AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1998
REGISTRATION NO 333-42707
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 2
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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<S> <C> <C>
DELAWARE 7375 13-3979226
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
----------------
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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)
</TABLE>
----------------
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
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act") check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
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 20, 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 18, 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
3
<PAGE>
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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<S> <C>
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
</TABLE>
- ----------
(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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<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)
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 ......................................... $ (0.13) $ (0.13) $ (0.29)
========== ========== ============
Diluted ....................................... $ (0.13) $ (0.13) $ (0.29)
========== ========== ============
Pro forma weighted average shares outstanding:
Basic ......................................... 2,872,935 3,096,517 3,780,662
Diluted ....................................... 2,872,935 3,096,517 3,780,662
</TABLE>
<TABLE>
<CAPTION>
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>
- ----------
(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."
NOTICE TO CALIFORNIA INVESTORS
THE COMMON STOCK IS SUBJECT TO A LIMITED QUALIFICATION IN CALIFORNIA AND
MAY ONLY BE SOLD TO (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF REGULATION
D UNDER THE SECURITIES ACT OF 1933, (2) BANKS, SAVINGS AND LOAN ASSOCIATIONS,
TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT-SHARING TRUSTS, CORPORATIONS
OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR OTHER ENTITY'S
AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST
RECENT REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED,
BUT NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN
$14,000,000 AND SUBSIDIARIES OF THE FOREGOING OR (3) ANY PERSON (OTHER THAN A
PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING THE COMMON STOCK BEING OFFERED
HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE COMMON STOCK
OFFERED HEREBY, OR (4) ANY PERSON WHO (A) HAS AN INCOME OF $65,000 AND A NET
WORTH OF $250,000, OR (B) HAS A NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING
HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES).
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
6
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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
7
<PAGE>
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
<PAGE>
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 -- Management's Broad Discretion in Allocating a Substantial
Portion of the 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 ......................................... $ (0.13) $ (0.13) $ (0.29)
========== ========== ============
Diluted ....................................... $ (0.13) $ (0.13) $ (0.29)
========== ========== ============
Pro forma weighted average shares outstanding:
Basic ......................................... 2,872,935 3,096,517 3,780,662
Diluted ....................................... 2,872,935 3,096,517 3,780,662
</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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<PAGE>
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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<PAGE>
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.
34
<PAGE>
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>
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>
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.
Arthur Andersen LLP
Roseland, New Jersey
January 27, 1998
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 ................................ $ (0.13) $ (0.13) $ (0.29)
========== ========== ============
Diluted .............................. $ (0.13) $ (0.13) $ (0.29)
========== ========== ============
Pro forma weighted average
common shares outstanding (Note 2):
Basic ................................ 2,872,935 3,096,517 3,780,662
Diluted .............................. 2,872,935 3,096,517 3,780,662
</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
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. 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).
In accordance with SFAS 128, the following table reconciles net loss and
share amounts used to calculate pro forma basic and diluted loss per share:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1995 1996 1997
-------------- -------------- ----------------
<S> <C> <C> <C>
Numerator:
Pro forma net loss ........................ $ (384,394) $ (389,959) $ (1,083,641)
========== ========== ============
Denominator:
Pro forma weighted average number of com-
mon shares outstanding - Basic and Diluted 2,872,935 3,096,517 3,780,662
========== ========== ============
Pro forma net loss per share:
Basic ..................................... $ (0.13) $ (0.13) $ (0.29)
Diluted ................................... $ (0.13) $ (0.13) $ (0.29)
</TABLE>
Outstanding stock options of 107,443 and 273,634 as of December 31, 1996
and 1997, respectively, have been excluded from the above calculations as they
are antidulitive for all periods presented. There were no stock options
outstanding during 1995.
(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-
F-9
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) COMMITMENTS AND CONTINGENCIES: - (CONTINUED)
<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.
<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>
F-10
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
(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.
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).
F-11
<PAGE>
CYBERSHOP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) SUBSEQUENT EVENTS (UNAUDITED): - (CONTINUED)
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-12
<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:
Securities and Exchange Commission filing fee .............. $ 6,141
Nasdaq SmallCap Market listing fee ......................... $ 10,000
NASD filing fee ............................................ $ 2,600
Blue Sky fees and expenses (including attorneys' fees) ..... $ 20,000
Accounting fees and expenses ............................... $125,000
Legal fees and expenses .................................... $225,000
Printing and engraving expenses ............................ $100,000
Transfer agent and registrar fees .......................... $ 4,000
Miscellaneous .............................................. $ 41,259
--------
Total ...................................................... $534,000
========
- ----------
* 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
1.1 Form of Underwriting Agreement.**
3.1 Certificate of Incorporation of the Registrant.**
3.2 Amended and Restated By-Laws of the Registrant.*
4.1 Specimen of Certificate for Common Stock.**
5.1 Opinion of Rubin Baum Levin Constant & Friedman.**
10.1 Third Amended and Restated Operating Agreement of CyberShop, L.L.C.
effective as of October 10, 1997.**
10.2 Lease Agreement dated August 19, 1996 between the Company and Andim LTD.,
c/o RVP Management Corp.**
10.3 Contribution Agreement between the Company and the members of CyberShop,
L.L.C. dated March 18, 1998*
10.4 Form of Officer and Director Indemnification Agreement.**
10.5 1998 Stock Option Plan of the Company.**
II-2
<PAGE>
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 Form of Warrant Agreement 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 March 19, 1998, 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 March 19, 1998, 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.**
- ----------
* Filed herewith.
