plan by the Board. If the stockholders of the Company fail to
approve the Plan within 12 months after the date of adoption
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<PAGE>
of the Plan by the Board, the Plan and all stock options granted thereunder
shall be and become null and void and of no further force or effect.
21. TERMINATION AND AMENDMENT OF PLAN.
Unless sooner terminated as herein provided, the Plan shall terminate
ten years from the earlier of (x) the date on which the Plan was duly adopted by
the Board, and (y) the date on which the Plan was duly approved by the
stockholders of the Company. The Board may at any time terminate the Plan or
make such modification or amendment thereof as it deems advisable; provided,
however, (i) the Board may not, without the approval of the stockholders of the
Company obtained in the manner stated in Section 20 hereof, increase the maximum
number of shares for which Options may be granted or change the designation of
the class of persons eligible to receive Options under the Plan, and (ii) any
such modification or amendment of the Plan shall be approved by a majority of
the stockholders of the Company to the extent that such stockholder approval is
necessary to comply with applicable provisions of the Code, rules promulgated
pursuant to Section 16 of the Exchange Act (if any), applicable state law, or
applicable NASD or exchange listing requirements. Termination or any
modification or amendment of the Plan shall not, without the consent of an
optionee, affect his or her rights under an Option theretofore granted to him or
her.
22. DUTIES OF THE COMPANY.
The Company shall at all times keep available for issuance or delivery
such number of shares of Common Stock as will be sufficient to satisfy the
requirements of the Plan.
23. LIMITATION OF RIGHTS IN THE OPTION SHARES.
An optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the Options until (x) the Option shall have
been exercised with respect thereto (including payment to the Company of the
exercise price) and (y) the earlier to occur of (i) the delivery by the Company
to the optionee of a certificate therefor, or (ii) the date on which the Company
is required to deliver a certificate pursuant to Section 9(b) hereof.
24. GOVERNING LAW.
The Plan and all Options shall be governed by and construed under the
laws of the State of Delaware, without giving effect to principles of conflicts
of law.
25. NOTICES.
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to the attention of the President at the
Company's principal place of business; and, if to an optionee, to
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his or her address as it appears on the records of the Company.
26. HEADINGS.
The headings contained in this Plan are for convenience of reference
only and in no way define, limit or describe the scope or intent of the Plan or
in any way affect this Agreement.
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CYBERSHOP INTERNATIONAL, INC.
DIRECTOR OPTION PLAN
1. PURPOSE
The purpose of the Director Option Plan (the "Plan") of CyberShop
International, Inc., a Delaware corporation (the "Company"), is to encourage
ownership in the Company by outside directors of the Company whose continued
services are considered essential to the Company's future progress and to
provide them with a further incentive to remain as directors of the Company.
2. ADMINISTRATION
The Compensation Committee of the Company's Board of Directors (the
"Committee") shall supervise and administer the Plan. Grants of stock options
under the Plan and the amount and nature of the awards to be granted shall be
automatic and non-discretionary in accordance with Section 5. However, all
questions of interpretation of the Plan or of any options issued under it shall
be determined by the Committee and such determination shall be final and binding
upon all persons having an interest in the Plan.
3. DIRECTORS ELIGIBLE FOR PARTICIPATION
Each director of the Company who is not an employee of, or consultant
to, the Company or any subsidiary or affiliate of the Company shall be eligible
to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
(a) The maximum number of common shares which may be issued under
the Plan shall be seventy thousand (70,000) shares of common
stock, par value $.001 of the Company ("Common Stock").
(b) If any outstanding option under the Plan for any reason
expires or is terminated without having been exercised in
full, the Common Stock allocable to the unexercised portion
of such option shall again become available for grant
pursuant to the plan.
5. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Committee shall from time to time approve, which
agreements shall comply with and be subject to the following terms and
conditions:
<PAGE>
(a) Option Grant Dates. Each eligible director, including a
director serving in that capacity on the effective date of
the Plan, shall be granted an option to purchase three
thousand (3,000) shares of Common Stock for each year such
director serves on the Board of the Company. Such option
shall be granted on the date of election or reelection of the
Director. All options granted under the Plan shall vest on
the first anniversary of the date of grant and shall be
exercisable for a period of three (3) years thereafter.
(b) Option Exercise Price. The option exercise price per share of
Common Stock for each option granted under the Plan shall be
equal to the fair market value of the stock on the date of
grant. For the purposes hereof, the term "fair market value"
shall mean the fair market value as determined in good faith
by the Committee.
(c) Options Non-Transferable. Each option granted under the Plan
by its terms shall not be transferable by the optionee
otherwise than by will, or by the laws of descent and
distribution, or pursuant to a qualified domestic relations
order (as defined in Section 414(p) of the United States
Internal Revenue Code (the "Code")), and shall be exercised
during the lifetime of the optionee only by him. No option or
interest therein may be transferred, assigned, pledged or
hypothecated by the optionee during his lifetime, whether by
operation of law or otherwise, or be made subject to
execution, attachment or similar process.
(d) Exercise Period. Except as otherwise provided in the plan,
each option may be exercised fully on the date of grant of
such option, provided that, subject to the provisions of
Section 5(e), no option may be exercised more than ninety
(90) days after the optionee ceases to serve as a director of
the Company. No option shall be exercisable after the
expiration of four (4) years from the date of grant or prior
to approval of the Plan by the stockholders of the Company,
whichever is earlier.
(e) Exercise Period Upon Death. Notwithstanding the provisions of
Section 5(d), any option granted under the Plan may be
exercised in full upon the death of an optionee while serving
as a director of the Company by the person to whom it is
transferred by will, by the laws of descent and distribution
or by written notice filed pursuant to Section 5(h).
(f) Exercise Procedure. Options may be exercised only by written
notice to the Company at its principal office accompanied by
payment of the full consideration for the Common Stock as to
which they are exercised.
(g) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price (i) by delivery
of cash or a check to the order
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<PAGE>
of the Company in an amount equal to the exercise price of
such options or, (ii) to the extent provided in the
applicable option agreement, by delivery to the Company of
Common Stock then owned by the optionee having a fair market
value equal in amount to the exercise price of the Options
being exercised, or (iii) by any combination of such methods
of payment. The fair market value of any Common Stock or
other non-cash consideration which may be delivered upon
exercise of an option shall be determined by the Committee.
(h) Exercise of Representative Following Death of Director. A
director, by written notice to the Company, may designate one
or more persons (and from time to time change such
designation) including his legal representative, who, by
reason of his death, shall acquire the right to exercise all
or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they
must do so within the term of the option as provided herein.
Any exercise by a representative shall be subject to the
provisions of the Plan.
6. ASSIGNMENTS
The rights and benefits under the Plan may not be assigned except for
the designation of a beneficiary as provided in Section 5.
7. LIMITATION OF RIGHTS
(a) No Right to Continue as a Director. Neither the Plan nor the
granting of an option nor any other action taken pursuant to
the Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will
retain a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have
no rights as a stockholder with respect to the Common Stock
covered by his options until the date of the issuance to him
of a share certificate therefor, and no adjustment will be
made for dividends or other rights for which the record date
is prior to the date such certificate is issued.
8. CHANGES IN CAPITAL STOCK
(a) If (x) the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of
share or other security of Company, or (y) additional shares
of Common Stock or new or different shares of Common Stock or
other securities of the Company or other non-cash assets are
distributed with respect to such shares or other securities,
through or as a result of any merger, consolidation, sale of
all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock
dividend,
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<PAGE>
stock split, reverse stock split or other similar transaction
with respect to such shares or other securities, an
appropriate and proportionate adjustment shall be made in (i)
the maximum number and kind of shares reserved for issuance
under the Plan, and (ii) the number and kind of shares or
other securities subject to then outstanding options under
the Plan and (iii) the price for each share subject to any
then outstanding options under the Plan, without changing the
aggregate purchase price as to which such options remain
exercisable. No fractional shares will be issued under the
Plan on account of any such adjustments. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this
Section 8 if such adjustment would cause the Plan to fail to
comply with Rule 16b-3 or any successor rule promulgated
pursuant to Section 16 of the Securities Exchange Act of
1934, as amended.
(b) In the event that the Company is merged or consolidated into
or with another corporation (in which consolidation or
merger, the stockholders of the Company receive distributions
of cash or securities of another issuer as a result thereof),
or in the event that all or substantially all of the assets
of the Company are acquired by any other person or entity, or
in the event of a reorganization or liquidation of the
Company, the Board of Directors of the Company, or the board
of directors of any corporation assuming the obligations of
the Company, shall, as to outstanding options take one or
more of the following actions: (i) provide that such options
shall be assumed, or equivalent options shall be sub
stituted, by the acquiring or succeeding corporation (or an
affiliate thereof), (ii) upon written notice to the optionee,
provide that all unexercised options will terminate
immediately prior to the consummation of such transaction
unless exercised by the optionee within a specified period
following the date of such notice, or (iii) if, under the
terms of a merger transaction, holders of the Common Stock
will receive upon consummation thereof a cash payment for
each share surrendered in the merger (the "Merger Price"),
make or provide for a cash payment to the optionees equal to
the difference between (A) the Merger Price times the number
of shares of Common Stock subject to such outstanding options
(to the extent then exercisable at prices not in excess of
the Merger Price) and (B) the aggregate exercise price of all
such outstanding options in exchange for the termination of
such options.
9. AMENDMENT OF THE PLAN
The Committee may suspend or discontinue the Plan or review or amend
it in any respect whatsoever; provided, however, that without approval of the
stockholders of the Company no revision or amendment shall change the number of
shares subject to the Plan or the number of shares issuable to any director of
the Company under the Plan (except as provided in Section 8), change the
designation of the class of directors eligible to receive options, or materially
increase the benefits accruing to participants under the Plan, and further
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<PAGE>
provided, that no amendment to the number of shares of Common Stock issuable to
any director shall be effected more than once in any six month period.
10. WITHHOLDING
The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee, any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan.
11. EFFECTIVE DATE AND DURATION OF THE PLAN
(a) Effective Date. The Plan shall become effective when adopted
by the Board of Directors of the Company and approved by the
Company's stockholders. Amendments to the plan not requiring
stockholder approval shall become effective when adopted by
the Committee; amendments requiring stockholder approval
shall become effective when adopted by the Committee, but no
option granted after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan
was required to enable the Company to grant such option to a
particular optionee) unless and until such amendment shall
have been approved by the Company's stockholders. If such
stockholder approval is not obtained within six months of the
Committee's adoption of such amendment, any options granted
on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable
the Company to grant such option to a particular optionee.
(b) Termination. Unless sooner terminated by the Committee, the
Plan shall terminate upon the date on which all shares
available for issuance under the Plan shall have been issued
pursuant to the exercise or cancellation of options granted
under the Plan.
12. NOTICE:
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Secretary of the Company and shall become
effective when it is received.
13. GOVERNMENTAL REGULATION
The Company's obligation to sell and deliver shares of Common Stock
under the plan is subject to the approval of or requirements of any governmental
authority applicable in connection with the authorization issuance or sale of
such shares.
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<PAGE>
14. COMPLIANCE WITH RULE 16b-3
Transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successor promulgated pursuant to Section 16 of
the Securities Exchange Act of 1934, as amended. To the extent any provision of
the Plan or action by the Committee in administering the plan fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
15. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware and the laws of the
United States applicable therein.
16. SUCCESSORS AND ASSIGNS
This Plan shall inure to the benefit of and be binding upon each
successor and assign of the Company. All obligations imposed upon an optionee,
and all rights granted to the Company hereunder, shall be binding upon the
optionee's heirs, legal representatives and successors.
17. ENTIRE AGREEMENT
This Plan and the written agreement with respect to each option
granted under this Plan constitute the entire agreement with respect to the
subject matter hereof and thereof, provided that in the event of any
inconsistency between the Plan and such written agreement, the terms and
conditions of this Plan shall control.
-6-
Certain confidential information has been omitted and filed separately with the
Commission pursuant to a Request for Confidential Treatment.
Such material has been replaced with a legend indicating such omission and is
marked with brackets "[" "]".
CONFIDENTIAL
INTERACTIVE MARKETING AGREEMENT
This Agreement, effective as of July 30, 1996 (the "Effective Date"), is
made and entered into by and between America Online, Inc.("AOL"), a Delaware
corporation, with its principal offices at 8619 Westwood Center Drive, Vienna,
Virginia 22182, and Cybershop LLC ("Information Provider"), a New Jersey
corporation, with its principal offices at 211 Gates Ave., Montclair, NJ 07042
(each a "Party" and collectively the "Parties").
INTRODUCTION
AOL and Information Provider each desire that Information Provider provide
the Online Area (as defined below) on the AOL Network (as defined below),
subject to the terms and conditions set forth in this Agreement.
TERMS
1. DEFINITIONS. The following definitions shall apply to this Agreement:
1.1 AFFILIATE. Any agent, distributor, or franchisee of AOL, or an
entity in which AOL holds at least a thirty percent (30%) equity
interest.
1.2 AOL LOOK AND FEEL. The elements of graphics, design,
organization, presentation, layout, user interface, navigation
and stylistic convention (including the digital implementations
thereof) which are generally associated with online areas within
the America Online (R) brand service.
1.3 AOL MEMBER(S). Authorized users of the AOL Network, including
any subaccounts using the AOL Network under an authorized master
account.
1.4 AOL NETWORK. The America Online (R) brand service and any other
information, communication, transaction or other related service
owned, operated, distributed or authorized to be distributed by
or through AOL or its Affiliates throughout the world through
which AOL elects to offer the Online Area, including, without
limitation, the Global Network Navigator ("GNN") Service.
1.5 COMMERCIAL LAUNCH. The commencement of the general availability
of the Online Area to AOL Members (by means other than
unadvertised keyword access).
1.6 CONFIDENTIAL INFORMATION. Any information relating to or
disclosed in the course of the Agreement, which is or should be
reasonably understood to be confidential or proprietary to the
disclosing Party, including, but not limited to, the material
terms of this Agreement, information about AOL Members,
technical processes and formulas, source codes, product designs,
sales, cost and other unpublished financial information, product
and business plans, projections, and marketing data.
"Confidential Information" shall not include information (a)
already lawfully known to or independently developed by the
receiving Party, (b) disclosed in published materials, (c)
generally known to the public, (d) lawfully obtained from any
third party, or (e) required or reasonably advised to be
disclosed by law.
<PAGE>
1.7 DESIGN PACKAGE. Content plans, flow charts and artwork which
together represent the appearence, user interface, content and
operation of the Online Area.
1.8 GNN MEMBERS. Authorized users of the GNN Service, including any
sub-accounts using the GNN Service under an authorized master
account.
1.9 GNN READERS. Users of content within the GNN Service who are not
GNN Members and who are therefore limited to an unrestricted
class of content made available through the GNN Service to
anyone with the technical capability of reaching GNN's
programming via the World Wide Web portion of the internet.
1.10 GNN SERVICE. The Global Network Navigator (TM) brand service
(located at http://www.gnn.com) and any other information,
communication, transaction or other related service owned,
operated or distributed by GNN throughout the world.
1.11 GNN TERMS OF SERVICE. Any guidelines designed for GNN Users of
the GNN Service which GNN may elect to create, as such
guidelines may be modified from time to time at GNN's sole
discretion.
1.12 GNN USERS. That combination of GNN Members and/or GNN Readers
who may have access to the Content Area.
1.13 LICENSED C&S (LICENSED CONTENT AND SERVICES). All content,
services and Products offered through the Online Area pursuant
to this Agreement, including any modifications, upgrades,
updates, enhancements, and related documentation.
1.14 NEW MEMBERS. Any person or entity (a) who registers for the AOL
Network using Information Provider's special promotion
identifier and (b) from whom AOL or an Affiliate collects a
payment of at least one monthly usage fee for the use of the AOL
Network.
1.15 ONLINE AREA. The specific area within the AOL Network which
contains the exclusive area in the AOL Network where Information
Provider can market and complete transactions regarding
Information Provider's Products, as more fully described in
Section 2.1.1 below. The Online Area shall be developed, managed
and marketed by Information Provider pursuant to this Agreement,
including but not limited to the Licensed C&S, message boards,
chat and other AOL Member or GNN User-supplied content areas.
2
<PAGE>
1.16 OVERHEAD ACCOUNTS. Accounts of AOL Members for which AOL does
not require payment of standard AOL subscription and usage
charges.
1.17 PRODUCTS. Any product, good, or service which Information
Provider offers, sells or licenses to AOL Members and/or GNN
Users through the Online Area.
1.18 SALES REVENUES. Aggregate amounts paid by AOL Members and/or GNN
Users in connection with the sale, licensing, distribution or
provision of any Products, excluding, in each case, amounts
collected for sales or use taxes, duties, handling, shipping,
and similar charges (except as provided in section 2.1.13), and
credits for returned goods or services, but not excluding cost
of goods sold or any similar cost.
2. ONLINE AREA.
2.1 DUTIES AND RIGHTS OF INFORMATION PROVIDER. Information Provider
shall supply, manage and market the Online Area as described
below, at its own expense, subject to the following terms and
conditions:
2.1.1 Online Area. Information Provider shall create or
develop the Online Area, (with the assistance of AOL's
services to the extent described in Exhibit A hereto),
which shall consist of the following materials,
services, and features:
[Described the Online Area, including Licensed C&S,
Products and publication format-BE SPECIFIC]
On-line department store including housewares, bedding,
electronics, children's products, jewelry, fashion
accessories, luggage, stationary, cosmetics, gourmet
food, lamps, rugs, furniture, outdoor equipment,
exercise equipment.
In no event shall the Licensed C&S contain less than 50
Products.
From and after the Effective Date, Information Provider
shall prepare the Design Package in consultation with
AOL.
2.1.2 Preparation for Commerical Launch. Within no more than 3
months after the Effective Date, Iinformation Provider
shall complete their pieces of the contractual
agreements related to the Design and Implementation of
the area.
2.1.3 Additional Content. In the event that Information
Provider wishes to offer any categories or types of
content, including advertising, information, Products,
services or materials in addition to those itmes
specifically described above (the "Additional Content"),
Information Provider shall notify AOL in writing.
Information Provider's right to offer any such
Additional Content shall be subject to AOL's prior
written approval. Additional Content approved by AOL
shall be memorialized in sequentially numbered addenda
to this Agreement. A new deal may be necessary if
revenue generating services are added to area, such as
advertising. Approval is absolutely at AOL's discretion.
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2.1.4 License. Information Provider hereby grants AOL a
non-exclusive worldwide license to market, license,
distribute, display, perform, transmit and promote the
Online Area contained therein through the AOL Network.
AOL Members and/or GNN Users, at AOL's sole option,
shall have the right to access and use the Online Area.
Subject to such license, Information Provider retains
all right, title to and interest in the Licensed C&S.
2.1.5 Management of Online Area. Information Provider shall
manage, review, delete, edit, create, update and
otherwise manage all content and services available on
or through the Online Area, including but not limited to
the Licensed C&S and message boards, in a timely and
professional manner and in accordance with the terms of
this Agreement and AOL's applicable Terms of Service.
Information Provider shall ensure that the Online Area
is current, accurate and well-organized at all times.
Except for any specific management obligations described
in Exhibit A, AOL shall have no obligations with respect
to the content and services available on or through the
Online Area, including, but not limited to, any duty to
review or monitor any such content and services.
2.1.6 Lowest Price Guarantee. Information Provider shall
guarantee AOL Members and GNN Users that in no event
will the prices for Products in the Online Area exceed
prices for identical Products offered by Information
Provider in any other forum, including but not limited
to catalogues and retail stores.