** Previously filed.
# Previously 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. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in New York, New
York, on March 19, 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. 2 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 19th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------- ---------------------------------------- ---------------
<S> <C> <C>
/s/ Jeffrey S. Tauber Chairman of the Board, Chief Executive March 19, 1998
- ----------------------- Officer and Director (Principal
Jeffrey S. Tauber Executive Officer)
/s/ Gary S. Finkel Vice President, Chief Financial March 19, 1998
- ----------------------- Officer and Treasurer
Gary S. Finkel (Principal Accounting Officer
and Principal Financial
Officer)
/s/ Michael Kempner Director March 19, 1998
- -----------------------
Michael Kempner
/s/ Warren Struhl Director March 19, 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>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ------------------------------------------------------------------------- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement.**
3.1 Certificate of Incorporation of the Registrant.**
3.2 Amended and Restated By-Laws of the Registrant.*
4.1 Specimen of Certificate for Common Stock.**
5.1 Opinion of Rubin Baum Levin Constant & Friedman.**
10.1 Third Amended and Restated Operating Agreement of CyberShop, L.L.C.
effective as of October 10, 1997.**
10.2 Lease Agreement dated August 19, 1996 between the Company and Andim LTD.,
c/o RVP Management Corp.**
10.3 Contribution Agreement between the Company and the members of CyberShop,
L.L.C. dated March 18, 1998*
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 Form of Warrant Agreement 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 March 19, 1998, 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 March 19, 1998, 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>
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* Filed herewith.
** Previously filed.
# Previously 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.
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
CYBERSHOP INTERNATIONAL, INC.
A Delaware corporation
March 18, 1998
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the
Corporation within the State of Delaware shall be located at United Corporate
Services, Inc., 15 East North Street, in the City of Dover, County of Kent.
SECTION 2. Other Offices. The Corporation may also have an
office or offices other than said registered office at such place or places,
either within or without the State of Delaware, as the Board of Directors shall
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at any such
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of meeting
or in a duly executed waiver thereof.
SECTION 2. Annual Meeting. The annual meeting of stockholders
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of meeting or in a duly executed
waiver thereof. At such annual meeting, the stockholders shall elect, by a
plurality vote, a Board of Directors and shall transact such other business as
may properly be brought before the meeting.
SECTION 3. Special Meetings. Special meetings of stockholders
may be called at any time by the Board of Directors, by the Chairman of the
Board or by written request signed by at least two-thirds of the stockholders of
the Corporation.
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SECTION 4. Notice of Meetings. Except as otherwise expressly
required by statute, written notice of each annual and special meeting of
stockholders stating the place, date and hour of the meeting, and, in the case
of a special meeting, the purpose or purposes for which such meeting is called,
shall be given to each stockholder of record entitled to vote thereat not fewer
than ten (10) nor more than sixty (60) days before the date of the meeting.
Business transacted at any special meeting of stockholders shall be limited to
the purpose or purposes stated in the notice. Notice shall be given personally
or by mail and, if by mail, shall be sent in a postage prepaid envelope,
addressed to each stockholder at such stockholder's address as it appears on the
records of the Corporation. Notice by mail shall be deemed given at the time
when the same shall be deposited in the United States mail, postage prepaid.
Notice of any meeting shall not be required to be given to any person who
attends such meeting, except when such person attends the meeting in person or
by proxy for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, or who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an annual or special meeting of stockholders
need be specified in any written waiver of notice.
SECTION 5. List of Stockholders. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten (10)
days before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not specified, at the place where the meeting is to be held. The list
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 6. Quorum, Adjournments. The holders of a majority of
the capital stock issued and outstanding and entitled to vote thereat, present
in person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, until a quorum
shall be present or represented. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which adjournment is taken. At any such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed
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for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 7. Organization. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, or, in his or her absence
or if one shall not have been elected, the President, shall act as chairman of
the meeting. The Secretary or, in his or her absence or inability to act, the
person whom the chairman of the meeting shall appoint secretary of the meeting,
shall act as secretary of the meeting and keep the minutes thereof.
SECTION 8. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
SECTION 9. Voting. Except as otherwise provided by statute, by
the Certificate of Incorporation or by any agreement to the contrary between the
Corporation and all its stockholders, each stockholder of the Corporation having
the right to vote shall be entitled to one vote in person or by proxy for each
share of the capital stock having voting power held by such stockholder. When a
quorum is present at any meeting, directors shall be elected by a plurality of
the votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. In all matters other than the
election of directors, the affirmative vote of the majority of shares present in
person or represented by proxy and entitled to vote on the subject matter shall
be the act of the stockholders except where the General Corporation Law of the
State of Delaware, the Corporation's Certificate of Incorporation or any
agreement between the Corporation and all its stockholders prescribes a
different percentage of votes and/or a different exercise of voting power. In
the election of directors, voting need not be by written ballot. Unless required
by statute, or determined by the chairman of the meeting to be advisable, the
vote on any question need not be by written ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his or her proxy, if
there be such proxy, and shall state the number of shares voted.
Section 10. Proxy Representation. Each stockholder entitled to
vote at any meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another person or
persons to act for him by a proxy signed by such stockholder or his or her
attorney-in-fact, but no proxy shall be voted after three (3) years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
the order of business for so delivering such proxies.
SECTION 11. Inspectors. The Board of Directors shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof and make a written report thereof. The
Board of Directors may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
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entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall: ascertain the
number of shares outstanding and the voting power of each; determine the shares
represented at a meeting and the validity of proxies and ballots; count all
votes and ballots; determine and retain for a reasonable period of time a record
of the disposition of any challenges made to any determination by the
inspectors; and certify their determination of the number of shares represented
at the meeting, and their count of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of inspectors. On request of the person presiding at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
an inspector of an election of directors. Inspectors need not be stockholders.
SECTION 12. Action by Consent. Whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or in
connection with any corporate action, by any provision of statute or any
provision of the Certificate of Incorporation or of these By-laws, the meeting
and vote of stockholders may be dispensed with, and the action taken without
such meeting and vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares of stock of the Corporation entitled to
vote thereon were present and voted, and shall be delivered to the Corporation
by delivery to its registered office in the State of Delaware, its principal
place of business or to an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Certificate of Incorporation directed or required to be exercised or done by
the stockholders.
SECTION 2. Number, Qualifications, Election and Term of
Office. The number of directors constituting the initial Board of Directors
shall be as determined in the resolutions of the Incorporator of the Corporation
electing the initial Board of Directors. Thereafter, the number of directors may
be fixed, from time to time, by the affirmative vote of a majority of the entire
Board of Directors or by action of the stockholders of the Corporation. Any
decrease in the number of directors shall be effective at the time of the next
succeeding annual meeting of
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stockholders unless there shall be vacancies in the Board of Directors, in which
case such decrease may become effective at any time prior to the next succeeding
annual meeting to the extent of the number of such vacancies. Directors need not
be stockholders of the Corporation. Except as otherwise provided by statute,
these By-laws or any agreement to the contrary between the Corporation and all
its stockholders, the directors (other than members of the initial Board of
Directors) shall be elected at the annual meeting of stockholders. Each director
shall hold office until his or her successor shall have been elected and
qualified, or until his or her death, or until he or she shall have resigned, or
have been removed, as hereinafter provided in these By-laws.
SECTION 3. Place of Meetings. Meetings of the Board of
Directors shall be held at such place or places, within or without the State of
Delaware, as the Board of Directors may from time to time determine or as shall
be specified in the notice of any such meeting.
SECTION 4. Annual Meeting. The Board of Directors shall meet
for the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual meeting
shall be held. Notice of such meeting need not be given. In the event such
annual meeting is not so held, the annual meeting of the Board of Directors may
be held at such other time or place as shall be specified in a notice thereof
given as hereinafter provided in Section 7 of this ARTICLE III.
SECTION 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held each fiscal year at such time and place as the majority
of the Board of Directors may from time to time designate. If any day designated
for a regular meeting shall be a legal holiday at the place where the meeting is
to be held, then the meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day. Notice of regular
meetings of the Board of Directors need not be given except as otherwise
required by statute or these By-laws.
SECTION 6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if one shall have been
elected, or by two or more Directors of the corporation or by the President.
SECTION 7. Notice of Meetings. Notice of each special meeting
of the Board of Directors (and of each regular meeting for which notice is
required) shall be given by the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the place, date and hour of the
meeting. Except as otherwise required by these By-laws, such notice need not
state the purposes of such meeting. Notice of each such meeting shall be mailed,
postage prepaid, to each director, addressed to such director at such director's
residence or usual place of business, by first class mail, at least two days
before the day on which such meeting is to be held, or shall be sent addressed
to him at such place by telegraph, cable, telex, telecopier or other similar
means, or be delivered to him personally or be given to him by telephone or
other similar means, at least twenty-four hours before the time at which such
meeting is to be held.
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Notice of any such meeting need not be given to any director who shall, either
before or after the meeting, submit a signed waiver of notice or who shall
attend such meeting, except when he or she shall attend for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 8. Quorum and Manner of Acting. A majority of the
total number of directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors. Except as otherwise expressly
required by statute, the Certificate of Incorporation, these By-laws or any
agreement to the contrary between the Corporation and all its stockholders, the
act of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. In the absence of a quorum
at any meeting of the Board of Directors, a majority of the directors present
thereat may adjourn such meeting to another time and place. Notice of the time
and place of any such adjourned meeting shall be given to all the directors
unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only as
a Board and the individual directors shall have no power as such.
SECTION 9. Organization. At each meeting of the Board of
Directors, the Chairman of the Board, if one shall have been elected, or, in the
absence of the Chairman of the Board or if one shall not have been elected, the
President (or, in his or her absence, another director chosen by a majority of
the directors present) shall act as chairman of the meeting and preside thereat.
The Secretary or, in his or her absence, any person appointed by the chairman of
the meeting shall act as secretary of the meeting and keep the minutes thereof.
SECTION 10. Resignations. Any director of the Corporation may
resign at any time by giving written notice of his or her resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 11. Vacancies. Except as may otherwise be required by
law and subject to the terms of any agreement to the contrary between the
Corporation and all its stockholders, any vacancy in the Board of Directors,
whether arising from death, resignation, removal or any other cause, and any
newly created directorship resulting from any increase in the authorized number
of directors of the Corporation, may be filled by the vote of a majority of the
Directors then in office, though less than a quorum, or by the sole remaining
director or by the stockholders at the next annual meeting thereof or at a
special meeting thereof. Each director so elected shall hold office until his or
her successor shall have been elected and qualified.
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SECTION 12. Removal of Directors. Subject to the terms of any
agreement to the contrary between the Corporation and all its stockholders, any
director may be removed, either with or without cause, at any time, by the
holders of a majority of the voting power of the issued and outstanding capital
stock of the Corporation entitled to vote at an election of directors.
SECTION 13. Compensation. The Board of Directors shall have
authority to fix the compensation, including fees and reimbursement of expenses,
of directors for services to the Corporation as directors.
SECTION 14. Committees. The Board of Directors shall have the
authority to appoint any temporary or standing committee to exercise any powers
or authority as the Board of Directors may see fit, subject to such conditions
as may be prescribed by the Board of Directors. All committees so appointed
shall keep regular minutes of their meetings and shall cause such minutes to be
recorded in books kept for that purpose in the principal office of the
Corporation and shall report the same to the Board of Directors as required by
it. The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In addition, in the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Except to the extent restricted by statute or the Certificate of
Incorporation, each such committee, to the extent provided in the resolution
creating it, shall have and may exercise all the powers and authority of the
Board of Directors and may authorize the seal of the Corporation to be affixed
to all papers which require it. Each such committee shall serve at the pleasure
of the Board of Directors and have such name as may be determined from time to
time by resolution adopted by the Board of Directors.
SECTION 15. Action by Consent. Unless restricted by the
Certificate of Incorporation, any action required or permitted to be taken by
the Board of Directors or any committee thereof may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or such committee, as the
case may be.
SECTION 16. Telephonic Meeting. Unless restricted by the
Certificate of Incorporation, any one or more members of the Board of Directors
or any committee thereof may participate in a meeting of the Board of Directors
or such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting by such means shall
constitute presence in person at a meeting.
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ARTICLE IV
OFFICERS
SECTION 1. Number and Qualifications. The officers of the
Corporation shall be elected by the Board of Directors and shall include the
President, one or more Vice- Presidents, the Secretary and the Treasurer. If the
Board of Directors wishes, it may also elect as an officer of the Corporation a
Chairman of the Board and may elect other officers (including one or more
Assistant Treasurers and one or more Assistant Secretaries) as may be necessary
or desirable for the business of the Corporation. Any two or more offices may be
held by the same person, and no officer except the Chairman of the Board need be
a director. Each officer shall hold office until his or her successor shall have
been duly elected and shall have qualified, or until his or her death, or until
he or she shall have resigned or have been removed, as hereinafter provided in
these By-laws.