2.1.7 Access Equipment. Information Provider shall provide all
computer, telephone and other equipment or resources
necessary for Information Provider to access the AOL
Network except for the AOL Proprietary client software
necessary to access the AOL Network and the Information
Provider Tools to be provided by AOL pursuant to Section
2.2.4 herein.
2.1.8 Duty to Inform. Information Provider shall promptly
inform AOL of any information related to the Online Area
which could reasonably lead to a claim, demand, or
liability of or against AOL and/or its Affiliates by any
third party.
2.1.9 Promotion Responsibilities. Information Provider shall
use commercially reasonable efforts to market the Online
Area, and such efforts shall at a minimum, include the
following responsibilities (in addition to compliance
with Section 2.3.1 below):
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2.1.9.1 Cooperate with and reasonably assist AOL in
supplying material for AOL's marketing and
promotional activities which relate to the
Online Area;
2.1.9.2 Perform Information Provider's New Member
acquisition obligations set forth in Exhibit B.
2.1.9.3 Prepare an annual Product marketing plan and
budget (the "Merchandise Marketing Plan") for
promoting the Online Area, including but not
limited to Product selection and rotation, sales
and special promotions. Upon notice from AOL and
at AOL's option, the Merchandise Marketing Plan
shall be reviewed and approved by AOL for the
Initial Term prior to the Commercial Launch date
and for each successive Contract Year prior to
the commencement of such Contract Year.
2.1.10 Overhead Accounts. Information Provider shall be granted
a reasonable and necessary number of Overhead Accounts
for the exclusive purpose of enabling it and its agents
to perform Information Provider's duties under this
Agreement. Information Provider shall be responsible for
the actions taken under or through its Overhead
Accounts, which actions are subject to AOL's applicable
Terms of Service and for any surcharges, including,
without limitation, all premium charges, transaction
charges, and any applicable communication surcharges
incurred by any Overhead Account issued to Information
Provider, but Information Provider shall not be liable
for charges incurred by any Overhead Account relating to
AOL's standard monthly usage fees and standard hourly
charges, which charges AOL shall bear. Upon the
termination of this Agreement, all Overhead Accounts,
related screen names and any associated usage credits or
similar rights, shall automatically terminate. AOL shall
have no liability for loss of any data or content
related to the proper termination of any Overhead
Account.
2.1.11 Customer Service. It is the sole responsibility of
Information Provider to provide customer service to
persons or entities purchasing Products including but
not limited to AOL Members and GNN Users ("Customers")
regarding any Products and any transactions related
thereto. In addition to complying with the Customer
Service Requirements set forth in Exhibit C, and any
changes thereto that AOL may make from time to time,
Information Provider shall respond promptly and
professionally to questions, comments, complaints and
other reasonable requests from Customers regarding the
Products. Information Provider shall ensure that all
orders of Products are received, processed, shipped and
delivered on a timely and professional basis, with no
less than seventy percent (70%) of orders filled within
five (5) days from the date of order. Information
Provider shall bear all responsibility for compliance
with federal, state and local laws in the event the
Products are out of stock or are no longer available at
the time an order is received. Title to Product(s) shall
remain in Information Provider and shall be transferred
directly from Information Provider to the Customers.
Payment for Information Provider Product(s) shall be
collected by Information Provider directly from
Customer. Information Provider shall bear the entire
economic risk of shipment and payment for Information
Provider Product(s). Information Provider's order
fulfillment operation shall be subject to AOL's review
and approval.
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2.1.12 Disclaimers. Information Provider agrees that a product
disclaimer in substantially the following form will be
displayed in any online store contained within the
Online Area (with "Information Provider" replaced by
Information Provider's name in each place "Information
Provider appears):
"AOL AND ITS AFFILIATES WILL NOT BE A PARTY TO
ANY TRANSACTION BETWEEN ANY PURCHASER AND
INFORMATION PROVIDER, AND ALL ASPECTS OF SUCH
TRANSACTIONS INCLUDING BUT NOT LIMITED TO
PURCHASE TERMS, PAYMENT TERMS, WARRANTIES,
GUARANTEES, MAINTENANCE, AND DELIVERY ARE SOLELY
BETWEEN PURCHASER AND INFORMATION PROVIDER. AOL
AND ITS AFFILIATES PROVIDE NO GUARANTEES OR
WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE
QUALITY, MAKE, OR PERFORMANCE OF THE PRODUCTS OR
SERVICES AVAILABLE THROUGH THIS AREA. GUARANTEES
OR WARRANTIES, IF ANY, ARE DIRECTLY BETWEEN
INFORMATION PROVIDER OR CATALOGER AND THE
PURCHASER."
2.1.13 Taxes. Information Provider shall collect and pay and
indemnify and hold AOL harmless from, any sales, use,
excise, import or export value added or similar tax or
duty not based on AOL's net income, including any
penalties and interest, as well as any costs associated
with the collection or withholding thereof, including
attorneys' fees.
2.1.14 Shipping and Handling. In connection with any Product
ordered through the AOL Network or CD-ROM (if any),
Information Provider may not require the purchaser to
pay shipping, handling or similar charges ("S&H
Charges") in excess of twenty percent (20%) above of
Information Provider's actual shipping and handling
costs related to such order unless Information Provider
pays AOL twenty-five percent (25%) of the total S&H
Charges which the purchaser is required to pay. In no
event shall Information Provider impose shipping and
handling costs in excess of fifty percent (50%) above
Information Provider's actual shipping and handling
costs.
2.1.15 Chat Management Class. If the Online Area will include
chat, Information Provider shall register for and
successfully complete the chat management class offered
online by AOL prior to Commercial Launch.
2.1.16 Technical Conformance. Information Provider shall take
all reasonable steps necessary to conform its promotion
and sale of Products through the Online Area to the
then-existing commerce technologies made available to
Information Provider by AOL.
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2.1.17 Additional Transaction Mechanisms. Information Provider
shall only be permitted to promote and/or offer Products
to be sold through the Online Area using AOL's
then-available "clerk" transaction tools ("Standard
Clerk Tools"). To the extent Information Provider wishes
to promote or make available throughout the Online Area
alternative means for purchase of Products, including
without limitation, surcharged downloads, toll-free
numbers, catalogues and form-driven mail (each an
"Alternative Transaction Mechanism"), Information
Provider must obtain AOL's prior written approval. In
order to obtain AOL's approval, Information Provider
must submit to AOL a written proposal describing the
Alternative Transaction Mechanism and Information
Provider's plan for reporting information to AOL
regarding sales occurring through such Alternative
Transaction Mechanism. In the event AOL approves any
such Alternative Transaction Mechanism, the sales
occuring through such means shall also be subject to
Section 3.2.1
2.1.18 Internet Areas. Information Provider shall not be
permitted to establish any links between the Online Area
and any other area on or outside of the AOL Network,
including, without limitation, sites on the World Wide
Web portion of the Internet, without the prior written
approval of AOL. In the event that AOL approves any such
links or pointers, such approval shall, in each case, be
subject to AOL's then-current fees for such links or
pointers and Information Provider's compliance with the
then-current terms and conditions, as they may be
amended by AOL from time to time.
2.2 DUTIES AND RIGHTS OF AOL. In connection with the online Area,
AOL shall have the following duties and rights:
2.2.1 Listing and Promotion of Online Area. AOL shall list the
Online Area in the "Directory of Services," an index of
the online areas available on the America Online (R)
brand service, or any similar area as designated by AOL
available on the AOL Network. AOL shall list the Online
Area for an initial period of at least one month in the
"What's New" Area, a listing of new online areas
available on the America Online brand service, or any
similar area on the AOL Network; provided that the
scheduling, frequency, size and nature of any such
promotions shall be subject to AOL's sole editorial
discretion. AOL shall be entitled, in its reasonable
discretion, to list, promote and offer individual
Products or specific subsets of Products through
features within the AOL Network managed and maintained
by AOL, its Affiliates or their agents, including
without limitiation, special gift collections and
product search services. In the event such listings,
promotions or offers involve text or multimedia
descriptions which differ from the descriptions
appearing within the Online Area, such modified
descriptions shall be subject to the prior approval of
Information Provider, which shall not be unreasonably
withheld or delayed.
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2.2.2 TECHNICAL SUPPORT AND DOCUMENTATION. AOL shall provide
Information Provider a reasonable level of technical
support and documentation necessary to enable
Information Provider to perform its duties under this
Agreement.
2.2.3 INFORMATION PROVIDER TOOLS. AOL grants Information
Provider a non-exclusive, royalty-free license during
the Initial Term and any Contract Year of this Agreement
to use publishing tools, which are made generally
available by AOL to its third party information
providers, solely to be used in connection with
performing the duties of Information Provider under this
Agreement. Information Provider recognizes that AOL
provides to Information Provider all such publishing
tools on an "as is" basis, without warranties of any
kind.
2.2.4 AOL LOOK AND FEEL. Information Provider acknowledges and
agrees that AOL shall own all right, title and interest
in and to the AOL Look and Feel, subject to Information
Provider's ownership rights in the Licensed C&S.
2.2.5 POINTING. AOL shall be entitled, in its reasonable
discretion, to establish "pointers" (or links) between
components of content contained within the Online Area
and other content areas available through the AOL
Network.
2.3.5 CD-ROM PRODUCTS. In the event that AOL elects to develop
a CD-ROM product, AOL shall have the option to include
all or a portion of Information Provider's Licensed C&S
on such CD-ROM.
2.3 JOINT DUTIES AND RIGHTS OF THE PARTIES.
2.3.1 PROMOTIONAL MATERIALS/PRESS RELEASES. Each Party will
submit to the other Party, for its prior written
approval, which shall not be unreasonably withheld or
delayed, any marketing, advertising, press releases, and
all other promotional materials related to the Online
Area and/or referencing the other Party and/or its trade
names, trademarks, and service marks (the "Materials");
provided, however, that screen shots of the Online Area
shall not require prior approval and shall be deemed
approved. Each Party shall solicit and reasonably
consider the views of the other Party in designing and
implementing such Materials. Once approved, the
Materials may be used by a Party and its affiliates for
the purpose of promoting the Online Area and the content
contained therein and reused for such purpose until such
approval is withdrawn with reasonable prior notice. In
the event such approval is withdrawn, existing
inventories of Materials may be depleted.
Notwithstanding the foregoing, either Party may issue
press releases and other disclosures as required by law
or as reasonably advised by legal counsel without the
consent of the other Party and in such event, prompt
notice thereof shall be provided to the other Party.
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2.3.2 TRADEMARK LICENSE. In designing and implementing the
Materials and subject to the other provisions contained
herein, Information Provider shall be entitled to use
the following trade names, trademarks, and service marks
of AOL: the "America Online(Reg. TM)" brand service,
"AOL(TM)" service/software and AOL's triangle logo; and
AOL and its Affiliates shall be entitled to use the
trade names, trademarks, and service marks of
Information Provider (collectively, together with the
AOL marks listed above, the "Marks"); provided that each
Party: (i) does not create a unitary composite mark
involving a mark of the other Party without the prior
written approval of such other Party; and (ii) displays
symbols and notices clearly and sufficiently indicating
the trademark status and ownership of the other Party's
Marks in accordance with applicable trademark law and
practice.
2.3.2.1 OWNERSHIP OF TRADEMARKS. Each Party acknowledges
the ownership of the other Party in the Marks of
the other Party and agrees that all use of the
other party's Marks shall inure to the benefit,
and be on behalf, of the other party. Each Party
acknowledges that its utilization of the other
party's Marks will not create in it, nor will it
represent it has, any right, title, or interest
in or to such Marks other than the licenses
expressly granted herein. Each Party agrees not
to do anything contesting or impairing the
trademark rights of the other Party.
2.3.2.2 QUALITY STANDARDS. Each Party agrees that the
nature and quality of its products and services
supplied in connection with the other Party's
Marks shall conform to quality standards set by
the other Party. Each Party agrees to supply the
other Party, upon request, with a reasonable
number of samples of any Materials publicly
disseminated by such Party which utilize the
other Party's Marks. Each Party shall comply
with all applicable laws, regulations, and
customs and obtain any required government
approvals pertaining to use of the other Party's
marks.
2.3.2.3 INFRINGEMENT PROCEEDINGS. Each Party agrees to
promptly notify the other Party of any
unauthorized use of the other Party's Marks of
which it has actual knowledge. Each Party shall
have the sole right and discretion to bring
proceedings alleging infringement of its Marks
or unfair competition related thereto; provided,
however, that each Party agrees to provide the
other Party with its reasonable cooperation and
assistance with respect to any such infringement
proceedings.
2.3.3 AUDITING RIGHTS. Each Party shall maintain complete,
clear and accurate records of all expenses, revenues and
fees in connection with the performance of this
Agreement. For the sole purpose of ensuring compliance
with this Agreement, each Party shall have the right, at
its expense, to direct an independent certified public
accounting firm to conduct a reasonable and necessary
inspection of portions of the books and records of the
other Party which are relevant to amounts payable to AOL
pursuant to this Agreement. Any such audit may be
conducted after twenty (20) business days prior written
notice, subject to the following. Such audits shall not
be made more frequently than once every twelve months.
No such audit of AOL shall occur during the period
beginning on June 1 and ending October 1.
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2.3.4 REPORTING. In addition to the reports required by
Section 3, Payments, hereof, the parties shall exchange
the following information regarding commerce within the
Online Area:
2.3.4.1 FRAUDULENT TRANSACTIONS. Information Provider
shall provide AOL with an immediate report of
any fraudulent order, including the date, screen
name and amount associated with such order.
2.3.4.2 BAD DEBT AND RETURNS. Information Provider shall
provide AOL with monthly reports of any Product
returns, including the date of the sale and
return and the amount of the transaction. Any
account receivable from a transaction in the
Online Area not paid within 30 days by the AOL
Member and/or GNN User shall be deemed "Bad
Debt". Information Provider shall provide AOL
with monthly reports of Bad Debt.
3. PAYMENTS.
3.1 SALES REVENUES. Information Provider shall pay AOL [certain
confidential information has been omitted and filed separately
with the Commission pursuant to a Request for Confidential
Treatment] of all Sales Revenues, based on invoices prepared by
AOL. Payment shall include documentation verifying any reduction
in the invoiced amount, including but not limited to returns.
3.2 DESIGN AND/OR PRODUCTION FEE. Information Provider shall pay AOL
for AOL's services in connection with the initial design and
construction of the Online Area, any redesign of the Online Area
and any other production services provided by AOL, in accordance
with Exhibit A.
3.3 MANAGEMENT FEE. Information Provider shall pay AOL for
Management services in accordance with Exhibit A.
3.4 PAYMENT SCHEDULE. Each Party agrees to pay the other Party all
amounts received and owed to such other Party as described
herein within thirty (30) days of the end of the month in which
such amounts were collected by such Party together with a
written report signed by an authorized agent of the Party
setting forth a description of the applicable usage, sales,
advertising, merchandise revenues and/or royalties in detail
sufficient to support the calculations of the amounts paid.
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4. REPRESENTATIONS AND WARRANTIES.
4.1 AOL. AOL represents and warrants to Information Provider that
(i) the America Online(Reg. TM) brand service is a functional
online computer network accessible to AOL Members, and (ii)
AOL's proprietary client software used by AOL Members to access
the AOL Network does not infringe on any copyright, U.S. patent
or any other proprietary right of any third party.
4.2 INFORMATION PROVIDER. Information Provider represents and
warrants to AOL that it is familiar with the America Online(Reg.
TM) brand service and the Global Network Navigator brand service
and that the Online Area (i) conforms and will conform to the
description set forth in Section 2.1.1; (ii) will conform to
AOL's applicable Terms of Service, (iii) will not infringe on or
violate any copyright, U.S. patent or any other right of any
third party; and (iv) will not contain any content, materials or
services which violate any applicable law or regulation.
4.3 MUTUAL. Each Party represents and warrants to the other Party
that: (i) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts
required of it hereunder; (ii) the execution of this Agreement
by such Party, and the performance by such Party of its
obligations and duties hereunder, do not and will not violate
any agreement to which such Party is a party or by which it is
otherwise bound; (iii) when executed and delivered by such
Party, this Agreement will constitute the legal, valid and
binding obligation of such Party, enforceable against such Party
in accordance with its terms; and (iv) such Party acknowledges
that the other Party makes no representations, warranties or
agreements related to the subject matter hereof that are not
expressly provided for in this Agreement.
5. CONFIDENTIALITY. Each Party acknowledges that Confidential Information
may be disclosed to the other Party during the course of this Agreement.
Each Party agrees that it shall take reasonable steps, at least
substantially equivalent to the steps it takes to protect its own
proprietary information, during the Initial Term, any Contract Year, and
for a period of three years following expiration or termination of this
Agreement, to prevent the duplication or disclosure of Confidential
Information of the other Party, other than by or to its employees or
agents who must have access to such Confidential Information to perform
such Party's obligations hereunder, who shall each agree to comply with
this Section 5 of this Agreement.
6. SOLICITATION/PROMOTION
6.1 SOLICITATION OF SUBSCRIBERS. During the Initial Term and any
Contract Year, and for the two-year period following the
expiration or termination of this Agreement, neither Information
Provider nor its agents will use the AOL Network to (i) solicit,
or participate in the solicitation of AOL Members or GNN Members
when that solicitation is for the benefit of any entity
(including Information Provider) which could reasonably be
construed to be or become in competition with AOL or (ii)
promote any services which could reasonably be construed to be
in competition with AOL including, but not limited to, services
available through the Internet (other than an Internet Area
subject to a pointing arrangement established pursuant to
Section 2.3.4 above). In addition, Information Provider agrees
and acknowledges that it shall only be entitled to send
solicitations or other communications to AOL Members or GNN
Members ("Member Communications") who have affirmatively
requested the particular Member Communication in question from
Information Provider (i.e., no unsolicited mailings or
communications shall be permitted).
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6.2 COLLECTION OF MEMBER INFORMATION. Information provider shall
ensure that any survey, questionnaire or other vehicle for
collecting Member Information (an "Information Request")
complies with (i) all applicable laws and regulations, (ii)
AOL's Terms of Service, and (iii) any privacy policies which
have been issued by AOL in writing to Information Provider. Each
Information Request shall specify the manner in which Member
Information collected through the Information Request shall be
used (the "Specified Purpose").
6.3 USE OF MEMBER INFORMATION. Information Provider shall restrict
use of the Member Information collected through an Information
Request to the Specified Purpose. In no event shall Information
Provider (i) provide AOL Member or GNN Member names, screen
names, addresses or other identifying information ("Member
Information") to any third party in a manner which identifies
AOL Members or GNN Members as subscribers to AOL, an online
service or the equivalent or (ii) otherwise use any Member
Information in contravention of Section 6.1 above.
7. LIMITATION OF LIABILITY; DISCLAIMER; INDEMNIFICATION.
7.1 LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE
TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL,
SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM THE
USE OR INABILITY TO USE THE AOL NETWORK OR ONLINE AREA OR ANY
OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO,
LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. EXCEPT
AS PROVIDED IN SECTION 7.3, NEITHER PARTY SHALL BE LIABLE TO THE
OTHER PARTY FOR MORE THAN THE AGGREGATE AMOUNTS PAID TO
INFORMATION PROVIDER BY AOL UNDER THIS AGREEMENT.
7.2 NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY
SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, REGARDING THE AOL NETWORK OR THE ONLINE
AREA, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING
FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, AOL SPECIFICALLY
DISCLAIMS ANY WARRANTY REGARDING THE PROFITABILITY OF THE ONLINE
AREA.