SECTION 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his or her resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon receipt. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may be
removed, either with or without cause, at any time, by the Board of Directors at
any meeting thereof.
SECTION 4. Chairman of the Board. The Chairman of the Board,
if one shall have been elected, shall be a member of the Board, an officer of
the Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. He or she shall advise and confer with the
President, and in the President's absence with other executives of the
Corporation, and shall perform such other duties as may from time to time be
assigned to him by the Board of Directors.
SECTION 5. The President. The President shall be the Chief
Executive Officer of the Corporation. The President shall, in the absence of the
Chairman of the Board or if a Chairman of the Board shall not have been elected,
preside at each meeting of the Board of Directors or the stockholders. The
President shall perform all duties incident to the office of President and Chief
Executive Officer and such other duties as may from time to time be assigned to
him by the Board of Directors.
SECTION 6. Vice-President. Each Vice-President shall perform
all such duties as from time to time may be assigned to him by the Board of
Directors or the President. At the request of the President or in his or her
absence or in the event of his or her inability or refusal to act, the
Vice-President, or if there shall be more than one, the Vice-Presidents in the
order
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determined by the Board of Directors (or if there be no such determination, then
the Vice- Presidents in the order of their election), shall perform the duties
of the President, and, when so acting, shall have the powers of and be subject
to the restrictions placed upon the President in respect of the performance of
such duties.
SECTION 7. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for,
all the funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit
of the Corporation in such depositaries as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable
to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise
the investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board
of Directors may require, an account of the financial condition of the
Corporation; and
(g) in general, perform all duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 8. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided
for the purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with
the provisions of these By-laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all certificates for shares of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
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(d) see that the books, reports, statements, certificates
and other documents and records required by law to be kept and filed by the
Corporation are properly kept and filed; and
(e) in general, perform all duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 9. The Assistant Treasurer. The Assistant Treasurer,
or if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Treasurer or in
the event of his or her inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties as from
time to time may be assigned by the Board of Directors.
SECTION 10. The Assistant Secretary. The Assistant Secretary,
or if there be more than one, the Assistant Secretaries in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Secretary or in the event
of his or her inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 11. Officers' Bonds or Other Security. If required by
the Board of Directors, any officer of the Corporation shall give a bond or
other security for the faithful performance of his or her duties, in such amount
and with such surety as the Board of Directors may require.
SECTION 12. Compensation. The compensation of the officers of
the Corporation for their services as such officers shall be fixed from time to
time by the Board of Directors. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that such person is
also a director of the Corporation.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. Stock Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board or the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation. If the Corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the
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qualifications, limitations or restriction of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided in Section 202 of the General
Corporation Law of the State of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
SECTION 2. Facsimile Signatures. Any or all of the signatures
on a certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
SECTION 3. Lost Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or such owner's legal representative, to give the
Corporation a bond in such sum as the Board of Directors may direct sufficient
to indemnify the Corporation against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or certificates.
SECTION 4. Transfers of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, to cancel the old certificate and to
record the transaction upon its records; provided, however, that the Corporation
shall be entitled to recognize and enforce any lawful restriction on transfer.
Whenever any transfer of stock shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of transfer if, when the
certificates are presented to the Corporation for transfer, both the transferor
and the transferee request the Corporation to do so.
SECTION 5. Transfer Agents and Registrars. The Board of
Directors may appoint, or authorize any officer or officers to appoint, one or
more transfer agents and one or more registrars.
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SECTION 6. Regulations. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.
SECTION 7. Fixing the Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor fewer than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 8. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its records
as the owner of shares of stock to receive dividends and to vote as such owner,
shall be entitled to hold liable for calls and assessments a person registered
on its records as the owner of shares of stock, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares of
stock on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Delaware.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. General. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he or she is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including, without limitation, attorneys' fees and expenses), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, in and of itself, create a presumption that the person did not act in
good
-12-
<PAGE>
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, create a presumption that the person had
reasonable cause to believe that his or her conduct was unlawful.
SECTION 2. Derivative Actions. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against all expenses (including, without limitation, attorneys'
fees and expenses) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. Indemnification in Certain Cases. To the extent
that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this ARTICLE VI, or in defense of
any claim, issue or matter therein, he or she shall be indemnified against all
expenses (including, without limitation, attorneys' fees and expenses) actually
and reasonably incurred by him in connection therewith.
SECTION 4. Procedure. Any indemnification under Sections 1 and
2 of this ARTICLE VI (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in such Sections 1 and 2. Such determination shall be made (a) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (b) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders of the Corporation.
SECTION 5. Advances for Expenses. The right to indemnification
conferred in this ARTICLE VI upon a director or officer shall include the right
to be paid by the Corporation all the expenses (including, without limitation,
attorneys' fees and expenses) incurred in defending an action, suit or
proceeding of the types set forth in Sections 1 and 2 of this
-13-
<PAGE>
ARTICLE VI in advance of the final disposition of such action, suit or
proceeding; provided, however, that if the General Corporation Law of the State
of Delaware requires, an advancement of expenses incurred by an indemnitee in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined that such indemnitee is not entitled to be indemnified for such
expenses under this ARTICLE VI or otherwise. Expenses (including, without
limitation, attorneys' fees and expenses) incurred by an employee or agent in
defending an action, suit or proceeding of the types set forth in Sections 1 and
2 of this ARTICLE VI may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such employee or agent to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified for
such expenses by the Corporation under this ARTICLE VI or otherwise.
SECTION 6. Rights Not Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other sections
of this ARTICLE VI shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any law, by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
SECTION 7. Insurance. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this ARTICLE VI.
SECTION 8. Definition of Corporation. For the purposes of this
ARTICLE VI, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this ARTICLE VI with respect to the resulting or surviving corporation as he
or she would have with respect to such constituent corporation if its separate
existence had continued.
-14-
<PAGE>
SECTION 9. Definitions with respect to Employee Benefit Plans.
For purposes of this ARTICLE VI, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed upon a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any services as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and the person
who acted in good faith and in manner he or she reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this ARTICLE VI.