7.3 INDEMNITY. Either Party will defend, indemnify, save and hold
harmless the other Party and the officers, directors, agents,
affiliates, distributors, franchisees and employees of the other
Party from any and all third party claims, demands, liabilities,
costs or expenses, including reasonable attorneys' fees
("Liabilities"), resulting from the indemnifying Party's
material breach of any duty, representation, or warranty of this
Agreement, except where Liabilities result from the gross
negligence or knowing and willful misconduct of the other Party.
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7.4 CLAIMS. Each Party agrees to (i) promptly notify the other Party
in writing of any indemnifiable claim and give the other Party
the opportunity to defend or negotiate a settlement of any such
claim at such other Party's expense, and (ii) cooperate fully
with the other Party, at that other Party's expense, in
defending or settling such claim. AOL reserves the right, at its
own expense, to assume the exclusive defense and control of any
matter otherwise subject to indemnification by Information
Provider hereunder, and in such event, Information Provider
shall have no further obligation to provide indemnification for
such matter hereunder.
8. VIOLATION OF AOL TERMS OF SERVICE. AOL shall have the right to remove,
or direct Information Provider to remove, any information, statements or
other material or content which, as reasonably determined by AOL,
violates AOL's then applicable Terms of Service.
9. TERM, RENEWAL AND TERMINATION.
9.1 TERM; RENEWAL; NONRENEWAL. Unless earlier terminated as set
forth herein, the initial term of this Agreement shall be
through December 31, 1997 from the Effective Date ("Initial
Term"). This Agreement shall be automatically extended for
successive one year periods (each a "Contract Year") unless the
Agreement has been terminated in accordance with the following,
or unless either Party notifies the other in writing of its
election to have the Agreement expire at least thirty (30) days
in advance of the end of the Initial Term or any subsequent
Contract Year.
9.2 TERMINATION BY EITHER PARTY. Either Party may terminate this
Agreement at any time in the event of a material breach by the
other Party which remains uncured after thirty (30) days written
notice thereof.
9.3 TERMINATION BY AOL FOR CAUSE. AOL may, upon thirty (30) days
written notice to Information Provider, terminate this Agreement
if, commencing with the twelfth month after the Commercial
Launch date, total monthly revenues to AOL from the Online Area
is less than [certain confidential information has been omitted
and filed separately with the Commission pursuant to a Request
for Confidential Treatment] per month for any 3 consecutive
months during the term of this Agreement.
10. GENERAL PROVISIONS.
10.1 EXCUSE. Neither Party shall be liable for, or be considered in
breach of or default under this Agreement on account of, any
delay or failure to perform as required by this Agreement as a
result of any causes or conditions which are beyond such Party's
reasonable control and which such Party is unable to overcome by
the exercise of reasonable diligence.
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10.2 INDEPENDENT CONTRACTORS. The Parties to this Agreement are
independent contractors. Neither Party is an agent,
representative, or partner of the other Party. Neither party
shall have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or
liability of, or to otherwise bind, the other Party. This
Agreement shall not be interpreted or construed to create an
association, agency, joint venture or partnership between the
Parties or to impose any liability attributable to such a
relationship upon either Party.
10.3 NOTICE. Any notice, approval, request, authorization, direction
or other communication under this Agreement shall be given in
writing and shall be deemed to have been delivered and given for
all purposes (i) on the delivery date if delivered by electronic
mail on the AOL Network; (ii) on the delivery date if delivered
personally to the Party to whom the same is directed; (iii) one
business day after deposit with a commercial overnight carrier,
with written verification of receipt, or (iv) five business days
after the mailing date, whether or not actually received, if
sent by U.S. mail, return receipt requested, postage and charges
prepaid, or any other means of rapid mail delivery for which a
receipt is available, to the address of the Party to whom the
same is directed as set forth below.
AMERICA ONLINE INFORMATION PROVIDER
[Address, Fax, E-mail] [Address, Fax, E-mail]
With copy to:
Ellen M. Kirsh, Esq.
Vice President and General Counsel
America Online, Inc.
8619 Westwood Center Drive
Vienna, VA 22182-2285
[email protected]
10.4 NO WAIVER. The failure of either Party to insist upon or enforce
strict performance by the other Party of any provision of this
Agreement or to exercise any right under this Agreement shall
not be construed as a waiver or relinquishment to any extent of
such Party's right to assert or rely upon any such provision or
right in that or any other instance; rather, the same shall be
and remain in full force and effect.
10.5 RETURN OF INFORMATION. Upon the expiration or termination of
this Agreement, each Party shall promptly return all
information, documents, manuals and other materials belonging to
the other Party except as otherwise provided in this Agreement.
10.6 SURVIVAL. Sections 3, 5, 6, 7 and 10.5 shall survive the
completion, expiration, termination or cancellation of this
Agreement.
14
<PAGE>
10.7 ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement, and supersedes any and all prior agreements of the
Parties with respect to the transactions set forth herein.
Neither Party shall be bound by, and each Party specifically
objects to, any term, condition or other provision which is
different from or in addition to the provisions of this
Agreement (whether or not it would materially alter this
Agreement) and which is proffered by the other Party in any
correspondence or other document, unless the Party to be bound
thereby specifically agrees to such provision in writing.
Notwithstanding the foregoing, Information Provider shall also
be bound by the Terms of Service except as such Terms of Service
are specifically amended by this Agreement.
10.8 AMENDMENT. No change, amendment or modification of any provision
of this Agreement shall be valid unless set forth in a written
instrument signed by both Parties.
10.9 FURTHER ASSURANCES. Each Party shall take such action
(including, but not limited to, the execution, acknowledgment
and delivery of documents) as may reasonably be requested by any
other Party for the implementation or continuing performance of
this Agreement.
10.10 ASSIGNMENT. Information Provider shall not assign (voluntarily,
by operation of law or otherwise) this Agreement or any right,
interest or benefit under this Agreement without the prior
written consent of AOL. Subject to the foregoing, this Agreement
shall be fully binding upon, inure to the benefit of and be
enforceable by the Parties hereto and their respective
successors and assigns.
10.11 CONSTRUCTION. In the event that any provision of this Agreement
conflicts with the law under which this Agreement is to be
construed or if any such provision is held invalid by a court
with jurisdiction over the Parties to this Agreement, such
provision shall be deemed to be restated to reflect as nearly as
possible the original intentions of the Parties in accordance
with applicable law, and the remainder of this Agreement shall
remain in full force and effect.
10.12 APPLICABLE LAW; JURISDICTION. This Agreement shall be
interpreted, construed and enforced in all respects in
accordance with the laws of the Commonwealth of Virginia except
for its conflicts of laws principles. Each Party irrevocably
consents to the exclusive jurisdiction of the courts of the
Commonwealth of Virginia and the federal courts situated in the
Commonwealth of Virginia, in connection with any action to
enforce the provisions of this Agreement, to recover damages or
other relief for breach or default under this Agreement, or
otherwise arising under or by reason of this Agreement.
10.13 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which
together shall constitute one and the same document.
15
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the Effective Date.
AMERICA ONLINE, INC. CYBERSHOP
By: /s/ Kara Keenan By: /s/ Jeffrey Tauber
------------------------- -------------------------
Kara Keenan Jeffrey Tauber
Print Name: Kara Keenan Print Name:Jeffrey Tauber
Title: Director, Business Development Title: President
Date: 8/17/96 Date: 8/7/96
Tax ID/EIN#: NJ4-002-158-000
<PAGE>
EXHIBIT A
SERVICES
1. INTRODUCTION. AOL will be have the following responsibilities with respect
to the design, development, construction and/or Management of the Online
Areas (the "Services"). Information Provider will provide AOL with the
Licensed C&S and other content and services for distribution on the Online
Areas. The Licensed C&S will be provided in media mutually agreed to by the
Parties.
2. DEVELOPMENT OF THE ONLINE AREAS. From and after the Effective Date,
Information Provider shall prepare and submit to AOL drafts of its Design
Package. The Design Package shall contain final artwork and designs for the
Online Area. In the event that the Online Area does not conform to the
Design Package, AOL shall have the right to remove, or direct Information
provider to remove such non-conforming content. AOL will, in consultation
with Information Provider, undertake the following responsibilities with
respect to development of the Design Package and production of the Online
Area:
3. PAYMENT. Information Provider shall pay AOL $0.00 for the design and/or
production services described above as follows: Cybershop will be
responsible for design. Approval as stated above. AOL will be responsible
for build. Following the initial design, production and launch, any
redesign costs to be determined based on costs as given by Production team
at time of redesign request. Design is extra based on who and if AOL if
doing the design.
4. ACCOUNT MANAGEMENT SERVICES. AOL will provide the following online
management services for a period not to exceed 0 months, and will be paid
$0.00 dollars per month for such services: none, Cybershop will manage
their area.
5. INFORMATION PROVIDER'S MANAGEMENT RESPONSIBILITIES. Information Provider
shall attend AOL "rainman" classes, or its successor, to prepare
Information Provider for taking over the management function of the Online
Area at the end of AOL's obligation in paragraph 4 above. Information
Provider's failure to assume management of the Online Area by launch may be
grounds for termination of this Agreement by AOL, at AOL's option.
6. OTHER PROVISIONS RELATED TO THE DELIVERY OF SERVICES.
6.1 Information Provider Cooperation. Information Provider shall cooperate
with AOL by, among other things, making available, as reasonably
requested by AOL, management decisions, responsive information and
approvals to enable AOL to provide the Services.
6.2 Intellectual Property. Notwithstanding anything to the contrary
herein, and subject to any trademark, service mark, tradename,
copyright or other preexisting right owned by Information Provider in
the Licensed C&S, AOL shall retain all ownership rights in any work
product, technology, idea, concept, procedure or graphic, whether
reduced to writing or not, arising out of or related to AOL's
performance of the services described in Exhibit A ("Work Product").
The parties hereto expressly agree that such Work Product is not a
"work for hire" and Information Provider agrees to provide any
reasonably requested assistance to secure AOL's rights in such Work
Product.
17
<PAGE>
6.3 AOL's agreement to assist in the design, creation, production and/or
management of the Online Area shall not limit in any respect
Information Provider's obligations to supply all Licensed C&S to be
included within the Online Area and to comply with any other
requirements relating to the Online Area set forth in this Agreement.
7. ADDITIONAL SERVICES. Should Information Provider require services from AOL
which are different from or in addition to the Services, including without
limitation, any production services in connection with a substantial and
material redesign of or addition to the Online Area (e.g., a change to an
existing screen format or construction of a new custom form) ("Additional
Services"), Information Provider shall provide AOL with detailed written
specifications covering the requested services (the "Specs"). Following
receipt of the final Specs, AOL shall notify Information Provider of (i)
the proposed fee for performing the Additional Services and (ii) the
development schedule for performance of such Additional Services.
18
<PAGE>
EXHIBIT B
MEMBER ACQUISITION
when applicable, to be negotiated
19
<PAGE>
EXHIBIT C
CUSTOMER SERVICE REQUIREMENTS
1. Receive orders electronically to process orders within 24 hours of receipt.
2. Deliver all merchandise in professional packaging. All packages should
arrive undamaged, well packed and neat (barring any shipping disasters).
3. Dedicated Customer Service personnel to be responsible for on-line medium.
In other words, there should be people whose primary concern is the on-line
customer's orders. Quite often the on-line customer is given a lower
priority in the fulfillment area, they need to be given as much priority as
the rest of your business.
4. Receive and respond to e-mails within 24 hours of receipt via a computer
available to the customer service staff.
5. Provide the customer with an order confirmation within 24 hours of receipt.
Order confirmation should include any information such order status
(temporary back order or out of stock situations), and expected delivery
times.
6. Ability to handle volumes in excess of 25% to 50% of your average daily
order volumes.
7. Monitor on-line store to minimize/eliminate out of stock merchandise
available.
8. Ship the displayed product at the price displayed without substituting.
9. Stellar Customer service policies- "The Customer is always Right, even when
he/she is not". The commitment to provide each customer with a win/win
experience.
10. Complete details on your customer service policies posted in your on-line
customer service area including: Shipping Information, Return Policies,
Warranty Information, and Contact Information.
<PAGE>
ADDENDUM TO INTERACTIVE MARKETING AGREEMENT
This Addendum, dated as of September 1, 1997, is made and entered into by
and between America Online, Inc. ("AOL"), and Cybershop, LLC ("MERCHANT").
Defined terms that are used but not defined herein shall be as defined in the
interactive marketing agreement between AOL and Merchant dated as of August 17,
1996 (the "Agreement").
The parties wish to amend the Agreement; it is therefore agreed as follows:
1. Promotional Placement. AOL shall provide promotional placement (the
"Promotion") for MERCHANT's site on the World Wide Web or (as the case may be)
for MERCHANT's area on the U.S. America Online (R) brand service (the "AOL
Service") in the redesigned AOL "Shopping Channel," commencing on the date AOL
makes such channel generally available to AOL Members (the "Shopping Channel
Launch Date"). MERCHANT's Promotion is described on the attached Exhibit A.
2. Payments. Upon execution of the Addendum, MERCHANT shall pay AOL a
placement fee of [certain confidential information has been omitted and filed
separately with the Commission pursuant to a Request for Confidential
Treatment] The placement fee shall be payable in twelve (12) equal monthly
installments, with the first such payment to be made upon the Effective Date and
subsequent monthly payments to be made on the first day of each subsequent
month. Commencing on the earlier of September 1, 1997, or the Shopping Channel
Launch Date. MERCHANT shall no longer be required pursuant to the Agreement to
pay AOL any portion of MERCHANT's transaction or sales revenues generated
subsequent to such commencement date.
3. Extension. The Agreement shall continue in full force and effect until
December 31, 1998 (the "Extension Period"), and shall terminate automatically
upon expiration of the Extension Period (unless it is further extended by mutual
written agreement of the parties or terminated early in accordance with the
terms of the Agreement and the Standard Terms).
4. Merchant Changes. MERCHANT may change the artwork on it's Tenancy button in
the Shopping Channel as often as required but only as it reflects changes to
MERCHANT Company's permanent logo or store name, provided that MERCHANT shall
pay AOL the standard costs for performing such changes. Artwork changes will not
be permitted to accommodate short-term alterations that are promotional in
nature as determined by AOL at it's sole reasonable discretion. Additionally,
MERCHANT may change it's store position within the Shopping Channel as mutually
agreed by the parties and based on space availability in desired location.
5. Order of Precedence; Standard Terms. This Addendum is supplementary to and
modifies the Agreement. This Addendum incorporates by reference AOL's standard
terms and conditions for participation in the Shopping Channel (the "Standard
Terms"), including without limitation terms related to production procedures,
payment modifications, customer service, site optimization, termination and
miscellaneous legal terms. The Standard Terms appear at keyword "Standard
Shopping Channel Terms" on the AOL Service. A hard copy of the Standard Terms
will be provided to MERCHANT upon request. MERCHANT acknowledges that it has
been provided an opportunity to review the Standard Terms and agrees to be bound
by certain Standard Terms as follows. The Standard terms and the terms of this
Addendum supersede provisions in the Agreement only to the extent that the terms
of this Addendum (and/or the Standard Terms, as the case may be) expressly
conflict with the terms of the Agreement. However, nothing in this Addendum or
the Standard Terms should be interpreted as invalidating the Agreement, and
provisions of the Agreement will continue to govern relations between the
parties to the extent that they do not expressly conflict with this Addendum or
the Standard Terms.
6. Counterparts. This Addendum may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same document.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of the
date first written above.
AMERICA ONLINE, INC. Cybershop, LLC
By: /s/ Randy Dean By: /s/ Jeffrey Tauber
------------------ ----------------------
Name: Randy Dean Name: Jeffrey Tauber
---------------- --------------------
Title: Director of Operations Title: President
----------------------------- ----------------
Date: 9-8-97 Date: 8-28-97
------------ -------------
<PAGE>
ADDENDUM TO INTERACTIVE MARKETING AGREEMENT
This Addendum, dated as of October 1, 1997, is made and entered into by and
between America Online, Inc. ("AOL"), and Cybershop, LLC ("MERCHANT"). Defined
terms that are used but not defined herein shall be as defined in the
interactive marketing agreement between AOL and Merchant dated as of August 17,
1996 (the "Agreement").
The parties wish to amend the Agreement; it is therefore agreed as follows:
1. Promotional Placement. AOL shall provide promotional placement (the
"Promotion") for MERCHANT's site on the World Wide Web or (as the case may be)
for MERCHANT's area on the U.S. America Online (R) brand service (the "AOL
Service") in the redesigned AOL "Shopping Channel," commencing on the date AOL
makes such channel generally available to AOL Members (the "Shopping Channel
Launch Date"). MERCHANT's Promotion is described on the attached Exhibit A.
2. Payments. Upon execution of the Addendum MERCHANT shall pay AOL a placement
fee of [certain confidential information has been omitted and filed separately
with the Commission pursuant to a Request for Confidential Treatment] The
placement fee should be payable in 12 monthly installments, with the first such
payment to be made on the first day of January 1, 1998 and subsequent payments
to be made on the first day of each subsequent month.
3. Extension. The Agreement shall continue in full force and effect until
December 31, 1998 (the "Extension Period"), and shall terminate automatically
upon expiration of the Extension Period (unless it is further extended by mutual
written agreement of the parties or terminated early in accordance with the
terms of the Agreement and the Standard Terms).
4. Merchant Changes. MERCHANT may change the artwork on it's Anchor button in
the Shopping Channel as often as required but only as it reflects changes to
MERCHANT Company's permanent logo or store name, provided that MERCHANT shall
pay AOL the standard costs for performing such changes. Artwork changes will not
be permitted to accommodate short-term alterations that are promotional in
nature as determined by AOL at it's sole discretion. Additionally, MERCHANT may
change it's store position with the Shopping Channel as mutually agreed by the
parties and based on space availability in desired location.
5. Order of Precedence; Standard Terms. This Addendum is supplementary to and
modifies the Agreement. This Addendum incorporates by reference AOL's standard
terms and conditions for participation in the Shopping Channel (the "Standard
Terms"), including without limitation terms related to production procedures,
payment modifications, customer service, site optimization, termination and
miscellaneous legal terms. The Standard Terms appear at keyword "Standard
Shopping Channel Terms" on the AOL Service. A hard copy of the Standard Terms
will be provided to MERCHANT upon request. MERCHANT acknowledges that it has
been provided an opportunity to review the Standard Terms and agrees to be bound
by certain Standard Terms as follows. The Standard terms and the terms of this
Addendum supersede provisions in the Agreement only to the extent that the terms
of this Addendum (and/or the Standard Terms, as the case may be) expressly
conflict with the terms of the Agreement. However, nothing in this Addendum or
the Standard Terms should be interpreted as invalidating the Agreement, and
provisions of the Agreement will continue to govern relations between the
parties to the extent that they do not expressly conflict with this Addendum or
the Standard Terms.
6. Counterparts. This Addendum may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of the
date first written above.
<PAGE>
EXHIBIT A
PROMOTIONAL PLACEMENT - ANCHOR
MERCHANT shall become an "Anchor" in the Department Stores department of the AOL
shopping channel. As an Anchor, MERCHANT shall be entitled to the following:
o One continuous (24/7) button with corporate brand or logo on the department
front screen. MERCHANT will assume the 3rd position.
o One continuous (24/7) two-line text add to promote individual product
offerings.
o Featured product with text promotion for five days per month minimum on the
relevant department screen.
o Rotation through the shopping channel search screen advertising banners
along with all other Anchors and Tenants.
o One keyword for trade name or trademark (subject to availability)
o Participation in the following programs at no additional charge:
o Electronic Order Blank Area
o Bargain Basement
o Quick Gifts
o Event and/or theme areas (e.g., Christmas Shop)
In addition:
A guaranteed [certain confidential information has been omitted and filed
separately with the Commission pursuant to a Request for Confidential
Treatment] in banner advertising as AOL locations based on AOL's standard
advertising rate card (locations and any reasonably necessary adjustments to
timing of delivery of impressions to be mutually agreed upon by Advertiser and
AOL).
<PAGE>
AMERICA ONLINE, INC. Cybershop, LLC
By: /s/ Randy Dean By: /s/ Jeffrey Tauber
------------------ ----------------------
Name: Randy Dean Name: Jeffrey Tauber
---------------- --------------------
Title: Director of Operations Title: President
----------------------------- ----------------
Date: 10-15-97 Date: 9-24-97
------------ -------------
WARRANT AGREEMENT
Dated as of
[ ], 1998
among
CYBERSHOP INTERNATIONAL, INC.
C.E. UNTERBERG, TOWBIN
and
FAHNESTOCK & CO. INC.
---------------------------------------------
Warrants for
Common Stock of
CyberShop International, Inc.
---------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
Definitions
SECTION 1.01. Definitions............................................... 1
SECTION 1.02. Other Definitions......................................... 3
SECTION 1.03. Rules of Construction..................................... 3
ARTICLE 2
Warrant Certificates
SECTION 2.01. Form and Dating........................................... 4
SECTION 2.02. Legend.................................................... 4
SECTION 2.03. Execution................................................. 5
SECTION 2.04. Registration.............................................. 5
SECTION 2.05. Transfer and Exchange..................................... 5
SECTION 2.06. Replacement Certificates.................................. 6
ARTICLE 3
Exercise Terms
SECTION 3.01. Exercise Price............................................ 7
SECTION 3.02. Exercise Periods.......................................... 7
SECTION 3.03. Expiration................................................ 7
SECTION 3.04. Manner of Exercise........................................ 7
SECTION 3.05. Issuance of Warrant Shares................................ 8
SECTION 3.06. Fractional Warrant Shares................................. 9
SECTION 3.07. Reservation of Warrant Shares............................. 9
SECTION 3.08. Compliance with Law....................................... 10
ARTICLE 4
Antidilution Provisions
SECTION 4.01. Changes in Common Stock................................... 10
SECTION 4.02. Cash Dividends and Other
Distributions........................................... 11
SECTION 4.03. Rights Issue To All Holders of
Common Stock............................................ 12
SECTION 4.04. Other Issuances of Common Stock or
Rights.................................................. 13
i
<PAGE>
SECTION 4.05. Combination; Liquidation.................................. 14
SECTION 4.06. Other Events.............................................. 15
SECTION 4.07. Superseding Adjustment.................................... 15
SECTION 4.08. Minimum Adjustment........................................ 16
SECTION 4.09. Notice of Adjustment...................................... 16
SECTION 4.10. Notice of Certain Transactions............................ 17
SECTION 4.11. Adjustment to Warrant
Certificate............................................. 17
ARTICLE 5
Registration Rights
SECTION 5.01. Effectiveness of Registration
Statements............................................ 18
SECTION 5.02. Blue Sky.................................................. 18
SECTION 5.03. Accuracy of Disclosure.................................... 19
SECTION 5.04. Indemnification........................................... 19
SECTION 5.05. Additional Acts........................................... 23
SECTION 5.06. Expenses.................................................. 23
ARTICLE 6
Miscellaneous
SECTION 6.01. SEC Reports and Other Information......................... 24
SECTION 6.02. Persons Benefitting....................................... 24
SECTION 6.03. Rights of Holders......................................... 24
SECTION 6.04. Amendment................................................. 24
SECTION 6.05. Notices................................................... 25
SECTION 6.06. Governing Law............................................. 26
SECTION 6.07. Successors................................................ 26
SECTION 6.08. Multiple Originals........................................ 26
SECTION 6.09. Table of Contents......................................... 26
SECTION 6.10. Severability.............................................. 26
EXHIBIT A Form of Face of Warrant Certificate
ii
<PAGE>
WARRANT AGREEMENT dated as of [ ], 1998 (this "Agreement"),
among CYBERSHOP INTERNATIONAL, INC., a Delaware corporation
("CyberShop"), and C.E. UNTERBERG, TOWBIN and Fahnestock & Co.Inc.
as Purchasers (the "Purchasers").
WHEREAS, CyberShop desires to issue to the Purchasers 230,000 warrants
(the "Warrants") described herein which will initially entitle the Purchasers to
purchase in the aggregate 230,000 shares of common stock, par value $.001 per
share, of CyberShop (the "Common Stock") in connection with an initial public
offering by CyberShop of 2,300,000 shares of the Company's Common Stock (not
including shares offered pursuant to the over-allotment option (the "Shares")).
Each Warrant will entitle the Purchasers to purchase one share of Common Stock,
subject to adjustment as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
parties hereto agree as follows:
ARTICLE 1
Definitions
SECTION 1.01. Definitions.
"Affiliate" of any Person means any other Person, directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; provided, however, that
beneficial ownership of 10% or more of the voting securities of a Person shall
be decreed to be control. The terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Board" means the Board of Directors of CyberShop or any committee
thereof duly authorized to act on behalf of such Board of Directors.
"Business Day" means each day that is not a Saturday, a Sunday or a day
on which banking institutions are not required to be open in the State of New
York.
<PAGE>
2
"Cashless Exercise Ratio" means a fraction, the numerator of which is
the excess of the Current Market Value per share of Common Stock on the Exercise
Date over the Exercise Price per share as of the Exercise Date and the
denominator of which is the Current Market Value per share of the Common Stock
on the Exercise Date.
"Combination" means an event in which CyberShop consolidates with,
merges with or into, or sells all or substantially all of its assets to another
Person.
"Current Market Value" per share of Common Stock or any other security
at any date means: (i) if the security is not registered under the Exchange Act,
(a) the value of the security, determined in good faith by the Board and
certified in a board resolution, based on the most recently completed
arm's-length transaction between CyberShop and a Person other than an Affiliate
of CyberShop, the closing of which occurred on such date or within the six-month
period preceding such date, or (b) if no such transaction shall have occurred on
such date or within such six-month period, the value of the security as
determined by an independent financial expert; or (ii) if the security is
registered under the Exchange Act, the average of the last reported sale price
of the Common Stock on the Nasdaq SmallCap Market or any other exchange or
market on which the Common Stock is traded (or the equivalent in an
over-the-counter market) for each Business Day during the period commencing 15
Business Days before such date and ending on the date one day prior to such
date, or if the security has been registered under the Exchange Act for less
than 15 consecutive Business Days before such date, the average of the last
reported sale prices (or such equivalent) for all of the Business Days before
such date for which daily closing bid prices are available (provided, however,
that if the closing bid price is not determinable for at least 10 Business Days
in such period, the "Current Market Value" of the security shall be determined
as if the security were not registered under the Exchange Act).
"Exchange Act" means the Securities Exchange Act of 1934.
"Exercise Date" means, for a given Warrant, the day on which such
Warrant is exercised pursuant to Section 3.04.
"Issue Date" means the date on which Warrants are initially issued.
<PAGE>
3
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"SEC" means the Securities and Exchange Commission, or any successor
agency or body performing substantially similar functions.
"Securities Act" means the Securities Act of 1933.
"Warrant Certificates" mean the registered certificates issued by
CyberShop under this Agreement representing the Warrants.
"Warrant Shares" mean the shares of Common Stock (and any other
securities) for which the Warrants are exercisable.
SECTION 1.02. Other Definitions.
Defined in
Term Section
"Agreement"........................................... Recitals
"Cashless Exercise"................................... 3.04
"Certificate Register"................................ 2.04
"Common Stock"........................................ Recitals
"Company"............................................. Recitals
"Exercise Price"...................................... 3.01
"Expiration Date"..................................... 3.02(b)
"Holders"............................................. 2.04
"Registrar"........................................... 3.07
"Registration Statement".............................. 5.01
"Shares".............................................. Recitals
"Successor Company"................................... 4.05(a)
"Transfer Agent"...................................... 3.05
"Warrants"............................................ Recitals
SECTION 1.03. Rules of Construction. Unless the text otherwise
requires:
(i) a defined term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
<PAGE>
4
(iv) "including" means including without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
ARTICLE 2
Warrant Certificates
SECTION 2.01. Form and Dating. Each Warrant Certificate shall be
substantially in the form of Exhibit A, which is hereby incorporated in and
expressly made a part of this Agreement. The Warrant Certificates may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which CyberShop is subject, if any, or usage (provided that any
such notation, legend or endorsement is in a form acceptable to CyberShop) and
shall bear the legends required by Section 2.02. Each Warrant Certificate shall
be dated the date of its countersignature. The terms of the Warrant Certificate
set forth in Exhibit A are part of the terms of this Agreement.
SECTION 2.02. Legend. Each Warrant Certificate shall bear the following
legend:
THE COMMON STOCK, PAR VALUE $.001 PER SHARE, OF CYBERSHOP FOR WHICH
THIS WARRANT IS EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES ABSENT REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. ACCORDINGLY,
NO HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT ANY
TIME UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT RELATING TO THE SHARES OF COMMON STOCK
ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAS BEEN FILED WITH, AND
DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE
"SEC"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH
REGISTRATION STATEMENT HAS BEEN ISSUED BY THE SEC, OR (ii) THE ISSUANCE
OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS AND NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
<PAGE>
5
HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED WITHIN THE "UNITED
STATES" OR TO "U.S. PERSONS" (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT) IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT.
SECTION 2.03. Execution. Warrants entitling the Purchasers to purchase
in the aggregate up to 230,000 Warrant Shares shall be executed on behalf of
CyberShop by the President or Vice President of CyberShop and attested by the
signature of the Secretary or Assistant Secretary of CyberShop.
SECTION 2.04. Registration. The Warrants shall be numbered and shall be
registered by CyberShop as they are issued. CyberShop shall keep a register
("Certificate Register") of the Warrant Certificates and of their transfer and
exchange. The Certificate Register shall show the names and addresses of the
respective Holders (as defined below) and the date and number of Warrants
represented on the face of each Warrant Certificate. CyberShop shall be entitled
to treat the registered holder of any Warrant (the "Holder") as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other Person,
and shall not be liable for any registration or transfer of any Warrant which is
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary. One hundred thirty-eight thousand (138,000) Warrants shall be
registered initially in the name of "C.E. Unterberg, Towbin", and ninety-two
thousand (92,000) Warrants shall be registered in the name of "Fahnestock & Co.
Inc.
SECTION 2.05. Transfer and Exchange. The Warrants may not be
transferred, assigned, sold or hypothecated by the Holder except in accordance
with this Section 2.05 or in an involuntary assignment by operation of law to
the Holder's personal representative.
(a) Each Holder of Warrants, by acceptance thereof, represents and
acknowledges that such Warrants have not been and will not be registered under
the Securities Act on the grounds that the issuance of such Warrants is exempt
from registration under Section 4(2) of the Securities Act as not involving any
public offering. Each Holder of Warrants represents and warrants that such
Holder (i) is acquiring this Warrant for investment for such Holder's own
account, with no intention of reselling or otherwise distributing the same,
subject, nevertheless, to any requirement of law that the disposition of such
Holder's
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6
property shall at all times be within such Holder's control, (ii) is an
"accredited investor" as defined in Rule 501 of Regulation D under the
Securities Act, (iii) has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
investments made or to be made in connection with the acquisition and exercise
of the Warrants, and (iv) has been provided all such information and access to
information concerning such Holder's investment hereunder as such Holder has
requested from CyberShop. The Warrants may not be transferred except (1) to
officers and partners of the Purchasers, (2)(x) pursuant to an effective
registration statement under the Act or (y) in the case of transfers other than
those described in clause (2)(x), upon the conditions specified in Section 2.02
hereof, which conditions are intended, among other things, to ensure compliance
with the provisions of the Act in respect of the transfer of such Warrant, and
(3) upon compliance with applicable state securities laws.
(b) The Warrant Certificates shall be issued in registered form
only and shall be transferable only upon the surrender of such Warrant
Certificate for registration of transfer. When a Warrant Certificate is
presented to CyberShop with a request to register a transfer, CyberShop shall
register the transfer as requested if the requirements of Section 8-401(1) of
the Uniform Commercial Code as in effect in the State of New York are met. All
Warrant Certificates issued upon any registration of transfer or exchange of
Warrant Certificates shall be valid obligations of CyberShop, entitled to the
same benefits under this Agreement as the Warrant Certificates surrendered upon
such registration of transfer or exchange. No service charge will be made to a
Holder for any registration of transfer or exchange upon surrender of any
Warrant Certificate. However, CyberShop may require payment of a sum sufficient
to cover any tax, assessment or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Warrant Certificates
but not for any exchange or original issuance (not involving a transfer)
pursuant to Section 3.04 or 3.05.
SECTION 2.06. Replacement Certificates. If a mutilated Warrant
Certificate is surrendered to CyberShop or if the Holder of a Warrant
Certificate claims that the Warrant Certificate has been lost, destroyed or
wrongfully taken, CyberShop shall issue a replacement Warrant Certificate if the
requirements of Section 8-405 of the Uniform Commercial Code as in effect in the
State of New York are met. Such Holder shall furnish an indemnity bond
sufficient in the judgment of CyberShop to protect CyberShop
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7
from any loss which it may suffer if a Warrant Certificate is replaced.
CyberShop may charge the Holder for its expenses in replacing a Warrant
Certificate. Every replacement Warrant Certificate is an additional obligation
of CyberShop. CyberShop may not issue new Warrant Certificates to replace
Warrant Certificates to the extent they represent Warrants which have been
exercised or Warrants which CyberShop has purchased or otherwise acquired.
ARTICLE 3
Exercise Terms
SECTION 3.01. Exercise Price. Each Warrant shall initially entitle the
Holder thereof, subject to adjustment pursuant to the terms of this Agreement,
to purchase one share of Common Stock for a per share exercise price (the
"Exercise Price") of $[ ].
SECTION 3.02. Exercise Periods. (a) Subject to the terms and conditions
set forth herein, the Warrants shall be exercisable at any time or from time to
time after [ ], 1999; provided, however, that holders of Warrants will be able
to exercise their Warrants only if (i) the Registration Statement relating to
the Warrant Shares is effective, or (ii) the exercise of such Warrants is exempt
from the registration requirements of the Securities Act, and the Warrant Shares
are qualified for sale or exempt from qualification under the applicable
securities laws of the states or other jurisdictions in which such holders
reside.
(b) No Warrant shall be exercisable after [ ], 2003 (the "Expiration
Date").
SECTION 3.03. Expiration. Each Warrant shall terminate and become void
as of the earlier of (i) the close of business on the Expiration Date or (ii)
the date such Warrant is exercised. CyberShop shall give notice not less than 90
and not more than 120 days prior to the Expiration Date to the Holders of all
then outstanding Warrants to the effect that the Warrants will terminate and
become void as of the close of business on the Expiration Date; provided,
however, that if CyberShop fails to give notice as provided in this Section
3.03, the Warrants will nevertheless expire and become void on the Expiration
Date.
SECTION 3.04. Manner of Exercise. Warrants may be exercised upon (i)
surrender to CyberShop, or its duly
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8
authorized agent, of the related Warrant Certificate, together with the form of
election to purchase Common Stock on the reverse thereof duly filled in and
signed by the Holder thereof, and (ii) payment to CyberShop, or its duly
authorized agent, for the account of CyberShop, of the Exercise Price for each
Warrant Share issuable upon the exercise of such Warrants then exercised. Such
payment shall be made (i) in cash or by certified or official bank check payable
to the order of CyberShop or by wire transfer of funds to an account designated
by CyberShop for such purpose or (ii) without the payment of cash, by reducing
the number of shares of Common Stock obtainable upon the exercise of a Warrant
so as to yield a number of shares of Common Stock upon the exercise of such
Warrant equal to the product of (a) the number of shares of Common Stock
issuable as of the Exercise Date upon the exercise of such Warrant (if payment
of the Exercise Price were being made in cash) and (b) the Cashless Exercise
Ratio. An exercise of a Warrant in accordance with the immediately preceding
sentence is herein called a "Cashless Exercise". Upon surrender of a Warrant
Certificate representing more than one Warrant in connection with the holder's
option to elect a Cashless Exercise, the number of shares of Common Stock
deliverable upon a Cashless Exercise shall be equal to the number of shares of
Common Stock issuable upon the exercise of Warrants that the holder specifies
are to be exercised pursuant to a Cashless Exercise multiplied by the Cashless
Exercise Ratio. All provisions of this Agreement shall be applicable with
respect to a surrender of a Warrant Certificate pursuant to a Cashless Exercise
for less than the full number of Warrants represented thereby. Subject to
Section 3.02, the rights represented by the Warrants shall be exercisable at the
election of the Holders thereof either in full at any time or from time to time
in part and in the event that a Warrant Certificate is surrendered for exercise
of less than all the Warrants represented by such Warrant Certificate at any
time prior to the Expiration Date, a new Warrant Certificate representing the
remaining Warrants shall be by CyberShop.
SECTION 3.05. Issuance of Warrant Shares. Subject to Section 2.06, upon
the surrender of Warrant Certificates and payment of the per share Exercise
Price, as set forth in Section 3.04, CyberShop shall issue and cause a transfer
agent for the Common Stock ("Transfer Agent") to countersign and deliver to or
upon the written order of the Holder and in such name or names as the Holder may
designate a certificate or certificates for the number of full Warrant Shares so
purchased upon the exercise of such Warrants or other securities or property to
which it is entitled, registered or otherwise, to the Person or Persons entitled
<PAGE>
9
to receive the same, together with cash as provided in Section 3.06 in respect
of any fractional Warrant Shares otherwise issuable upon such exercise. Such
certificate or certificates shall be deemed to have been issued and any Person
so designated to be named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the surrender of such Warrant
Certificates and payment of the per share Exercise Price, as aforesaid;
provided, however, that if, at such date, the transfer books for the Warrant
Shares shall be closed, the certificates for the Warrant Shares in respect of
which such Warrants are then exercised shall be issuable as of the date on which
such books shall next be opened and until such date CyberShop shall be under no
duty to deliver any certificates for such Warrant Shares; provided further,
however, that such transfer books, unless otherwise required by law, shall not
be closed at any one time for a period longer than 20 calendar days.
SECTION 3.06. Fractional Warrant Shares. CyberShop shall not be
required to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be exercised in full at the same time by the same Holder,
the number of full Warrant Shares which shall be issuable upon such exercise
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable pursuant thereto. If any fraction of a Warrant Share would, except
for the provisions of this Section 3.06, be issuable on the exercise of any
Warrant (or specified portion thereof), CyberShop shall pay at the time of
exercise an amount in cash equal to the Current Market Value per Warrant Share,
as determined on the day immediately preceding the date the Warrant is
exercised, multiplied by such fraction, computed to the nearest whole cent.