SECTION 10. Survival of Rights. The indemnification and
advancement of expenses provided by, or granted pursuant to, this ARTICLE VI
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Dividends. Subject to the provisions of statute and
the Certificate of Incorporation, dividends upon the shares of capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting of the Board of Directors. Dividends may be paid in cash, in
property or in shares of stock of the Corporation, unless otherwise provided by
statute or the Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
SECTION 3. Seal. The seal of the Corporation shall be in such
form as shall be approved by the Board of Directors.
SECTION 4. Fiscal Year. The fiscal year of the Corporation
shall be fixed, and once fixed, may thereafter be changed, by resolution of the
Board of Directors.
-15-
<PAGE>
SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes,
drafts or other orders for the payment of money of the Corporation shall be
signed, endorsed or accepted in the name of the Corporation by such officer,
officers, person or persons as from time to time may be designated by the Board
of Directors or by an officer or officers authorized by the Board of Directors
to make such designation.
SECTION 6. Execution of Contracts, Deeds, Etc. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7. Voting of Stock in Other Corporations. Unless
otherwise provided by resolution of the Board of Directors, the Chairman of the
Board or the President, from time to time, may (or may appoint one or more
attorneys or agents to) cast the votes which the Corporation may be entitled to
cast as a stockholder or otherwise in any other corporation, any of whose shares
or securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. If one or more attorneys
or agents are appointed, the Chairman of the Board or the President may instruct
the person or persons so appointed as to the manner of casting such votes or
giving such consent. The Chairman of the Board or the President may, or may
instruct the attorneys or agents appointed to, execute or cause to be executed
in the name and on behalf of the Corporation and under its seal or otherwise,
such written proxies, consents, waivers or other instruments as may be necessary
or proper in the circumstances.
ARTICLE VIII
AMENDMENTS
These By-Laws may be altered, amended or repealed or new
by-laws adopted (a) by action of the stockholders entitled to vote thereon at
any annual or special meeting of stockholders or (b) if the Certificate of
Incorporation so provides, by action of the Board of Directors at a regular or
special meeting thereof. Any by-law made by the Board of Directors may be
amended or repealed by action of the stockholders at any annual or special
meeting of stockholders.
-16-
CONTRIBUTION AGREEMENT
AGREEMENT, dated as of March 18, 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: /s/ JEFFREY TAUBER
---------------------------
Name: JEFFREY TAUBER
Title: Chairman
MEMBERS:
/s/ JEFFREY TAUBER
------------------------------
JEFFREY TAUBER
/s/ JANE S. TAUBER
------------------------------
JANE S. TAUBER
/s/ DONALD J. WEISS
------------------------------
DONALD J. WEISS
------------------------------
GENESIS DIRECT INC.
By: /s/ WARREN STRUHL
---------------------------
Name: WARREN STRUHL
Title: President
THE JEFFREY S. TAUBER GRANTOR
RETAINED ANNUITY TRUST
By: /s/ Jane S. Tauber
---------------------------
Jane S. Tauber, Trustee
THE JANE S. TAUBER GRANTOR
RETAINED ANNUITY TRUST
By: /s/ Jeffrey S. Tauber
---------------------------
Jeffrey S. Tauber, Trustee
THE DONALD J. WEISS 1997 GRANTOR
RETAINED ANNUITY TRUST
By: /s/ Donald J. Weiss
---------------------------
Donald J. Weiss, Trustee
TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By: /s/ DONALD TOREY
---------------------------
Name: DONALD TOREY
Title: Trustee
/s/ GERALD A. POCH
--------------------------------
GERALD A. POCH
/s/ LEONARD J. FASSLER
--------------------------------
LEONARD J. FASSLER
--------------------------------
PORRIDGE LLC
By: /s/ Arthur J. Samberg
-----------------------------
Name: Arthur J. Samberg
Title: General Partner
7
<PAGE>
BIG WAVE, NV
By: /s/ Michael Hecht
-----------------------------
Name: Michael Hecht
Title: President
CAIRNTON PARTNERSHIP
By: /s/ Graham Allan Cubbin
-----------------------------
Name: Graham Allan Cubbin
Title: Director of Jasopt PTY
Limited, General Partners
of Cairnton Partnership
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
CYBERSHOP INTERNATIONAL, INC.
SECURED PROMISSORY NOTE (THE "NOTE")
$500,000.00 (U.S.) March 19, 1998
FOR VALUE RECEIVED, the undersigned, Cybershop International, Inc., a
Delaware corporation ("Promissor"), hereby promises to pay to Trustees of
General Electric Pension Trust or its assigns ("Promissee"), the principal sum
of FIVE HUNDRED THOUSAND U.S. DOLLARS ($500,000.00) on the Maturity Date (as
defined below), with interest (computed on the basis of a 360 day year of twelve
30 day months) on the unpaid balance thereof at FIFTEEN PERCENT (15.00%) per
annum, compounded semi-annually, commencing on the date hereof and continuing
until the amounts owing hereunder are paid in full.
The Maturity Date of this Note shall be the first to occur of the
following:
(a) Any initial public offering of any class of equity of the Promissor;
(b) Any raising of additional equity or debt capital by the Promissor;
(c) March 31, 1999.
Interest on the principal shall be due and payable semiannually, with the
first payment on September 19, 1998. The principal shall be due and payable in
full on the Maturity Date. Payments of principal of and interest on this Note
shall be made in immediately available funds in lawful money of the United
States of America.
The obligations of Promissor under this Note are secured as set forth in
the Pledge Agreement dated the date hereof between Promissee and Jeffrey S.
Tauber, stockholder of the Promissor, a copy of which is attached hereto and
incorporated herein as Exhibit A (the "Pledge Agreement").
This Note may be prepaid in whole or in part at anytime and from time to
time, without premium or penalty, on ten (10) calendar days prior written notice
from Promissor to Promissee. All prepayments made on this Note shall be applied
first to the payment of all unpaid interest accrued on this Note and then to the
outstanding and unpaid principal amount of this Note as of the date of such
payment.
If Promissor shall fail to make payment in full of any amount of interest
or principal hereunder when due and payable, then, without limiting Promissee's
rights and remedies with respect to such failure, Promissor shall pay default
interest on any overdue interest or principal payment at a rate equal to
SEVENTEEN PERCENT (17.00%) per annum accruing from the date of failure to make
payment until the date payment is made. <PAGE>
If an Event of Default (as defined in the Pledge Agreement) shall occur,
the unpaid balance of the principal and interest of this Note shall
automatically and immediately become due and payable, without the need to give
notice to any person. In addition, the Promissee shall have such rights and
remedies as provided in the Pledge Agreement.
Promissor may not assign this Note without the prior written consent of
Promissee, which may be granted or withheld for any reason or no reason.
Promissee may assign this Note upon notice to Promissor. Subject to this
paragraph, this Note shall be binding upon and inure to the benefit of
Promissor, Promissee and their respective successors, heirs, legal
representatives and permitted assigns.
All parties to this Note, whether maker, principal, surety, guarantor or
endorser, hereby waive presentment for payment, demand, protest, notice of
protest and notice of dishonor.
This Note shall be governed by and in accordance
with the laws of the State of New York.
THIS NOTE IS SUBJECT TO CERTAIN PROVISIONS
OF THE PLEDGE AGREEMENT.
CYBERSHOP INTERNATIONAL, INC.
By: /s/ Jeffrey Tauber
--------------------------------------
Name: Jeffrey Tauber
Title: Chairman
PLEDGE AGREEMENT dated March 19, 1998 ("Pledge Agreement"),
made by Jeffrey S. Tauber ("Pledgor"), to Trustees of General Electric Pension
Trust (the "Pledgee").
WHEREAS, Pledgor is a stockholder of CyberShop
International, Inc., a Delaware corporation (the "Company");
WHEREAS, by Secured Promissory Note (a copy of which is
attached hereto and incorporated herein as Exhibit A) dated of even date
herewith, the Company has agreed to repay to the Pledgee the amount of
$500,000.00, together with interest, in the manner set forth therein (the
"Note").
WHEREAS, it is a requirement of the Note that the Pledgor
shall have granted the security interests contemplated by this Pledge
Agreement.
NOW, THEREFORE, in consideration of the premises and in
order to induce the Pledgee to provide the loan the subject of the Note,
the Pledgor and the Company hereby agree as follows:
SECTION 1. Pledge. Pledgor hereby pledges and grants a
security interest to the Pledgee in the following (the "Pledged Collateral"):
(i) 172,500 shares of the issued and outstanding
shares of common stock of the Company as set forth in Schedule I
annexed hereto and made a part hereof (the "Pledged Shares") and
the certificate representing the Pledged Shares, and all
dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(ii) all additional shares of stock of the
Company, from time to time acquired by Pledgor in any manner, and
the certificates representing such additional shares, and all
dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares; and
(iii) all proceeds of any and all of the
foregoing.
SECTION 2. Security for Obligations. The Pledged Collateral
secures the prompt and complete payment and performance when due of all of the
obligations of the Company under the Note and the Company and the Pledgor under
this Pledge Agreement (the "Secured Obligations").
SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by the Pledgee pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance
<PAGE>
satisfactory to the Pledgee. The Pledgee shall have the right, at any time in
its discretion and without notice to Pledgor, to transfer to or to register in
the name of the Pledgee or any of its nominees any or all of the Pledged
Collateral, subject only to the revocable rights specified in Section 6(a). In
addition, the Pledgee shall have the right at any time to exchange certificates
or instruments representing or evidencing Pledged Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 4. Representations and Warranties. Each of the Pledgor
and the Company, jointly and severally, represents and warrants to the Pledgee
as follows:
(i) The Pledged Shares have been duly authorized
and validly issued and are fully paid and non-assessable.
(ii) The Pledgor is the sole legal and beneficial
owner of the Pledged Collateral, which Pledgor has not previously
sold, assigned or transferred and which is free and clear of any
lien, option, right, right of preemption or other charge or
encumbrance, except for the security interest created by this
Pledge Agreement.
(iii) The pledge of the Pledged Shares pursuant to
this Pledge Agreement, upon delivery of the stock certificate as
provided in Section 3 hereof, creates a valid and perfected first
priority security interest in the Pledged Collateral securing the
payment of the Secured Obligations.
(iv) No authorization, approval or other action
by, and no notice to or filing with, any governmental or
regulator authority or any person is required either (i) for the
pledge by the Pledgor of the Pledged Collateral pursuant to this
Pledge Agreement or for the execution, delivery or performance of
the Pledge Agreement by the Pledgor or the Company, or (ii) for
the exercise by the Pledgee of the voting or other rights
provided for in this Pledge Agreement or the remedies in respect
of the Pledged Collateral pursuant to this Pledge Agreement.
(v) This Pledge Agreement and the pledge created
hereby is in full compliance with the terms of all documents,
instruments and agreements relating to the Company or among the
Company's shareholders, including, without limitation, the
Company's certificate of incorporation, by-laws, shareholders'
agreements and registration rights agreements.
(vi) The Pledged Shares constitute the percentage
of all issued and outstanding shares of stock of the Company as
set forth on Schedule I.
(vii) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware,
has the corporate power and authority to own its assets and to
transact its business and is duly qualified under the laws of
each jurisdiction in which such qualification is required.
(viii) The Note and this Pledge Agreement is a legal,
valid and binding obligation of the Company and the Pledgor (with
respect to the Pledge Agreement), enforceable against the Company
and the Pledgor in accordance with its respective terms.
<PAGE>
(ix) The execution, delivery and performance of the Note
and this Pledge Agreement by the Company have been duly
authorized by all necessary corporate action and do not and will
not contravene its articles of incorporation or bylaws.
(x) The execution, delivery and performance of the Note
and this Pledge Agreement do not and will not (1) require any
consent which has not been obtained; (2) violate any provision of
law or require filing or registration with any governmental
authority; (3) result in a breach or constitute a default under
or require any consent under any indenture or loan or credit
agreement, any other agreement, lease or instrument to which the
Company or the Pledgor is a party or by which any of its property
is bound; (4) result in, or require, the creation or imposition
on any lien, security interest or other encumbrance upon or with
respect to any of its properties now owned or hereafter acquired;
or (5) cause the Company or the Pledgor to be in default under
any law, order, writ, judgment, injunction, decree, agreement,
lease or instrument.