SECTION 3.07. Reservation of Warrant Shares. CyberShop shall at all
times keep reserved out of its authorized shares of Common Stock a number of
shares of Common Stock sufficient to provide for the exercise of all outstanding
Warrants. The registrar for the Common Stock (the "Registrar") shall at all
times until the Expiration Date reserve such number of authorized shares as
shall be required for such purpose. CyberShop will keep a copy of this Agreement
on file with the Transfer Agent. All Warrant Shares which may be issued upon
exercise of Warrants shall, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof. CyberShop will supply such Transfer Agent
with duly executed stock certificates for such purpose and will itself provide
or otherwise make available any cash which may be payable as
<PAGE>
10
provided in Section 3.06. CyberShop will furnish to such Transfer Agent a copy
of all notices of adjustments (and certificates related thereto) transmitted to
each Holder.
Before taking any action which would cause an adjustment pursuant to
Article 4 to reduce the Exercise Price below the then par value (if any) of the
Common Stock, CyberShop shall take any and all corporate action which may, in
the opinion of its counsel, be necessary in order that CyberShop may validly and
legally issue fully paid and nonassessable shares of Common Stock at the
Exercise Price as so adjusted.
CyberShop covenants that all shares of Common Stock which may be issued
upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free
of preemptive rights, free from all taxes and free from all liens, charges and
security interests, created by or through CyberShop, with respect to the issue
thereof.
SECTION 3.08. Compliance with Law. Notwith standing anything in this
Agreement to the contrary, in no event shall a Holder be entitled to exercise a
Warrant unless (i) a registration statement filed under the Securities Act in
respect of the issuance of the Warrant Shares is then effective or (ii) in the
opinion of counsel to CyberShop the exercise of such Warrants is exempt from the
registration requirements of the Securities Act and such securities are
qualified for sale or exempt from qualification under the applicable securities
laws of the States or other jurisdictions in which such holders reside.
ARTICLE 4
Antidilution Provisions
SECTION 4.01. Changes in Common Stock. In the event that at any time or
from time to time CyberShop shall (i) pay a dividend or make a distribution on
its Common Stock in shares of its Common Stock or other shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) increase or
decrease the number of shares of Common Stock outstanding by reclassification of
its Common Stock, then the number of shares of Common Stock issuable upon
exercise of each Warrant immediately after the happening of such event shall be
adjusted to a number determined by multiplying the number of shares of Common
Stock that such holder would have owned
<PAGE>
11
or have been entitled to receive upon exercise had such Warrants been exercised
immediately prior to the happening of the events described above (or, in the
case of a dividend or distribution of Common Stock or other shares of capital
stock, immediately prior to the record date therefor) by a fraction, the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately after the happening of the events described above and
the denominator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the happening of the events described above;
and subject to Section 4.08, the Exercise Price for each Warrant shall be
adjusted to a number determined by dividing the Exercise Price immediately prior
to such event by such fraction. An adjustment made pursuant to this Section 4.01
shall become effective immediately after the effective date of such event,
retroactive to the record date therefor in the case of a dividend or
distribution in shares of Common Stock or other shares of CyberShop's capital
stock.
SECTION 4.02. Cash Dividends and Other Distributions. In the event that
at any time or from time to time CyberShop shall distribute to all holders of
Common Stock (i) any dividend or other distribution of cash, evidences of its
indebtedness, shares of its capital stock or any other assets, properties or
securities or (ii) any options, warrants or other rights to subscribe for or
purchase any of the foregoing (other than, in each case, (w) the issuance of any
rights under a shareholder rights plan, (x) any dividend or distribution
described in Section 4.01, (y) any rights, options, warrants or securities
described in Section 4.03 and (z) any cash dividends or other cash distributions
from current or retained earnings), then the number of shares of Common Stock
issuable upon the exercise of each Warrant shall be increased to a number
determined by multiplying the number of shares of Common Stock issuable upon the
exercise of such Warrant immediately prior to the record date for any such
dividend or distribution by a fraction, the numerator of which shall be the
Current Market Value per share of Common Stock on the record date for such
dividend or distribution and the denominator of which shall be such Current
Market Value per share of Common Stock on the record date for such dividend or
distribution less the sum of (x) the amount of cash, if any, distributed per
share of Common Stock and (y) the fair value (as determined in good faith by the
Board, whose determination shall be evidenced by a board resolution, a copy of
which will be sent to Holders upon request) of the portion, if any, of the
distribution applicable to one share of Common Stock consisting of evidences of
indebtedness, shares of stock, securities,
<PAGE>
12
other assets or property, warrants, options or subscription or purchase rights;
and, subject to Section 4.08, the Exercise Price shall be adjusted to a number
determined by dividing the Exercise Price immediately prior to such record date
by the above fraction. Such adjustments shall be made whenever any distribution
is made and shall become effective as of the date of distribution, retroactive
to the record date for any such distribution; provided, however, that CyberShop
is not required to make an adjustment pursuant to this Section 4.02 if at the
time of such distribution CyberShop makes the same distribution to Holders of
Warrants as it makes to holders of Common Stock pro rata based on the number of
shares of Common Stock for which such Warrants are exercisable (whether or not
currently exercisable). No adjustment shall be made pursuant to this Section
4.02 which shall have the effect of decreasing the number of shares of Common
Stock issuable upon exercise of each Warrant or increasing the Exercise Price.
SECTION 4.03. Rights Issue To All Holders of Common Stock. In the event
that at any time or from time to time CyberShop shall issue to all holders of
Common Stock without any charge, rights, options or warrants entitling the
holders thereof to subscribe for shares of Common Stock, or securities
convertible into or exchangeable or exercisable for Common Stock, entitling such
holders to sub scribe for or purchase shares of Common Stock at a price per
share that is lower at the record date for such issuance than the then Current
Market Value per share of Common Stock other than in connection with the
adoption of a shareholder rights plan by CyberShop, then the number of shares of
Common Stock issuable upon the exercise of each Warrant shall be increased to a
number determined by multiplying the number of shares of Common Stock
theretofore issuable upon exercise of each Warrant by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding on the date
of issuance of such rights, options, warrants or securities plus the number of
additional shares of Common Stock offered for subscription or purchase or into
or for which such securities that are issued are convertible, exchangeable or
exercisable, and the denominator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights, options,
warrants or securities plus the total number of shares of Common Stock which the
aggregate consideration expected to be received by CyberShop (assuming the
exercise or conversion of all such rights, options, warrants or securities)
would purchase at the then Current Market Value per share of Common Stock.
Subject to Section 4.08, in the event of any such adjustment, the Exercise Price
shall be adjusted to a number determined by dividing the Exercise
<PAGE>
13
Price immediately prior to such date of issuance by the aforementioned fraction.
Such adjustment shall be made immediately after such rights, options or warrants
are issued and shall become effective, retroactive to the record date for the
determination of stockholders entitled to receive such rights, options, warrants
or securities. No adjustment shall be made pursuant to this Section 4.03 which
shall have the effect of decreasing the number of shares of Common Stock
purchasable upon exercise of each Warrant or of increasing the Exercise Price.
SECTION 4.04 Other Issuances of Common Stock or Rights. In the event
that at any time or from time to time CyberShop shall issue (i) shares of Common
Stock (subject to the provisions below), (ii) rights, options or warrants
entitling the holders thereof to subscribe for shares of Common Stock (provided,
however, that no adjustment shall be made upon the exercise of such rights,
options or warrants), or (iii) securities convertible into or exchangeable or
exercisable for Common Stock (provided, however, that no adjustment shall be
made upon the conversion, exchange or exercise of such securities (other than
issuances specified in (i), (ii) or (iii) which are made as the result of
anti-dilution adjustments in such securities)), at a price per share at the
record date of such issuance that is less than the then Current Market Value per
share of Common Stock, then the number of shares of Common Stock issuable upon
the exercise of each Warrant shall be increased to a number determined by
multiplying the number of shares of Common Stock theretofore issuable upon
exercise of each Warrant by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately after such sale or
issuance plus the number of additional shares of Common Stock offered for
subscription or purchase or into or for which such securities that are issued
are convertible, exchangeable or exercisable, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
sale or issuance plus the total number of shares of Common Stock which the
aggregate consideration expected to be received by CyberShop (assuming the
exercise or conversion of all such rights, options, warrants or securities, if
any) would purchase at the then Current Market Value per share of Common Stock;
and subject to Section 4.08 the Exercise Price shall be adjusted to a number
determined by dividing the Exercise Price immediately prior to such date of
issuance by the aforementioned fraction; provided, however, that no adjustment
to the number of Warrant Shares issuable upon the exercise of the Warrants or to
the Exercise Price shall be made as a result of (i) the issuance of shares of
Common Stock under any warrants, options or other rights existing on the date
<PAGE>
14
hereof, (ii) the issuance of shares of Common Stock in bona fide public
offerings that are underwritten or in which a placement agent is retained by
CyberShop or (iii) the issuance of options, or shares of Common Stock pursuant
to any option, under any employee benefit plans approved by the Board of
Directors. Such adjustments shall be made whenever such rights, options or
warrants or convertible securities are issued. No adjustment shall be made
pursuant to this Section 4.04 which shall have the effect of decreasing the
number of shares of Common Stock issuable upon exercise of each warrant or of
increasing the Exercise Price. For purposes of Section 4.04 only, any issuance
of Common Stock, or rights, options or warrants to subscribe for, or other
securities convertible into or exercisable or exchangeable for, Common Stock,
which issuance (or agreement to issue) (A) is in exchange for or otherwise in
connection with the acquisition of the property (excluding any such exchange
exclusively for cash) of any Person and (B) is at a price per share equal to the
lower of the Current Market Value at the time an agreement in principle is
reached or at the time a definitive agreement is entered into, shall be deemed
to have been made at a price per share equal to the Current Market Value per
share at the record date with respect to such issuance (the time of closing or
consummation of such exchange or acquisition) if such definitive agreement is
entered into within 90 days of the date of such agreement in principle.
SECTION 4.05. Combination; Liquidation. (a) Except as provided in
Section 4.05(b), in the event of a Combination, each Holder shall have the right
to receive upon exercise of the Warrants the kind and amount of shares of
capital stock or other securities or property which such Holder would have been
entitled to receive upon or as a result of such Combination had such Warrant
been exercised immediately prior to such event. Unless paragraph 4.05(b) is
applicable to a Combination, CyberShop shall provide that the surviving or
acquiring Person (the "Successor Company") in such Combination will enter into
an agreement confirming the Holders' rights pursuant to this Section 4.05(a) and
providing for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 4. The provisions of
this Section 4.05(a) shall similarly apply to successive Combinations involving
any Successor Company.
(b) In the event of (i) a Combination where consideration to the
holders of Common Stock in exchange for their shares is payable solely in cash
or (ii) the dissolution, liquidation or winding-up of CyberShop, the holders of
the Warrants shall be entitled to receive, upon
<PAGE>
15
surrender of their Warrant Certificates, distributions on an equal basis with
the holders of Common Stock or other securities issuable upon exercise of the
Warrants, as if the Warrants had been exercised immediately prior to such event,
less the Exercise Price.
In case of any Combination described in this Section 4.05(b), the
surviving or acquiring Person and, in the event of any dissolution, liquidation
or winding-up of CyberShop, CyberShop, shall deposit promptly with an
independent agent appointed for such purpose the funds, if any, necessary to pay
to the holders of the Warrants the amounts to which they are entitled as
described above. After such funds and the surrendered Warrant Certificates are
received, such agent is required to deliver a check in such amount as is
appropriate (or, in the case of consideration other than cash, such other
consideration as is appropriate) to such Person or Persons as it may be directed
in writing by the Holders surrendering such Warrants.
SECTION 4.06. Other Events. If any event occurs as to which the
foregoing provisions of this Article 4 are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board, fairly
and adequately protect the purchase rights of the Warrants in accordance with
the essential intent and principles of such provisions, then such Board shall
make such adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary, in the
good faith opinion of such Board, to protect such purchase rights as aforesaid,
but in no event shall any such adjustment have the effect of increasing the
Exercise Price or decreasing the number of shares of Common Stock issuable upon
exercise of any Warrant.
SECTION 4.07. Superseding Adjustment. Upon the expiration of any
rights, options, warrants or conversion or exchange privileges which resulted in
adjustments pursuant to this Article 4, if any thereof shall not have been
exercised, the number of Warrant Shares issuable upon the exercise of each
Warrant shall be readjusted pursuant to the applicable section of Article 4 as
if (A) the only shares of Common Stock issuable upon exercise of such rights,
options, warrants, conversion or exchange privileges were the shares of Common
Stock, if any, actually issued upon the exercise of such rights, options,
warrants or conversion or exchange privileges and (B) shares of Common Stock
actually issued, if any, were issuable for the consideration actually received
by CyberShop upon such exercise plus the aggregate consideration, if any,
actually received by CyberShop for
<PAGE>
16
the issuance, sale or grant of all such rights, options, warrants or conversion
or exchange privileges whether or not exercised and the Exercise Price shall be
readjusted inversely; provided, however, that no such readjustment shall (except
by reason of an intervening adjustment under Section 4.01) have the effect of
decreasing the number of Warrant Shares purchasable upon the exercise of each
Warrant or increase the Exercise Price by an amount in excess of the amount of
the adjustment initially made in respect of the issuance, sale or grant of such
rights, options, warrants or conversion or exchange privileges.
SECTION 4.08. Minimum Adjustment. The adjust ments required by the
preceding Sections of this Article 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that no adjust ment
of the Exercise Price or the number of shares of Common Stock issuable upon
exercise of Warrants that would otherwise be required shall be made unless and
until such adjustment either by itself or with other adjustments not previously
made increases or decreases by at least 1% the Exercise Price or the number of
shares of Common Stock issuable upon exercise of Warrants immediately prior to
the making of such adjustment. Any adjustment representing a change of less than
such minimum amount shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Article 4 and not
previously made, would result in a minimum adjustment. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence. In computing adjustments under this
Article 4, fractional interests in Common Stock shall be taken into account to
the nearest one-hundredth of a share.
SECTION 4.09. Notice of Adjustment. Whenever the Exercise Price or the
number of shares of Common Stock and other property, if any, issuable upon
exercise of the Warrants is adjusted, as herein provided, CyberShop shall
promptly deliver to the Holders in accordance with Section 6.06 a certificate of
a firm of independent accountants selected by the Board (who may be the regular
accountants employed by CyberShop) setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which (i) the Board
determined the fair value of any evidences of indebtedness, other securities or
property or warrants, options or other subscription or purchase rights and (ii)
the Current Market Value of the Common Stock was determined, if either of such
determinations were required), and specifying the Exercise
<PAGE>
17
Price and the number of shares of Common Stock issuable upon exercise of
Warrants after giving effect to such adjustment.
SECTION 4.10. Notice of Certain Transactions. In the event that
CyberShop shall propose to (a) pay any dividend payable in securities of any
class to the holders of its Common Stock or to make any other non-cash dividend
or distribution to the holders of its Common Stock, (b) offer the holders of its
Common Stock rights to subscribe for or to purchase any securities convertible
into shares of Common Stock or shares of stock of any class or any other
securities, rights or options, (c) issue any (i) shares of Common Stock, (ii)
rights, options or warrants entitling the holders thereof to subscribe for
shares of Common Stock, or (iii) securities convertible into or exchangeable or
exercisable for Common Stock (in the case of (i), (ii) and (iii), if such
issuance or adjustment would result in an adjustment hereunder), (d) effect any
capital reorganization, reclassification, consolidation or merger, (e) effect
the voluntary or involuntary dissolution, liquidation or winding-up of CyberShop
or (f) make a tender offer or exchange offer with respect to the Common Stock,
CyberShop shall within 5 days send to the Holders a notice of such proposed
action or offer. Such notice shall be mailed to the Holders at their addresses
as they appear in the Certificate Register, which shall specify the record date
for the purposes of such dividend, distribution or rights, or the date such
issuance or event is to take place and the date of participation therein by the
holders of Common Stock, if any such date is to be fixed, and shall briefly
indicate the effect of such action on the Common Stock and on the number and
kind of any other shares of stock and on other property, if any, and the number
of shares of Common Stock and other property, if any, issuable upon exercise of
each Warrant and the Exercise Price after giving effect to any adjustment
pursuant to Article 4 which will be required as a result of such action. Such
notice shall be given as promptly as possible and (x) in the case of any action
covered by clause (a) or (b) above, at least 10 days prior to the record date
for determining holders of the Common Stock for purposes of such action or (y)
in the case of any other such action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be the earlier.
SECTION 4.11. Adjustment to Warrant Certificate. The form of Warrant
Certificate need not be changed because of any adjustment made pursuant to this
Article 4, and Warrant Certificates issued after such adjustment may state the
same Exercise Price and the same number of shares of
<PAGE>
18
Common Stock issuable upon exercise of the Warrants as are stated in the Warrant
Certificates initially issued pursuant to this Agreement. CyberShop, however,
may at any time in its sole discretion make any change in the form of Warrant
Certificate that it may deem appropriate to give effect to such adjustments and
that does not affect the substance of the Warrant Certificate, and any Warrant
Certificate thereafter issued or countersigned, whether in exchange or
substitution for an outstanding Warrant Certificate or otherwise, may be in the
form as so changed.
ARTICLE 5
Registration Rights
SECTION 5.01. Effectiveness of Registration Statement. CyberShop shall
cause to be filed pursuant to Rule 415 (or any successor provision) of the
Securities Act a registration statement covering the issuance of Warrant Shares
to the Holders upon exercise of the Warrants by the Holders thereof (the
"Registration Statement") and shall use its reasonable efforts to cause the
Registration Statement to be declared effective on or before the first
anniversary of the Issue Date. CyberShop shall cause the Registration Statement
to remain effective until the earlier of (i) such time as all Warrants have been
exercised and (ii) the Expiration Date. CyberShop shall (i) furnish to each
Holder, without charge, at least one copy of the Registration Statement and any
amendments thereto, (ii) for so long as any Registration Statement is effective,
deliver to each Holder, without charge, as many copies of the final prospectus
included in such Registration Statement and any amendment or supplement thereto
as such Holder may reasonably request and (iii) if in the opinion of counsel for
the Holders any amendment or supplement to the Registration Statement is
required to enable the Holder to resell Warrant Shares, effect such amendments
or supplements and cooperate in any arrangement with respect to such resale.
SECTION 5.02. Blue Sky. CyberShop shall use its reasonable efforts to
register or qualify the Warrant Shares under all applicable securities laws,
blue sky laws or similar laws of all jurisdictions in the United States and
Canada in which any Holder of Warrants may or may be deemed to purchase Warrant
Shares upon the exercise of Warrants and shall use its reasonable efforts to
maintain such registration or qualification through the earlier of (i) such time
as all Warrants have been exercised or (ii) the Expiration Date; provided,
however, that CyberShop
<PAGE>
19
shall not be required to qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 5.02 or
to take any action which would subject it to general service of process or to
taxation in any such jurisdiction where it is not then so subject.
SECTION 5.03. Accuracy of Disclosure. To the extent any Holder uses the
Registration Statement for any resale of Warrant Shares as provided in clause
(iii) of Section 5.01, CyberShop represents and warrants to each Holder and
agrees for the benefit of each Holder that (i) the Registration Statement and
any amendment thereto will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading; and (ii) the prospectus
delivered to such Holder upon the exercise of Warrants and the documents
incorporated by reference therein will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that CyberShop shall have no liability under clauses (i) or (ii) of this Section
5.03 with respect to any such untrue statement or omission made in any
Registration Statement in reliance upon and in conformity with information
furnished to CyberShop by or on behalf of the Holders specifically for inclusion
therein.