SECTION 5. Further Assurances. The Pledgor and the Company
agree that at any time and from time to time, at the expense of the Pledgor and
the Company, as the case may be, it will promptly execute and deliver all
reasonable further instruments and documents, and take all reasonable further
action, that may be necessary or desirable, or that the Pledgee may request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Pledgee to exercise and enforce its rights and
remedies hereunder with respect to any Pledged Collateral.
SECTION 6. Voting Rights; Dividends; Etc. (a) So long as no
Event of Default (as defined below) shall have occurred:
(i) The Pledgor shall be entitled to exercise
any and all voting and other consensual rights pertaining to the
Pledged Collateral or any part thereof for any purpose not
inconsistent with the terms of this Pledge Agreement; provided,
however, that the Pledgor shall not exercise or refrain from
exercising any such right if, in the Pledgee's sole judgment,
such action would modify or in any way adversely change Pledgor's
or Pledgee's rights under the Pledged Collateral or any part
thereof.
(ii) Notwithstanding the foregoing, any and all
(A) dividends paid or payable and
instruments and other property received, receivable or otherwise distributed in
respect of, or in exchange for, any Pledged Collateral,
(B) dividends and other distributions paid
or payable in cash in respect of any Pledged Collateral in connection with a
total liquidation or dissolution, and
(C) cash paid, payable or otherwise
distributed in respect of principal of, or in redemption of, or in exchange for,
any Pledged Collateral,
<PAGE>
shall be, and shall be forthwith delivered to the Pledgee to hold as, Pledged
Collateral and shall, if received by Pledgor, be received in trust for the
benefit of the Pledgee, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to the Pledgee as Pledged Collateral in the
same form as so received (with any necessary endorsement).
(b) Upon the occurrence of an "Event of Default" which
shall mean any one of the following events:
(1) Any representation or warranty made by the
Company or the Pledgor in the Note or this Pledge Agreement shall
prove to be incorrect in any material respect as of the time when
made;
(2) The Company or the Pledgor shall be in
material breach of any covenant or agreement set forth in the
Note or this Pledge Agreement;
(3) The Pledged Collateral or any interest therein
shall be sold, assigned, transferred or otherwise disposed of, or
any option or right shall be granted with respect to the Pledged
Collateral or any interest therein, or the Pledged Collateral or
any interest therein shall be pledged, mortgaged or otherwise
encumbered in any manner other than in favor of the Pledgee as
contemplated in this Pledge Agreement;
(4) The Company shall fail to make payment when
due of any principal or interest with respect to the Note; or
(5) The Company or the Pledgor shall become
insolvent or bankrupt, make an assignment for the benefit of its
creditors or admit in writing its inability to, or be generally
unable to, pay its debts as they become due, or the Company or
the Pledgor shall have a trustee, receiver or custodian appointed
in respect of it or all or a substantial portion of its property
or to take advantage of any law relating to bankruptcy,
insolvency, reorganization, liquidation or winding up with
respect to it.
(i) Upon the request of the Pledgee, all rights
of Pledgor to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise pursuant to
Section 6(a)(i) and to receive the dividends, principal or
interest payments which it would otherwise be authorized to
receive and retain pursuant to Section 6(a)(ii) shall cease, and
all such rights shall thereupon become vested in the Pledgee, and
the Pledgee shall thereupon have the sole right to exercise such
voting and other consensual rights and to receive and hold as
Pledged Collateral such dividends, principal or interest
payments.
(ii) All dividends, principal or interest
payments which are received by Pledgor contrary to the provisions
of paragraph (i) of this Section 6(b) shall be received in trust
for the benefit of the Pledgee, shall be segregated from other
funds of Pledgor and shall be forthwith paid over to the Pledgee
as Pledged Collateral in the same form as so
received (with any necessary endorsement).
<PAGE>
SECTION 7. Transfers and Other Liens; Additional Shares. (a)
Pledgor agrees that it will neither (i) sell or otherwise dispose of, or grant
any option with respect to, any of the Pledged Collateral, nor (ii) create or
permit to exist any security interest, or other charge or encumbrance upon or
with respect to any of the Pledged Collateral, except for the security interest
under this Pledge Agreement.
(b) Pledgor agrees that it will cause the Company, and the
Company agrees, not to issue any stock or other securities in addition to
or in substitution for the Pledged Shares.
SECTION 8. Pledgee Appointed Attorney-in-Fact. Pledgor hereby
appoints the Pledgee, Pledgor's attorney-in-fact, with full authority in the
place and stead of Pledgor and in the name of Pledgor or otherwise, to take any
action and to execute any instrument which the Pledgee may deem necessary or
advisable to accomplish the purposes of this Pledge Agreement, including,
without limitation, to receive, endorse and collect all instruments made payable
to Pledgor representing any dividend, interest payment or other distribution or
payment in respect of the Pledged Collateral or any part thereof and to give
full discharge for the same.
SECTION 9. Pledgee May Perform. If Pledgor fails to perform
any agreement contained herein, the Pledgee may itself perform or cause
performance of, such agreement, and the expenses of the Pledgee incurred in
connection therewith shall be payable by Pledgor under Section 12.
SECTION 10. The Pledgee's Duties and Reasonable Care. The
powers conferred on the Pledgee hereunder are solely to protect its interests in
the Pledged Collateral and shall not impose any duty upon it to exercise any
such powers. The Pledgee shall be deemed to have exercised reasonable care in
the custody and preservation of the Pledged Collateral in its possession if the
Pledged Collateral is accorded treatment substantially equal to that which the
Pledgee accords its own property, it being understood that the Pledgee shall
have no responsibility for (a) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Pledged Collateral, whether or not the Pledgee has or is deemed to have
knowledge of such matters, or (b) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.
SECTION 11. Remedies. If any Event of Default shall have
occurred:
(a) The Pledgee may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein
or otherwise available to it, all the rights and remedies of a secured
party on default under the Uniform Commercial Code (the "Code") in effect
in the State of New York at that time, and the Pledgee may also, without
notice, except as specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange,
broker's board or at any of the Pledgee's offices or elsewhere, for cash,
on credit or for future delivery, and upon such other terms as the Pledgee
may deem commercially reasonable. Pledgor agrees that, to the extent
notice of sale shall be
<PAGE>
required by law, at least five (5) calendar days' notice to the Pledgor of
the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Pledgee
shall not be obligated to make any sale of Pledged Collateral regardless
of notice of sale having been given. The Pledgee may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) Any cash held by the Pledgee as Pledged Collateral and
all cash proceeds received by the Pledgee in respect of any sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral may, in the discretion of the Pledgee, be held by the Pledgee
as collateral for, and/or then or at any time thereafter applied (after
payment of any amounts payable to the Pledgee pursuant to Section 12) in
whole or in part by the Pledgee against, all or any part of the Secured
Obligations in such order as the Pledgee shall elect. Any surplus of such
cash or cash proceeds held by the Pledgee and remaining after payment in
full of all the Secured Obligations shall be paid over to the Pledgor or
to whosoever may be lawfully entitled to receive such surplus. If the
proceeds of the sale of the Pledged Collateral are insufficient to pay all
the Secured Obligations, Pledgor agrees to pay upon demand any deficiency
to the Pledgee.
SECTION 12. Indemnity and Expenses. (a) Pledgor and the
Company, jointly and severally, hereby indemnify the Pledgee from and against
any and all claims, losses, damages and liabilities growing out of or resulting
from this Pledge Agreement or the Note (including, without limitation,
enforcement of this Pledge Agreement or the Note).
(b) Pledgor and the Company, jointly and severally, will
upon demand pay to the Pledgee the amount of any and all expenses,
including the reasonable fees and expenses of its counsel (including,
without limitation, Dewey Ballantine LLP) and of any experts and agents,
which the Pledgee may incur in connection with (i) the preparation and
negotiation of this Pledge Agreement and the Note and other documents and
agreements executed and delivered in connection with the transactions
contemplated hereby and thereby (which amount shall be paid on or prior to
the funding of the loan by the Pledgee to the Company); (ii) any amendment
to this Pledge Agreement or the Note; (iii) the administration of this
Pledge Agreement or the Note; (iv) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Pledged
Collateral; (iv) the exercise or enforcement of any of the rights of the
Pledgee hereunder or under the Note; or (v) the failure by the Pledgor or
the Company to perform or observe any of the provisions hereof or Note.
SECTION 13. Amendments, Etc. No amendment or waiver of any
provision of this Pledge Agreement or the Note, nor consent to any departure by
the Company or the Pledgor herefrom or therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Company, the
Pledgor and the Pledgee, and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
<PAGE>
SECTION 14. Addresses for Notices. All notices and other
communications provided for hereunder or under the Note shall be in writing and
mailed or delivered by messenger or sent by facsimile, addressed to it at the
following address:
if to the Pledgor: Jeffrey S. Tauber, Cybershop International, Inc., 130
Madison Avenue, New York, NY 10016; facsimile _____________.
if to the Pledgee: Trustees of the General Electric Pension Trust, 3003
Summer Street, P.O. Box 7900, Stamford, CT 06904-7900; facsimile
(203)326-2312; attention Michael M. Pastore.
if to the Company: Cybershop International, Inc., 130 Madison Avenue, New
York, NY 10016; facsimile ________________; attention: Jeffrey S. Tauber.
or at such other address as shall be designated by such party in a written
notice to each other party complying as to delivery with the terms of this
Section. All such notices and other communications shall, when mailed or
delivered by messenger or sent by facsimile, respectively, be effective
when received in the mails or delivered to the messenger or sent by
facsimile, respectively, addressed as aforesaid.
SECTION 15. Continuing Security Interest; Transfer of Notes.
This Pledge Agreement shall create a continuing security interest in the Pledged
Collateral and shall (i) remain in full force and effect until performance and
payment in full of the Secured Obligations, (ii) be binding upon the Pledgor,
its successors and assigns, and (iii) inure to the Pledgee and its respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), the Pledgee may assign or otherwise transfer all or a
portion of its rights or obligations under this Pledge Agreement or the Note,
upon notice to the Company and the Pledgor, to any transferee (each an
"Assignee"), and such other Assignee shall thereupon become vested with all the
benefits in respect of this Pledge Agreement and the Note granted to the Pledgee
herein, therein or otherwise. Upon the payment and performance in full of the
Secured Obligations, Pledgor shall be entitled to the return, upon its request
and at its expense, of such of the Pledged Collateral as shall not have been
sold or otherwise applied pursuant to the terms hereof.
SECTION 16. Governing Law; Terms. This Pledge Agreement and
the Note shall be governed by and construed in accordance with the laws of the
State of New York.
SECTION 17. Miscellaneous. This Pledge Agreement is in
addition to and not in limitation of any other rights and remedies the Pledgee
may have by virtue of any other instrument or agreement heretofore,
contemporaneously herewith or hereafter executed by the Pledgor or any other
person or Assignee or by law or otherwise. If any provision of this Pledge
Agreement or the Note is contrary to applicable law, such provision shall be
deemed ineffective without invalidating the remaining provisions hereof. The
Pledgee shall not, by any act, delay, omission or otherwise, be deemed to have
waived any of its rights or remedies hereunder.
SECTION 18. Company Consent. The Company hereby consents to
the creation of the pledge in the Pledged Collateral evidenced by this Pledge
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered as of the date first set forth
above.
PLEDGOR:
/s/ Jeffrey Tauber
---------------------------------------
JEFFREY S. TAUBER
PLEDGEE:
TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By:__________________________
Name:
Title:
THE COMPANY:
CYBERSHOP INTERNATIONAL, INC.
By: /s/ Jeffrey Tauber
-----------------------------------
Name: Jeffrey Tauber
Title: Chairman
SCHEDULE I
Attached to and forming a part of that certain Pledge Agreement dated March 19,
1998, by Pledgor to the Pledgee.
<TABLE>
<CAPTION>
Percentage
Class Certificate of Total Par Value Number of
Stock Issuer of Stock Number Stock of Issuer of Shares Shares
------------ -------- ------ --------------- --------- ------
<S> <C> <C> <C> <C> <C>
CyberShop Common 1 4.3% $.001 172,500
International,
Inc.
</TABLE>
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 19, 1998