SECTION 5.04. Indemnification. To the extent any Holder uses the
Registration Statement for any resale of Warrant Shares as provided in clause
(iii) of Section 5.01:
(a) In connection with any Registration Statement, CyberShop
agrees to indemnify and hold harmless each Holder of the Warrants and each
person, if any, who controls such Holder within the meaning of the Securities
Act or the Exchange Act (each Holder and such controlling persons being referred
to collectively as the "Indemnified Parties") from and against any losses,
claims, damages or liabilities, joint or several, or any actions in respect
thereof (including but not limited to any losses, claims, damages, liabilities
or actions relating to purchases and sales of the Warrant Shares) to which each
Indemnified Party may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in such Registration Statement or prospectus or in
any amendment or supplement thereto, or arise out of,
<PAGE>
20
or are based upon, the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
shall reimburse, as incurred, the Indemnified Parties for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action in respect thereof;
provided, however, that (i) CyberShop shall not be liable in any such case to
the extent that such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement or any preliminary or final
prospectus or in any amendment or supplement thereto in reliance upon and in
conformity with written information pertaining to such Holder and furnished to
CyberShop by or on behalf of such Holder specifically for inclusion therein,
(ii) with respect to any untrue statement or omission or alleged untrue
statement or omission made in any prospectus relating to such Registration
Statement, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any person as to which there is a prospectus delivery
requirement (a "Delivering Seller") that sold the Securities to the person
asserting any such losses, claims, damages or liabilities to the extent that any
such loss, claim, damage or liability of such Delivering Seller results from the
fact that there was not sent or given to such person, on or prior to the written
confirmation of such sale, a copy of the relevant prospectus, as amended and
supplemented, provided that (I) CyberShop shall have previously furnished copies
thereof to such Delivering Seller in accordance with this Agreement and (II)
such furnished prospectus, as amended and supplemented, would have corrected any
such untrue statement or omission or alleged untrue statement or omission, and
(iii) this indemnity agreement will be in addition to any liability which
CyberShop may otherwise have to such Indemnified Party.
(b) In connection with any Registration Statement, each Holder of
the Warrants, severally and not jointly, will indemnify and hold harmless
CyberShop and each person, if any, who controls CyberShop within the meaning of
the Securities Act or the Exchange Act and the directors, officers, agents and
employees of such controlling persons from and against any losses, claims,
damages or liabilities or any actions in respect thereof to which CyberShop or
any such controlling person or director, officers, agent or employee of such
controlling person may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
<PAGE>
21
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in such Registration Statement or preliminary or
final prospectus or in any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information pertaining
to such Holder and furnished to CyberShop by or on behalf of such Holder
specifically for inclusion therein; and, subject to the limitation set forth
immediately preceding this clause, shall reimburse, as incurred, CyberShop for
any legal or other expenses reasonably incurred by CyberShop or any such
controlling person in connection with investigating or defending any loss,
claim, damage, liability or action in respect thereof. This indemnity agreement
will be in addition to any liability which such Holder may otherwise have to
CyberShop or any of its controlling persons.
(c) Promptly after receipt by an indemnified party under this
section of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this section, notify
the indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not, in any event, relieve the indemnifying
party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above, except to the
extent that it is prejudiced or harmed in any material respect by failure to
give such prompt notice. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with one counsel (and local counsel as
necessary) reasonably satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof the indemnifying party will not
be liable to such indemnified party under this section for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense
<PAGE>
22
thereof. No indemnifying party shall, without the prior written consent of the
indemnified party, not to be unreasonably withheld, effect any settlement of any
pending or threatened action in respect of which any 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 on any claims that are the subject
matter of such action. No indemnifying party shall be liable for any amounts
paid in settlement of any action or claim without its written consent, which
consent shall not be unreasonably withheld, but if settled in accordance with
its written consent or if there be a final judgment of the plaintiff in any such
action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this section is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above for any reason other than as provided in subsection
(c) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in subsection (a) or (b)
above (i) in such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party or parties on the one hand and the
indemnified party on the other or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the indemnifying party or parties on
the one hand and the indemnified party on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by CyberShop on the one hand or
such Holder or such other indemnified person, as the case may be, on the other,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid by
an indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party
<PAGE>
23
in connection with investigating or defending any action or claim which is the
subject of this subsection (d). Notwithstanding any other provision of this
Section 5(d), the Holders shall not be required to contribute any amount in
excess of the amount by which the net proceeds received by such Holders from the
sale of the Warrant Shares pursuant to the Registration Statement exceeds the
amount of damages which such Holders would have otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this paragraph (d), each officer, director, employee, representative and
agent of an indemnified party and each person, if any, who controls such
indemnified party within the meaning of the Securities Act or the Exchange Act
shall have the same rights to contribution as such indemnified party, and each
officer, director, employee, representative and agent of CyberShop and each
person, if any, who controls CyberShop within the meaning of the Securities Act
or the Exchange Act shall have the same rights to contribution as CyberShop.
(e) The agreements contained in this section shall survive the
sale of the Warrant Shares pursuant to the Registration Statement, as the case
may be, and shall remain in full force and effect, regardless of any termination
or cancellation of this Agreement or any investigation made by or on behalf of
any indemnified party.
SECTION 5.05 Additional Acts. If the issuance or sale of any Common
Stock or other securities issuable upon the exercise of the Warrants requires
registration or approval of any governmental authority (other than the
registration requirements under the Securities Act), or the taking of any other
action under the laws of the United States of America or any political
subdivision thereof before such securities may be validly offered or sold in
compliance with such laws, then CyberShop covenants that it will, in good faith
and as expeditiously as reasonably possible, use all reasonable efforts to
secure and maintain such registration or approval or to take such other action,
as the case may be.
SECTION 5.06. Expenses. All expenses incident to CyberShop's
performance of or compliance with its obligations under this Article 5 will be
borne by CyberShop, including without limitation: (i) all SEC, stock exchange or
National Association of Securities Dealers, Inc.
<PAGE>
24
registration and filing fees, (ii) all reasonable fees and expenses incurred in
connection with compliance with state securities or blue sky laws, (iii) all
reasonable expenses of any Persons incurred by or on behalf of CyberShop in
preparing or assisting in preparing, printing and distributing the Registration
Statement or any other registration statement, prospectus, any amendments or
supplements thereto and other documents relating to the performance of and
compliance with this Article 5, (iv) the fees and disbursements of counsel for
CyberShop and (v) the fees and disbursements of the independent public
accountants of CyberShop, including the expenses of any special audits or
comfort letters required by or incident to such performance and compliance.
ARTICLE 6
Miscellaneous
SECTION 6.01. SEC Reports and Other Information. Notwithstanding that
CyberShop may not be subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, CyberShop shall file with the SEC and thereupon
provide the Holders with such annual reports and such information, documents and
other reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.
SECTION 6.02. Persons Benefitting. Nothing in this Agreement is
intended or shall be construed to confer upon any Person other than CyberShop
and the Holders any right, remedy or claim under or by reason of this agreement
or any part hereof.
SECTION 6.03. Rights of Holders. Holders of unexercised Warrants are
not entitled to (i) receive dividends or other distributions, (ii) receive
notice of or vote at any meeting of the stockholders, (iii) consent to any
action of the stockholders, (iv) receive notice as stockholders of any other
proceedings of CyberShop, (v) exercise any preemptive rights or (vi) exercise
any other rights whatsoever as stockholders of CyberShop.
SECTION 6.04. Amendment. This Agreement may be amended by the parties
hereto without the consent of any Holder for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective provision
<PAGE>
25
contained herein or adding or changing any other provisions with respect to
matters or questions arising under this Agreement as CyberShop may deem
necessary or desirable (including without limitation any addition or
modification to provide for compliance with the transfer restrictions set forth
herein); provided, however, that such action shall not adversely affect the
rights of any of the Holders. Any amendment or supplement to this Agreement that
has an adverse effect on the interests of the Holders shall require the written
consent of the Holders of a majority of the then outstanding Warrants. The
consent of each Holder affected shall be required for any amendment pursuant to
which the Exercise Price would be increased or the number of Warrant Shares
issuable upon exercise of Warrants would be decreased (other than pursuant to
adjustments provided herein) or the exercise period with respect to the Warrants
would be shortened. In determining whether the Holders of the required number of
Warrants have concurred in any direction, waiver or consent, Warrants owned by
CyberShop or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with CyberShop shall be disregarded
and deemed not to be outstanding. Subject to the foregoing, only Warrants
outstanding at the time shall be considered in any such determination.
SECTION 6.05. Notices. Any notice or communication shall be in writing
and delivered in Person or mailed by first-class mail addressed as follows:
if to CyberShop:
CyberShop International, Inc.
130 Madison Avenue
New York, NY 10016
Attention: Jeffrey S. Tauber,
Chairman of the Board
with a copy to:
Rubin Baum
Levin Constant & Friedman
30 Rockefeller Plaza
New York, NY 10112
Attention: Walter M. Epstein, Esq.
<PAGE>
26
if to the Purchasers:
C.E. Unterberg, Towbin
Fahnestock & Co. Inc.
c/o C.E. Unterberg, Towbin
Swiss Bank Tower
10 East 50th Street, 22nd Floor
New York, NY 10022
Attention: Robert Abrams
A. Robert Towbin
CyberShop or the Purchasers by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to the
Holder at the Holder's address as it appears on the Certificate Register and
shall be suffi ciently given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 6.06. Governing Law. The laws of the State of New York shall
govern this Agreement and the Warrant Certificates.
SECTION 6.06. Successors. All agreements of CyberShop in this Agreement
and the Warrant Certificates shall bind its successors.
SECTION 6.08. Multiple Originals. The parties may sign any number of
copies of this Agreement. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Agreement.
SECTION 6.09. Table of Contents. The table of contents and headings of
the Articles and Sections of this Agreement have been inserted for convenience
of reference only, are not intended to be considered a part hereof and shall not
modify or restrict any of the terms or provisions hereof.
SECTION 6.10. Severability. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any
<PAGE>
27
manner affect such clause or provision in any other jurisdiction or any other
clause or provision of this Agreement in any jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first written above.
CYBERSHOP INTERNATIONAL, INC.,
by
-----------------------------
Name:
Title:
C.E. UNTERBERG, TOWBIN, as Purchaser,
by
-----------------------------
Name:
Title:
Fahnestock & Co. Inc., as Purchaser,
by
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
THE COMMON STOCK, PAR VALUE $.001 PER SHARE, OF CYBERSHOP
INTERNATIONAL, INC. ("CYBERSHOP") FOR WHICH THIS WARRANT IS EXERCISABLE MAY NOT
BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS, OR
AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. ACCORDINGLY, NO
HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT ANY TIME UNLESS,
AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT
RELATING TO THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS
OF SUCH REGISTRATION STATEMENT HAS BEEN ISSUED BY THE SEC, OR (ii) THE ISSUANCE
OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT, OR ANY STATE SECURITIES LAWS AND NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
WITHIN THE "UNITED STATES" OR TO "U.S. PERSONS" (AS DEFINED IN REGULATION S
UNDER THE SECURITIES ACT) IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT.
No. [ ] Certificate for ______ Warrants
to Purchase __________ shares of Common Stock
VOID AFTER 5.00 P.M. NEW YORK TIME
on [ ], 2003
WARRANTS TO PURCHASE COMMON STOCK OF
CYBERSHOP INTERNATIONAL, INC.
THIS CERTIFIES THAT , or its registered assigns, is the registered
holder of the number of Warrants set forth above (the "Warrants"). Each Warrant
entitles the registered holder thereof (the "Holder"), at its option and subject
to the provisions contained herein and in the Warrant Agreement referred to
below, to purchase from CyberShop International, Inc., a Delaware corporation
("CyberShop"), [ ] shares of Common Stock, par value of $.001 per share, of
CyberShop (the "Common Stock") at the per share exercise price of $[ ] (the
"Exercise Price"), or by Cashless Exercise referred to below. This Warrant
Certificate shall terminate and become void as of the close of business on [ ],
2003 (the "Expiration Date") or upon the exercise hereof as to all the shares of
Common Stock subject hereto. The number of shares issuable upon exercise of the
Warrants and the Exercise Price per share shall be subject to adjustment from
time to time as set forth in the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of [ ], 1998 (the "Warrant Agreement"), among
CyberShop, and C.E. Unterberg, Towbin and Fahnestock & Co. Inc. (the
<PAGE>
EXHIBIT A
"Purchasers"), and is subject to the terms and provisions contained in the
Warrant Agreement, to all of which terms and provisions the Holder of this
Warrant Certificate consents by acceptance hereof. The Warrant Agreement is
hereby incorporated herein by reference and made a part hereof. Reference is
hereby made to the Warrant Agreement for a full statement of the respective
rights, limitations of rights, duties and obligations of CyberShop and the
Holders of the Warrants. Capitalized terms used but not defined herein shall
have the meanings ascribed thereto in the Warrant Agreement. A copy of the
Warrant Agreement may be obtained for inspection by the Holder hereof upon
written request to CyberShop at 130 Madison Avenue, New York, NY 10016,
Attention: Secretary.
Subject to the terms of the Warrant Agreement, the Warrants may be
exercised in whole or in part (i) by presentation of this Warrant Certificate
with the Election to Purchase attached hereto duly executed and with the
simultaneous payment of the Exercise Price in cash (subject to adjustment) to
CyberShop or its duly authorized agent for the account of CyberShop at the
principal office of CyberShop or (ii) by Cashless Exercise. Payment of the
Exercise Price in cash shall be made by certified or official bank check payable
to the order of CyberShop or by wire transfer of funds to an account designated
by CyberShop for such purpose. Payment by Cashless Exercise shall be made
without the payment of cash by reducing the amount of Common Stock that would be
obtainable upon the exercise of a Warrant and payment of the Exercise Price in
cash so as to yield a number of shares of Common Stock upon the exercise of such
Warrant equal to the product of (1) the number of shares of Common Stock for
which such Warrant is exercisable as of the Exercise Date (if the Exercise Price
were being paid in cash) and (2) a fraction, the numerator of which is the
excess of the Current Market Value per share of Common Stock on the Exercise
Date over the Exercise Price per share as of the Exercise Date and the
denominator of which is the Current Market Value per share of the Common Stock
on the Exercise Date.
As provided in the Warrant Agreement and subject to the terms and
conditions therein set forth, the Warrants shall be exercisable at any time on
or after the first anniversary of the date of the Closing; provided, however,
that Holders of Warrants will be able to exercise their Warrants only if a shelf
registration statement relating to the Common Stock underlying the Warrants is
effective or the exercise of such Warrants is exempt from the registration
requirements of the Securities Act of 1933 and such securities are qualified for
sale or exempt from qualification under the applicable securities laws of the
states or other jurisdictions in which such Holders reside; provided further,
however, that no Warrant shall be exercisable after the fifth anniversary of the
date of the Closing.
In the event CyberShop enters into a Combination, the Holder hereof
will be entitled to receive upon exercise of the Warrants the kind and amount of
shares of capital stock or other securities or other property of such surviving
entity as the Holder would have been entitled to receive upon or as a result of
the combination had the Holder exercised its Warrants immediately prior to such
Combination; provided, however, that in the event that, in connection with such
Combination, consideration to holders of Common Stock in exchange for their
shares is payable solely in cash or in the event of the dissolution, liquidation
or winding-up of CyberShop, the Holder hereof will be entitled to receive such
cash distributions as the Holder would have received had the Holder exercised
its Warrants immediately prior to such Combination, less the Exercise Price.
<PAGE>
EXHIBIT A
As provided in the Warrant Agreement, the number of shares of Common
Stock issuable upon the exercise of the Warrants and the Exercise Price are
subject to adjustment upon the happening of certain events.
CyberShop may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with the transfer or
exchange of the Warrant Certificates pursuant to Section 2.05 of the Warrant
Agreement, but not for any exchange or original issuance (not involving a
transfer) with respect to temporary Warrant Certificates, the exercise of the
Warrants or the issuance of the Warrant Shares.
Upon any partial exercise of the Warrants, there shall be countersigned
and issued to the Holder hereof a new Warrant Certificate representing those
Warrants which were not exercised. This Warrant Certificate may be exchanged at
the principal office of CyberShop by presenting this Warrant Certificate
properly endorsed with a request to exchange this Warrant Certificate for other
Warrant Certificates evidencing an equal number of Warrants. No fractional
Warrant Shares will be issued upon the exercise of the Warrants, but CyberShop
shall pay an amount in cash equal to the Current Market Value per Warrant Share
on the day immediately preceding the date the Warrant is exercised, multiplied
by the fraction of a Warrant Share that would be issuable on the exercise of any
Warrant.
All shares of Common Stock issuable by CyberShop upon the exercise of
the Warrants shall, upon such issue, be duly and validly issued and fully paid
and non-assessable.
CyberShop shall be entitled to treat the Holder of any Warrant as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrant on the part of any other
Person, and shall not be liable for any registration or transfer of any Warrant
which is registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary.
<PAGE>
EXHIBIT A
The Warrants do not entitle any holder hereof to any of the rights of a
shareholder of CyberShop.
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been attested by the Secretary or Assistant
Secretary of CyberShop.
CYBERSHOP INTERNATIONAL, INC.,
by
-----------------------------
Name:
Title: [President or Vice
President]
DATED:
Attest:
- -----------------------------
Name:
Title: [Secretary or Assistant Secretary]
<PAGE>
EXHIBIT A
FORM OF ELECTION TO PURCHASE WARRANT SHARES
(to be executed only upon exercise of Warrants)
CYBERSHOP INTERNATIONAL, INC.
The undersigned hereby irrevocably elects to exercise Warrants at an
exercise price per Warrant (subject to adjustment) of $[ ] to acquire shares of
Common Stock, par value $.001 per share, of CyberShop International, Inc. on the
terms and conditions specified within the Warrant Certificate and the Warrant
Agreement therein referred to, surrenders this Warrant Certificate and all
right, title and interest therein to CyberShop International, Inc. and directs
that the shares of Common Stock deliverable upon the exercise of such Warrants
be registered or placed in the name and at the address specified below and
delivered thereto.
Date:
(Signature of Owner)
(Street Address)
(City) (State) (Zip Code)
Signature Guaranteed by:
[Signature must be guaranteed by an
eligible Guarantor Institution (banks,
stock brokers, savings and loan
associations and credit unions) with
membership in an approved guarantee
medallion program pursuant to
Securities and Exchange Commission
Rule b 17Ad-5]
<PAGE>
EXHIBIT A
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Any unexercised Warrants represented by the Warrant Certificate to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
EMPLOYMENT AGREEMENT
AGREEMENT ("Agreement") made as of this 21st day of January 1998 (the "Effective
Date"), by and between CyberShop International, Inc., a Delaware corporation
(hereinafter "Employer"), and Gary Finkel (hereinafter "Executive").
W I T N E S S E T H:
WHEREAS, Employer wishes Executive to serve as an officer and executive of
Employer; and
WHEREAS, Executive wishes to be so employed;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth,
the parties hereto agree as follows:
1. Commencing as of the Effective Date, Employer employs Executive as Vice
President, Chief Financial Officer and Treasurer of Employer to perform the
duties normally incident to such positions. Executive shall at all times report
to the President of Employer.
2. Executive agrees to devote all of Executive's business time, efforts, skills
and attention to fulfill Executive's duties and responsibilities hereunder
faithfully, diligently and competently.
3. The term of this Agreement shall commence on the Effective Date and shall
terminate one (1) year thereafter, unless sooner terminated as hereinafter
provided, and shall be subject to automatic annual renewal thereafter unless at
least sixty (60)
<PAGE>
days prior to the end of the term of this Agreement or any annual renewal period
Executive or Employer shall give written notice to the other that this Agreement
shall not be renewed.
4. Employer shall pay to Executive as compensation for all services to be
rendered by Executive hereunder the following:
(a) A salary at the rate of One Hundred Twenty Thousand and 00/100 ($120,000.00)
Dollars per annum. In the event that an initial public offering of Employer's
securities (the "Public Offering") is consummated, Executive's salary shall be
increased to the rate of One Hundred Forty Thousand and 00/100 ($140,000.00)
Dollars per annum commencing on the date of consummation of the Public Offering.
Such salary is hereinafter referred to as the Base Salary.
(b) Executive shall be eligible for bonuses, at such time and in such amounts as
shall be determined at the discretion of Employer's Board of Directors (the
"Board) based on its assessment of Executive's performance of Executive's duties
and on the financial performance of Employer.
(c) Employer will reimburse Executive for all reasonable travel and business
expenses incurred by Executive in connection with Executive's services hereunder
in accordance with the usual practices and policies of Employer in effect from
time to time, upon presentation of vouchers.
(d) Employer will make available to Executive health benefits currently offered
or during the term of this Agreement are
-2-
<PAGE>
offered to other executives of Employer. In addition, Executive will be eligible
for and will be offered participation in any and all group insurance, hospital,
dental, major medical and disability benefits and stock option plans or other
similar fringe benefits which are currently offered or during the term of this
Agreement are offered to other executives of Employer.
5. Subject to the adoption of Employer's 1998 Stock Option Plan (the "Plan") by
the Board, to the approval of the Plan by Employer's stockholders and to the
approval of the grant of options to Executive by the Board, Executive shall be
granted an option or options (the "Option") to purchase 65,000 shares of
Employer's common stock, $.001 par value per share (the "Common stock") from
Employer at an exercise price of $5.00 per share, provided that in the event
that the price per share of Common Stock sold in the Public Offering is less
than $5.00, the Board shall grant an additional number of options to Executive
so that the product of the total number of options granted and the exercise
price per share of Common Stock sold in the Public Offering is equal to 325,000,
the product of the 65,000 options and the $5.00 per share exercise price. In the
event that the Public Offering is not consummated on or prior to May 15, 1998,
the options granted pursuant to this Section 5 shall be canceled and new options
shall be granted to Executive to purchase 65,000 shares of Common Stock at an
exercise price per share equal to the fair market value of the Common Stock on
the May 15th 1998, as determined by the Board in its sole discretion. The Option
shall vest and be exercisable as follows: (i) 1/3 of the shares of
-3-
<PAGE>
Common Stock subject to the Option on the first anniversary of the Effective
Date, (ii) 1/3 of the shares of Common Stock subject to the Option on the second
anniversary of the Effective Date, and (iii) 1/3 of the shares of Common Stock
subject to the Option on the third anniversary of the Effective Date, subject to
termination as provided in the Plan, and further subject to termination in the
event that (x) Executive breaches any term hereof, (y) Executive's employment
hereunder is terminated for Cause (as hereinafter defined) or is terminated
without Cause, or (z) Executive voluntarily terminates Executive's employment
hereunder. The Option shall expire five (5) years from the date of vesting. The
terms of the Option shall otherwise be governed by the Plan, as well as the
applicable option agreement to be entered into pursuant to the terms of the
Plan.
6. In the event of Executive's death during the term of this Agreement, this
Agreement shall terminate immediately, provided, however, that Executive's legal
representatives shall be entitled to receive the Base Salary which would
otherwise have been due Executive had he worked through the end of the month in
which Executive died.
7. If during the term of this Agreement, Executive is unable to perform
Executive's duties hereunder on account of illness or other incapacity, and such
illness or other incapacity shall continue for a period of more than three (3)
consecutive months during any twelve (12) month period Employer shall have the
right, on thirty (30) days' notice to Executive, given after such three (3)
month period, to terminate this Agreement. In the
-4-
<PAGE>
event of any such termination Employer shall be obligated to pay to Executive
the Base Salary which would otherwise be due Executive until the expiration of
the month of employment during which the termination occurred plus three (3)
additional months of the Base Salary for the year in which Executive was
terminated. If, prior to the date specified on such notice, Executive's illness
or incapacity shall have terminated and Executive shall have taken up the
performance of Executive's duties thereunder, Executive shall be entitled to
resume Executive's employment hereunder as though such notice had not been
given. The Board shall determine in good faith, upon consideration of medical
evidence satisfactory to it, whether Executive by reason of physical or mental
disability shall be unable to perform the services required of Executive
hereunder.
8. If Employer shall terminate Executive's employment hereunder for Cause, or if
Executive shall voluntarily leave Executive's employment hereunder, this
Agreement shall terminate immediately and Employer shall pay to Executive an
amount equal to the Base Salary hereunder through the date of such termination.
Cause shall mean (i) any conviction of any crime (whether or not involving
Employer) constituting a felony in the jurisdiction involved, (ii) engaging in
any substantiated act involving moral turpitude, (iii) engaging in any act
which, in each case, subjects, or if generally known would subject, Employer to
public ridicule or embarrassment, (iv) gross misconduct in the performance of
Executive's duties hereunder, (v) willful failure or refusal to perform such
duties as may be relegated to
-5-
<PAGE>
Executive commensurate with Executive's position, or (vi) breach of any
provision of this Agreement by Executive.
9. If Executive's employment is terminated by Employer without Cause, this
Agreement shall terminate immediately, provided, however, that Employer shall be
obligated to pay Executive the Base Salary through the date of such termination.
In addition if termination occurs during the first twelve (12) months of this
Agreement the Executive shall be paid an amount equal to six (6) months of Base
Salary as severance.
10. Executive covenants and agrees with Employer that Executive will not, during
the term of this Agreement and thereafter directly or indirectly use,
communicate, disclose or disseminate to anyone (except to the extent reasonably
necessary for Executive to perform Executive's duties hereunder, except as
required by law or except if generally available to the public otherwise than
through use, communication, disclosure or dissemination by Executive) any
Confidential Information (as hereinafter defined) concerning the businesses or
affairs of Employer or of any of its affiliates or subsidiaries which Executive
may have acquired in the course of or as incident to Executive's employment or
prior dealings with Employer or with any of its affiliates or subsidiaries.
"Confidential Information" shall mean (a) all knowledge, information and
material concerning Employer or its business or the business of any of its
affiliates or subsidiaries that shall become known to Executive as a consequence
of Executive's
-6-
<PAGE>
relationship with Employer, (b) all information that has been disclosed to
Employer by any third party under an agreement or circumstances requiring such
information to be kept confidential, and (c) all knowledge, information or
material concerning Inventions that are, under this Agreement, owned by Employer
or assigned by Executive to Employer; provided, that Confidential Information
shall not include knowledge, information or material that is or becomes
generally known or available to others in businesses engaged in by Employer or
to the public (other than through unauthorized disclosure). Confidential
Information shall include without limitation (a) information of a technical
nature, such as information regarding past, present and future research,
financial data, product information, marketing plans, computer programs (whether
in source or object code form or other form and whether contained on program
listings, magnetic tape, magnetic disks, CD ROMs or other media), logic, flow
charts, specifications, documentation and ideas relating to the activities of
Employer, (b) information of a business nature, such as information regarding
past, present and future client development, strategies, procurement
specifications, cost and financial data, contracts, quotations and names of
actual and prospective clients or customers, and (c) all documents, drawings,
reports, client lists, and other physical embodiments of all such information.
"Inventions" shall mean each of the following, but only to the extent they
relate to the business of commerce conducted over the Internet: all inventions,
discoveries, developments, ideas,
-7-
<PAGE>
works, improvements, enhancements, works of authorship, products and computer
software, whether or not patentable, and anything else that is subject to or
potentially subject to the patent, copyright or trade secret laws of any
jurisdiction.
11. Executive acknowledges that Executive's services and responsibilities are of
particular significance to Employer and that Executive's position with Employer
has given and will give Executive close knowledge of its policies and trade
secrets. Since Employer is in a creative and competitive business, Executive's
continued and exclusive service to Employer under this Agreement is of a high
degree of importance.
Executive covenants and agrees with Employer that Executive will not, during the
term of this Agreement and for a period of two years after the termination of
Executive's employment hereunder in any manner, directly or indirectly, (i)
induce or attempt to influence any present or future officer, employee, lessor,
lessee, licensor or licensee of Employer or its subsidiaries or its affiliates
to leave its respective employ or solicit or divert or service any of the
customers or clients that Employer or its subsidiaries or its affiliates has or
had in the one (1) year previous to the date of termination of this Agreement,
(ii) engage, in North America or any other territory in which Employer does or
contemplates to do business, in any businesses presently engaged in or to be
engaged in by Employer or its subsidiaries or affiliates during the term of this
Agreement, and (iii) except for ownership of no more than 1% of the capital
stock, be a stockholder of any corporation, or directly or indirectly own,
-8-
<PAGE>
manage, operate, conduct, control or participate in the ownership, management,
operation, conduct, control of, accept employment with, or be connected in any
other manner with, any business which engages in any direct competitive activity
including, without limitation, any business which engages in retail commerce
conducted over the Internet in any such geographic region.
12. Executive acknowledges that the remedy at law for any breach or threatened
breach by Executive of the covenants contained in paragraphs 10 and 11 would be
wholly inadequate, and therefore Employer or its subsidiaries or its affiliates
shall be entitled to preliminary and permanent injunctive relief and specific
performance thereof. Paragraphs 10 and 11 constitute independent and separable
covenants that shall be enforceable notwithstanding rights or remedies that
Employer or its subsidiaries or it affiliates may have under any other provision
of this Agreement, or otherwise. If any or all of the foregoing provisions of
paragraphs 10 and 11 are held to be unenforceable for any reason whatsoever, it
shall not in any way invalidate or affect the remainder or this Agreement which
shall remain in full force and effect. If the period of time or geographical
areas specified in paragraphs 10 and 11 are determined to be unreasonable in any
judicial proceeding, the period of time or areas of restriction shall be reduced
so that this Agreement may be enforced in such areas and during such period of
time as shall be determined to be reasonable.
-9-
<PAGE>
13. Executive has carefully read and considered the provisions hereof, and
having done so, agrees that restrictions set forth in paragraphs 10, 11, and 12
(including, but not limited to, the time periods of restrictions) are fair and
reasonable and are reasonably required for the protection of the interests of
Employer.
14. Executive represents and warrants to Employer that Executive is not now
under any obligation of a contractual or other nature to any person, firm or
corporation which is inconsistent or in conflict with this Agreement, or which
would prevent, limit or impair in any way the execution of this Agreement or the
performance by Executive of Executive's obligations hereunder and Executive will
indemnify and hold harmless Employer, its directors, officers and employees
against and in respect of all liability, loss, damage, expense or deficiency
resulting from any misrepresentation, or breach of any warranty or agreement
made by Executive in connection with Executive's employment hereunder.
15. The waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed as a waiver of any subsequent breach
thereof.
16. Any and all notices referred to herein shall be sufficient if furnished in
writing and sent by certified mail, return receipt requested, to the respective
parties at the addresses set forth below, or such other address as either party
may from time to time designate in writing.
-10-
<PAGE>
To Executive: To Employer:
Gary Finkel CyberShop International, Inc.
8 Treeview Circle 130 Madison Avenue
Scotch Plains, New Jersey New York, New York 10016
07076 Attention: Chairman of the Board
With copies in each case to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Walter M. Epstein
17. This Agreement shall be binding upon, and shall inure to the benefit of,
Employer and its successors and assigns, and Executive and Executive's legal
representatives, heirs, legatees and distributees, but neither this Agreement
nor any rights hereunder shall be assignable, encumbered or pledged by
Executive.
18. This Agreement supersedes any and all prior written or oral agreements
between Employer and Executive and constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and no modification,
amendment or waiver of any of the provisions of this Agreement shall be
effective unless in writing and signed by both parties hereto.
19. This Agreement shall be construed and enforced in accordance with the laws
of the State of New York.
-11-
<PAGE>
20. This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same agreement.
21. If any provision or part of any provision of this Agreement is held for any
reason to be unenforceable, the remainder of this Agreement shall nevertheless
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
CYBERSHOP INTERNATIONAL, INC.
By:
------------------------
Title:
Date:
- ---------------------------
Gary Finkel
Date:
-12-
EMPLOYMENT AGREEMENT
AGREEMENT ("Agreement") made as of this _____ day of February (the
"Effective Date"), by and between CyberShop International, Inc., a Delaware
corporation (hereinafter "Employer"), and Francis O'Connor (hereinafter
"Executive").
W I T N E S S E T H:
WHEREAS, Employer wishes Executive to serve as an officer and executive
of Employer; and
WHEREAS, Executive wishes to be so employed;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. Commencing as of the Effective Date, Employer employs
Executive as Vice President and Chief Information Officer of Employer to perform
the duties normally incident to such positions. Executive shall at all times
report to the President of Employer. Executive agrees that he will relocate to
the New York/New Jersey metropolitan area on or before September 1, 1998. It is
agreed that pending such relocation Executive shall be permitted to perform his
services from his home in Iowa provided that Executive is reasonably available
(every other week) to perform his services at the principal offices of Employer.
Executive shall be reimbursed for airfare and lodging associated with this
travel consistent with the presentation of documentation in accordance with
Company procedures.
2. Executive agrees to devote all of Executive's business time,
efforts, skills and attention to fulfill Executive's duties and responsibilities
hereunder faithfully, diligently and competently.
3. The term of this Agreement shall commence on the Effective
Date and shall terminate one (1) year thereafter, unless sooner terminated as
hereinafter provided, and shall be subject to automatic annual renewal
thereafter unless at least sixty (60) days prior to the end of the term of this
Agreement or any annual renewal period Executive or Employer shall give written
notice to the other that this Agreement shall not be renewed.
4. Employer shall pay to Executive as compensation for all
services to be rendered by Executive hereunder the following:
(a) A salary at the rate of Ninety Six Thousand and 00/100
($96,000) Dollars per annum. In the event that an initial public offering of
Employer's securities (the "Public Offering") is consummated, Executive's salary
shall be increased to the rate One Hundred
<PAGE>
Twenty-Five Thousand Dollars ($125,000.00) per annum commencing on the date of
consummation of the Public Offering. Such salary is hereinafter referred to as
the Base Salary.
(b) Executive shall be eligible for bonuses, at such time
and in such amounts as shall be determined at the discretion of Employer's Board
of Directors (the "Board") based on its assessment of Executive's performance of
Executive's duties and on the financial performance of Employer.
(c) Employer will reimburse Executive for all reasonable
travel and business expenses incurred by Executive in connection with
Executive's services hereunder in accordance with the usual practices and
policies of Employer in effect from time to time, upon presentation of vouchers.
(d) Employer will make available to Executive such health
benefits as are currently offered or hereafter will be offered during the term
such of this Agreement to other executives of Employer. In addition, Executive
will be eligible for and will be offered participation in any and all group
insurance, hospital, dental, major medical and disability benefits and stock
option plans or other similar fringe benefits which are currently offered or are
hereafter offered during the term of this Agreement to other executives of
Employer.
5. Subject to the adoption of Employer's 1998 Stock Option Plan
(the "Plan") by the Board, the approval of the Plan by Employer's stockholders
and the approval of the grant of options to Executive by the Board as provided
herein, Executive shall be granted an option (the "Option") to purchase 64,000
shares of Employer's common stock, $.001 par value per share (the "Common
Stock") from Employer at an exercise price of $5.00 per share, provided that in
the event that the price per share of Common Stock sold in the Public Offering
is less than $5.00, the Board shall grant an additional number of options to
Executive so that the product of the total number of options granted and the
exercise price per share of Common Stock sold in the Public Offering is equal to
$320,000 (the product of the 64,000 options and the $5.00 per share exercise
price). In the event that the Public Offering is not consummated on or prior to
May 15, 1998, the options granted pursuant to this Section 5 shall be canceled
and new options shall be granted to Executive to purchase 64,000 shares of
Common Stock at an exercise price per share equal to the fair market value of
the Common Stock on the May 15, 1998, as determined by the Board in its sole
discretion. The Option shall vest and be exercisable as follows: (i) 1/3 of the
shares of Common Stock subject to the Option on the first anniversary of the
Effective Date, (ii) 1/3 of the shares of Common Stock subject to the Options on
the second anniversary of the Effective Date, and (iii) 1/3 of the shares of
Common Stock subject to the Option on the third anniversary of the Effective
Date, subject to termination as provided in the Plan, and further subject to
termination in the event that (x) Executive breaches any term hereof, (y)
Executive's employment hereunder is terminated for Cause (as hereinafter
defined) or is terminated without Cause, or (z) Executive voluntarily terminates
Executive's employment hereunder. The Option shall expire five (5) years from
the date of vesting. The terms of the Option shall otherwise be governed by the
Plan, as well as the applicable option agreement to be entered into pursuant to
the terms of the Plan.
2
<PAGE>
6. In the event of Executive's death during the term of this
Agreement, this Agreement shall terminate immediately, provided, however, that
Executive's legal representatives shall be entitled to receive the Base Salary
which would otherwise have been due Executive had he worked through the end of
the month in which Executive died and provided that Executive's legal
representatives shall have the right to exercise Options vested at the time of
death for a period of three (3) months thereafter.
7. If during the term of this Agreement, Executive is unable to
perform Executive's duties hereunder on account of illness or other incapacity,
and such illness or other incapacity shall continue for a period of more than
three (3) consecutive months during any twelve (12) month period Employer shall
have the right, on thirty (30) days' notice to Executive, given after such three
(3) month period, to terminate this Agreement. In the event of any such
termination Employer shall be obligated to pay to Executive the Base Salary
which would otherwise be due Executive until the expiration of the month of
employment during which the termination occurred plus three (3) additional
months of the Base Salary for the year in which Executive was terminated. If,
prior to the date specified in such notice, Executive's illness or incapacity
shall have terminated and Executive shall have taken up the performance of
Executive's duties thereunder, Executive shall be entitled to resume Executive's
employment hereunder as though such notice had not been given. The Board shall
determine in good faith, upon consideration of medical evidence satisfactory to
it, whether Executive by reason of physical or mental disability shall be unable
to perform the services required of Executive hereunder.
8. If Employer shall terminate Executive's employment hereunder
for Cause, or if Executive shall voluntarily leave Executive's employment
hereunder, this Agreement shall terminate immediately and Employer shall pay to
Executive an amount equal to the Base Salary hereunder through the date of such
termination. Cause shall mean (i) any conviction of any crime (whether or not
involving Employer) constituting a felony in the jurisdiction involved, (ii)
engaging in any substantiated act involving moral turpitude, (iii) engaging in
any act which, in each case, subjects, or if generally known would subject,
Employer to public ridicule or embarrassment, (iv) gross misconduct in the
performance of Executive's duties hereunder, (v) willful failure or refusal to
perform such material duties as may be delegated to Executive commensurate with
Executive's position, or (vi) breach of any material provision of this Agreement
by Executive.
9. If Executive's employment is terminated by Employer without
Cause, this Agreement shall terminate immediately, provided, however, that
Employer shall be obligated to pay Executive the Base Salary through the date of
such termination. In addition, if termination occurs any time after four (4)
months in employment with the Company the Executive shall be paid an amount
equal to six (6) months of Base Salary as severance.
10. Executive covenants and agrees with Employer that Executive
will not, during the term of this Agreement and thereafter directly or
indirectly use, communicate, disclose or disseminate to anyone (except to the
extent reasonably necessary for Executive to perform
3
<PAGE>
Executive's duties hereunder, except as required by law or except if generally
available to the public otherwise than through use, communication, disclosure or
dissemination by Executive) any Confidential Information (as hereinafter defined
concerning the businesses or affairs of Employer or of any of its affiliates or
subsidiaries which Executive may have acquired in the course of or as incident
to Executive's employment or prior dealings with Employer or with any of its
affiliates or subsidiaries.
"Confidential Information" shall mean (a) all knowledge,
information and material concerning Employer or its business or the business of
any of its affiliates or subsidiaries that shall become known to Executive as a
consequence of Executive's relationship with Employer, (b) all information that
has been disclosed to Employer by any third party under an agreement or
circumstances requiring such information to be kept confidential, and (c) all
knowledge, information or material concerning Inventions that are, under this
Agreement, owned by Employer or assigned by Executive to Employer; provided,
that Confidential Information shall not include knowledge, information or
material that is or becomes generally known or available to others in businesses
engaged in by Employer or to the public (other than through unauthorized
disclosure). Confidential Information shall include without limitation (a)
information of a technical nature, such as information regarding past, present
and future research, financial data, product information, marketing plans,
computer programs (whether in source or object code form or other form and
whether contained on program listings, magnetic tape, magnetic disks, CD ROMs or
other media), logic, flow charts, specifications, documentation and ideas
relating to the activities of Employer, (b) information of a business nature,
such as information regarding past, present and future client development,
strategies, procurement specifications, cost and financial data, contracts,
quotations and names of actual and prospective clients or customers, and (c) all
documents, drawings, reports, client lists, and other physical embodiments of
all such information.
"Inventions" shall mean each of the following, but only to the
extent they relate to the business of commerce conducted over the Internet: all
inventions, discoveries, developments, ideas, works, improvements, enhancements,
works of authorship, products and computer software, whether or not patentable,
and anything else that is subject to or potentially subject to the patent,
copyright or trade secret laws of any jurisdiction.
11. Executive acknowledges that Executive's services and
responsibilities are of particular significance to Employer and that Executive's
position with Employer has given and will give Executive close knowledge of its
policies and trade secrets. Since Employer is in a creative and competitive
business, Executive's continued and exclusive service to Employer under this
Agreement is of a high degree of importance.
Executive covenants and agrees with Employer that Executive
will not, during the term of this Agreement and for a period of two years after
the termination of Executive's employment hereunder in any manner, directly or
indirectly, (i) induce or attempt to influence any present or future officer,
employee, lessor, lessee, licensor or licensee of Employer or its
4
<PAGE>
subsidiaries or its affiliates to leave its respective employ or solicit or
divert or service any of the customers or clients that Employer or its
subsidiaries or its affiliates has or had in the one (1) year previous to the
date of termination of this Agreement, (ii) engage, in North America or any
other territory in which Employer does or contemplates to do business, in any
businesses presently engaged in or to be engaged in by Employer or its
subsidiaries or affiliates during the term of this Agreement, and (iii) except
for ownership of no more than 1% of the capital stock, be a stockholder of any
corporation, or directly or indirectly own, manage, operate, conduct, control or
participate in the ownership, management, operation, conduct, control of, accept
employment with, or be connected in any other manner with, any business which
engages in any direct competitive activity including, without limitation, any
business which engages in retail commerce conducted over the Internet in any
such geographic region.
12. Executive acknowledges that the remedy at law for any breach
or threatened breach by Executive of the covenants contained in paragraphs 10
and 11 would be wholly inadequate, and therefore Employer or its subsidiaries or
its affiliates shall be entitled to preliminary and permanent injunctive relief
and specific performance thereof. Paragraphs 10 and 11 constitute independent
and separable covenants that shall be enforceable notwithstanding rights or
remedies that Employer or its subsidiaries or it affiliates may have under any
other provision of this Agreement, or otherwise. If any or all of the foregoing
provisions of paragraphs 10 and ll are held to be unenforceable for any reason
whatsoever, it shall not in any way invalidate or affect the remainder or this
Agreement which shall remain in full force and effect. If the period of time or
geographical areas specified in paragraphs 10 and 11 are determined to be
unreasonable in any judicial proceeding, the period of time or areas of
restriction shall be reduced so that this Agreement may be enforced in such
areas and during such period of time as shall be determined to be reasonable.
13. Executive has carefully read and considered the provisions
hereof, and having done so, agrees that restrictions set forth in paragraphs 10,
11, and 12 (including, but not limited to, the time periods of restrictions) are
fair and reasonable and are reasonably required for the protection of the
interests of Employer.
14. Executive represents and warrants to Employer that Executive
is not now under any obligation of a contractual or other nature to any person,
firm or corporation which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair in any way the execution of this Agreement
or the performance by Executive of Executive's obligations hereunder and
Executive will indemnify and hold harmless Employer, its directors, officers and
employees against and in respect of all liability, loss, damage, expense or
deficiency resulting from any misrepresentation, or breach of any warranty or
agreement made by Executive in connection with Executive's employment hereunder.
15. The waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
5
<PAGE>
16. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by certified mail, return receipt requested, to
the respective parties at the addresses set forth below, or such other address
as either party may from time to time designate in writing.
To Executive: To Employer:
Francis O'Conner CyberShop International, Inc.
7511 Hampshire Drive North East 130 Madison Avenue
Cedar Rapids, Iowa 52402 New York, New York 10016
Attention: Chairman of the Board
With copies in each case to:
RubinBaum Levin Constant
& Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Walter M. Epstein
17. This Agreement shall be binding upon, and shall inure to the
benefit of, Employer and its successors and assigns, and Executive and
Executive's legal representatives, heirs, legatees and distributees, but neither
this Agreement nor any rights here under shall be assignable, encumbered or
pledged by Executive.
18. This Agreement supersedes any and all prior written or oral
agreements between Employer and Executive and constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and no
modification, amendment or waiver of any of the provisions of this Agreement
shall be effective unless in writing and signed by both parties hereto.
19. This Agreement shall be construed and enforced in accordance
with the laws of the State of New York.
20. This Agreement may be executed in any number of counter parts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
21. If any provision or part of any provision of this Agreement is
held for any reason to be unenforceable, the remainder of this Agreement shall
nevertheless remain in full force and effect.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CYBERSHOP INTERNATIONAL, INC.
By:
--------------------------
Title:
Date:
-----------------------------
Francis O'Connor
Date:
7
MANUFACTURER'S AGREEMENT
------------------------
This Agreement is entered this ___ day of ______ 19__ by and between
CyberShop, L.L.C. ("CS"), whose address is _________________________ and
__________________________, (the "Manufacturer"), whose address is
___________________________________.
CS has established an interactive on-line computer shopping
service (the "System") in order to sell products directly to consumers via all
computer related distribution avenues, including the interactive on-line
computer services (the "Services"). The Manufacturer wishes to have its Products
included on the System and grants to CS the right and license to market and sell
the Products on the System.
1. TERM. The term of this Agreement is for two (2) years from
the date the agreement is signed. This Agreement is automatically extended from
year to year, unless terminated by either party by providing written notice to
the other party no later than thirty (30) days prior to the expiration of the
Term Period.
2. TERRITORY The territory for the rights and license granted
CS is the world.
3. LISTING OF PRODUCTS.
(a) Manufacturer agrees to provide CS with all
information, materials and photographs in connection with the products and
reasonably requested by CS.
(b) When the Manufacturer provides CS with the list
of the Products, the Manufacturer will also provide the Price CS will pay for
the Product. This Price cannot be more than the highest price received by the
Manufacturer from any of its other retailers. The Manufacturer may add to this
Price, but will list separately, shipping and handling costs. The Manufacturer
may change the price with at least thirty (30) days written notice to CS.
(c) All information, materials and photographs must
be presented to CS by Manufacturer no later than sixty (60) days after the date
this agreement.
(d) If Manufacturer does not provide CS with all
information, materials and photographs within the above specified sixty (60)
days, then all fees as agreed to in paragraph 5 below will be due and payable
upon expiration of the sixty (60) day period.
4. RETURNS AND REFUNDS Manufacturer unconditionally agrees to
accept returns directly from CS Customer(s) within forty-five (45) days of
delivery of the Product(s). Upon receipt of any Products returned to
Manufacturer, Manufacturer will promptly notify CS in writing. If CS is required
to provide refund to Customer(s), then within thirty (30) days after receipt of
the returned Products, Manufacturer will refund to CS the Price CS paid for the
Products along with the Customer's name, the Products returned and the Purchase
Order number for the Products.
5. SET-UP FEE. The Manufacturer shall pay to CS a
non-refundable fee of $_____________for the preparation of the Listing for _____
images and inclusion of the Listing on the System. One half of this amount will
be due upon execution of this Agreement with the remaining half due prior to
setup on CS system. No Listings will be added to the System prior to receipt of
payment in full.
6. TERMINATION. If either party fails to observe or perform
any of its obligations contained herein, the other party may terminate this
Agreement upon five (5) days prior written notice to the other party.
- ------------------------------------ CYBERSHOP, L.L.C.
(Manufacturer")
By: By:
--------------------------------- --------------------------
Name: Name:
------------------------------- --------------------------
Title: Title:
------------------------------ --------------------------
<PAGE>
MANUFACTURER'S AGREEMENT
------------------------
This Agreement is entered into this ___ day of ___________, 19__ by and between
CyberShop, L.L.C. ("CS"), whose address is ______________________, and
_____________________, (the "Manufacturer"), whose address is
____________________________________________________________________.
WHEREAS, CS has established an interactive on-line computer
shopping service (the "System") pursuant to which CS may sell products directly
to consumers via all computer related distribution avenues, including, without
limitation, the interactive on-line computer services (the "Services"); and
WHEREAS, the Manufacturer wishes to have its Products (as
defined in Section 4 below) included on the System.
NOW THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, CS
and Manufacturer agree as follows:
1. GRANT OF RIGHTS. Manufacturer hereby grants to CS the
following rights:
(a) The right and license to market and sell the
Products on the System;
(b) The right and license to use the Manufacturer's
name, Products (including the likeness of the Products), trademarks, tradenames,
and copyrights (all whether now owned or hereafter acquired) in connection with
the Products for all purposes in connection with the System including, without
limitation, the Listing (as defined below) of the Products on the Services and
the promotion and advertising of the System and the Products;
(c) Manufacturer represents and warrants that it has the
right, power and authority to enter into this Agreement and perform its
obligations hereunder and that the sale and Listing of the Product on the
System, and the placement of the System on the Services will not violate any
agreement, by which the Manufacturer is bound, or any law or governmental
regulation.
2. TERM. The term of this Agreement shall commence on the
date hereof and shall continue for two (2) years from the date hereof (as such
term may be extended from time to time, the "Term Period"). The term of this
Agreement shall be automatically extended from year to year after the expiration
of each Term Period, unless terminated by either party by providing written
notice to the other party no earlier than sixty (60) days and no later than
thirty (30) days prior to the expiration of the Term Period.
3. TERRITORY. The Territory for the license and rights
granted to CS hereunder shall be the world.
4. LISTING OF PRODUCTS.
(a) Manufacturer agrees to provide CS with all
information and materials in connection with the Products and reasonably
requested by CS (including, if available, photographs of the Products) and
cooperate with CS in the preparation of the display and listing of the Products
(the "Listing") on the System. The accuracy of all descriptions and
representations shall be the sole responsibility of the Manufacturer. CS will
use its best efforts to ensure that the Listing conforms to the Manufacturer's
instructions. CS shall have the sole right of use and ownership of the Listing,
including, without limitation, the software related thereto.
(b) Promptly after CS receives from the Manufacturer the
list of the Products to be displayed on the System (the "Products"), CS shall
commence preparation of the Listing.
(c) All information, materials and photographs must be
presented to CS by Manufacturer no later than sixty (60) days after the date
this agreement.
(d) If manufacturer does not provide CS with all
information, materials and photographs within the above specified sixty (60)
days, then all fees as agreed to in paragraph 10 below will be due and payable
upon expiration of the sixty (60) day period.
<PAGE>
5. SALE PROCEDURES.
(a) Promptly upon the receipt by CS of an order to
purchase any of the Products, CS shall deliver a purchase order (the "Purchase
Order") to the Manufacturer by electronic data transfer, facsimile or such other
means as agreed to by the parties. The Purchase Order shall include the number
and type of Products ordered and delivery instructions, including the name and
address of the customer (the "Customer").
(b) The Manufacturer shall promptly ship the Product(s)
to the Customer via United Parcel Service or such other means approved by CS
(the "Shipping Service"), in accordance with the instructions set forth in the
Purchase Order. Upon shipment of the Products, the Manufacturer will invoice
(the "Invoice") CS for the price of the Products consistent with the Established
Price (as defined below) and the Shipping Service charges incurred in the
shipment to the Customer, and submit to CS confirmation (including tracking
information) that the Products were shipped.
(c) CS is responsible for paying only the Invoice.
6. ESTABLISHED PRICE. At the time that the Manufacturer
provides CS with the list of the Products, the Manufacturer shall provide CS
with the price CS will be required to pay for the Product (the "Established
Price"). The Established Price may include, but shall list separately, shipping
and handling costs. The Established Price (excluding the shipping and handling
costs) shall not be more than the highest price received by the Manufacturer for
such Product from any of its other retailers. The Manufacturer may change the
Established Price (subject to the limitation set forth in the preceding
sentence) at any time, and from time to time, on not less than thirty (30) days
prior written notice to CS.
7. CUSTOMER PRICE. CS, in its sole discretion, may
determine the price at which the Product shall be sold. CS, in its sole
discretion, may change such price at any time, and from time to time, without
notice to the Manufacturer.
8. RETURNS AND REPLACEMENTS.
(a) Manufacturer unconditionally agrees to accept
returns directly from the Customer(s) within forty-five (45) days of delivery of
the Products. Upon such return, Manufacturer shall refund the Established Price
in accordance with Section 9, below.
(b) Manufacturer will provide all Customers with their
standard warranties and will honor such warranties directly. CS shall not be
required to provide any services to the Customers, including honoring of any
warranties, in connection with the Products.
(c) Upon the receipt of any returned Products to
Manufacturer, Manufacturer shall promptly notify CS in writing of such return.
9. REFUNDS. In the event Manufacturer is required to
provide refunds pursuant to the provisions of Paragraph 8(a) or (b) above, then
within thirty (30) days after receipt of the returned Products, Manufacturer
shall refund to CS the Established Price (if previously paid by CS) less the
shipping and handling charges, along with the name of the Customer, the Products
returned and the Purchase Order number for such Products. CS shall thereafter,
refund to the customer the purchase price paid by the customer, less any
shipping and handling costs paid by the customer.
10. SET-UP FEE. The Manufacturer shall pay to CS a
non-refundable fee of $_____________for the preparation of the Listing for _____
images and inclusion of the Listing on the System. One half of this amount will
be due upon execution of this Agreement with the remaining half due prior to
setup on CS system. No Listings will be added to the System prior to receipt of
payment in full.
11. INCLUSION ON THE SYSTEM. CS shall include the Listing on
the System with respect to each of the Services on which the System is placed.
CS makes no representations, warranties or assurances that the System will be
placed on any of the Services.
12. EXCLUSIVE RIGHT OF CS:
(a) Manufacturer agrees that for a period commencing the
date hereof through two (2) years after the later of (I) the placement of the
System on a Service and (ii) the placement of the Product(s) on the System (as
such may be extended from time to time, the "Exclusive Period"), CS shall have
the exclusive right to market and sell the Manufacturer's products, including
the Products, on the On-Line Services. Manufacturer shall not make any of its
products available for sale to any other on-line computer shopping system except
(i) any retailer with sales in excess of $100 million that sells any of the
products of the Manufacturer as of the date of this Agreement and (ii) any
on-line retailer which sells any of the Manufacturer's products as of the date
of this Agreement.
- 2 -
<PAGE>
(b) The Exclusive Period shall be automatically extended
from year to year unless terminated by the Manufacturer by providing written
notice to CS no earlier than sixty (60) days prior to the expiration of the
Exclusive Period and no later than thirty (30) days prior to the expiration of
the Exclusive Period.
(c) The provisions of this section 12 shall survive the
termination of the Agreement.
13. TERMINATION. If either party fails to observe or perform
any of its obligations contained herein, the other party may terminate this
Agreement upon five (5) days prior written notice to the other party. This
termination shall be without prejudice to the accrued rights of the other party
hereunder and without prejudice to the party's rights in connection with such
breach. Upon termination of this Agreement, the Manufacturer's rights under this
Agreement shall terminate and CS shall discontinue the Listing of the Product(s)
on the System.
14. INDEMNIFICATION. Manufacturer shall indemnify CS and
hold CS, its directors, officers, employees and agents harmless from and against
any and all claims, demands, damages, liabilities, losses and expenses
(including reasonable attorneys' fees), relating directly or indirectly to the
Products, provided however that Manufacturer shall not indemnify CS against any
claims, demands, damages, liabilities, losses or expenses arising from CS's
gross negligence or willful misconduct. This indemnification shall survive the
termination of this Agreement.
15. NOTICES. Except as otherwise specifically provided
herein, any notices, requests or other communications from one party to the
other shall be in writing and shall be given to such party at the address set
forth in the preamble of this Agreement, or such other address as such party may
from time to time specify, by hand delivery, courier service or facsimile
transmission. Such notices will be effective upon receipt by the other party.
16. AMENDMENTS AND WAIVERS. Any provision of this Agreement
may be amended or waived at any time if, and only if, such amendment or waiver
is in writing and signed by the parties hereto. No failure or delay by any party
hereto in exercising any right, power or privilege shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided shall be cumulative and exclusive of any rights
or remedies provided by law or by any other Agreement between the parties
hereto.
17. GOVERNING LAW AND VENUE. This Agreement is to be
governed by and construed in accordance with the laws of the State of New
Jersey. Any legal proceedings to enforce this Agreement shall be brought in the
state or federal court sitting in New Jersey, the parties hereto hereby waiving
any claim or defense that such forum is not convenient or proper. The provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
18. ASSIGNMENT. CS shall have the right at any time to
assign and transfer this Agreement or its rights and obligations hereunder, and
following such assignment and transfer, references to CS hereunder shall be
deemed to be references to the assignee and/or transferee. Manufacturer reserves
the right to terminate this Agreement if this Agreement is assigned to a party
or parties that are direct competitors of the Manufacturer.
19. 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.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement this ____ day of ____________, 19__.
---------------------------------
("Manufacturer")
By:
---------------------------------------------
Name:
Title:
CYBERSHOP, L.L.C.
By:
---------------------------------------------
Name:
Title:
- 3 -
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.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 787,171
<SECURITIES> 0
<RECEIVABLES> 76,163
<ALLOWANCES> (10,000)
<INVENTORY> 30,700
<CURRENT-ASSETS> 884,034
<PP&E> 321,801
<DEPRECIATION> (189,313)
<TOTAL-ASSETS> 1,126,910
<CURRENT-LIABILITIES> 1,111,487
<BONDS> 0
0
0
<COMMON> 4,000
<OTHER-SE> (8,672)
<TOTAL-LIABILITY-AND-EQUITY> 1,126,910
<SALES> 1,284,489
<TOTAL-REVENUES> 1,494,617
<CGS> 933,187
<TOTAL-COSTS> 933,187
<OTHER-EXPENSES> 2,389,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,000
<INCOME-PRETAX> 0
<INCOME-TAX> (1,806,069)
<INCOME-CONTINUING> (1,806,069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,806,069)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.43)
</TABLE>
