<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION l3 OR l5(d) OF
THE SECURITIES EXCHANGE ACT OF l934
For the fiscal year ended December 31, 1999 Commission file number 000-23901
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
---------------------------
GSV, INC.
(Formerly Cybershop International, Inc. and Cybershop.com, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 13-3979226
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
116 Newark Avenue, Jersey City, New Jersey 07302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 234-5000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of
the registrant on March 9, 2000, was approximately $26,656,000. On such date,
the last sale price of registrant's common stock was $2.906 per share. Solely
for the purposes of this calculation, shares beneficially owned by directors,
officers and beneficial owners of in excess of 10% of the registrant's common
stock have been excluded, except shares with respect to which such persons
disclaim beneficial ownership. Such exclusion should not be deemed a
determination or admission by registrant that such persons are, in fact,
affiliates of registrant.
Indicate number of shares outstanding of each of the registrant's
classes of common stock, as of March 9, 2000.
Class Outstanding on March 9, 2000
----- ----------------------------
Common Stock, par value $.001 per share 10,689,228
DOCUMENTS INCORPORATED BY REFERENCE:
Part of the Form 10-K into which
Document the Document is Incorporated
-------- ----------------------------
Definitive Proxy Statement Part III, Items 10, 11, 12 and 13
For 2000 Annual Meeting of Stockholders
<PAGE>
PART I
This Annual Report on Form 10-K and the documents incorporated herein by
reference of GSV, Inc. (referred to as the "Company") contain forward-looking
statements that have been made pursuant to the provisions of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
based on current expectations, estimates, and projections about the Company's
industry, management's beliefs and certain assumptions made by the Company's
management. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates,", "may", "will", "should", or variations of
such words and similar expressions, are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, actual results may differ materially from
those expressed or forecasted in any such forward-looking statements. Such risks
and uncertainties include those set forth herein under " Risks Associated With
New Business Strategy and Newly Acquired Business", as well as those noted in
the documents incorporated herein by reference. Unless required by law, the
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, readers should carefully review the statements set forth in other
reports or documents the Company files from time to time with the Securities and
Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K.
Item 1. Business.
General Development of Business
GSV, Inc. (formerly Cybershop International, Inc. and Cybershop.com,
Inc.) and subsidiaries (the "Company") is an online consumer and direct response
retailer, and in February of 2000 began implementing its new Internet incubator
and investment operations. The Company was founded in 1994, and was incorporated
in October, 1997 in the state of Delaware. Operations began in September 1995
over the Internet at its online retail department store operation cybershop.com,
and, in November 1996 on AOL. Both stores operated as an online department store
offering housewares, electronics, jewelry watches, gifts, gourmet food and more.
In March of 1998 the Company completed its initial public offering ("IPO") of
3,220,000 shares of common stock, raising net proceeds of $18,749,000. During
the fourth quarter of 1998 the Company began operating two more online stores,
egift.com, a gift-oriented site, and electronics.net, a 51% owned joint venture
offering electronics and appliances. During the fourth quarter of 1999 the
remaining 49% interest in electronics.net was assigned to the Company by the
other party to the joint venture, as described more fully below. During the
second quarter of 1999, through the acquisition of The Magellan Group, Inc.
("Magellan"), the Company began operating its Tools for Living division. Tools
for Living offers high quality merchandise in the personal care, health and home
accessories categories as promoted through direct response print media campaigns
in national consumer magazines and through its website www.toolsforliving.com.
In February of 2000 the Company announced a change in its core strategy to an
Internet incubator and investment model, and simultaneously announced its
intention to discontinue the operations of its remaining operating divisions
with the exception of Tools for Living.
Through its Internet incubator and investment operations, the results
of which will be reflected in the Company's year 2000 operating results, the
Company aims to identify and develop attractive early stage Internet companies,
and to provide these companies, as needed, with management, marketing, financing
(including early stage seed capital), human resources, accounting resources, use
of its facilities and its extensive expertise in business development. In
exchange for these services the Company will seek equity positions in these
companies commensurate with the level and nature of services provided and the
stage of their development.
In order to more appropriately reflect its change in core strategy , in
March of 2000 the Company changed its name to GSV, Inc.
The Company's principal executive offices are located at 116 Newark
Avenue, Jersey City, New Jersey, 07302.
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Financial information about segments
Through December 31, 1999, the Company operated in one business segment
only. As a result of the Company's decision, in February 2000, to discontinue
certain operations, and begin implementing its new Internet incubator and
investment operations, in February 2000 it began operating in more than one
business segment.
Narrative description of business
In February of 2000 the Company announced a change in its core strategy
to an Internet incubator and investment model, and simultaneously announced its
intention to discontinue the operations of its remaining operations with the
exception of Tools for Living.
Internet Incubator and Investment Strategy
Through its Internet incubator and investment operations, the results
of which will be reflected in the Company's year 2000 operating results, the
Company aims to identify and develop attractive early stage Internet companies,
and to provide these companies, as needed, with management, marketing, financing
(including early stage seed capital), human resources, accounting resources, use
of its facilities and its extensive expertise in business development. In
exchange for these services the Company will seek equity positions in these
companies commensurate with the level and nature of services provided and the
stage of their development.
Tools for Living
Effective June 1, 1999 the Company acquired all of the outstanding
common stock of Magellan, in exchange for 1,000,000 shares of the Company's
common stock and $5,000,000 in cash. Through its acquisition of Magellan, the
Company began operating its Tools for Living division.
Tools for Living sells high quality, branded and unique products
through traditional direct marketing channels and through its website
www.toolsforliving.com. Tools for Living's print advertising appears in many of
the nation's leading magazines and newspapers. Reaching about 275 million
readers each month, Tools for Living's advertising appears in Time, People,
Newsweek, U.S. News, Better Homes & Gardens, Popular Mechanics, Popular Science,
Smithsonian, Parade and USA Weekend to name a few. Customers may order products
via phone, mail or the Internet.
Tools for Living's advertisements usually contain between one and five
products and attempt to provide the consumer with a very informative and
detailed description of the products offered. The advertisements are developed
and designed internally and are subject to a multi-level review and approval
process. Each advertisement is market tested through a limited circulation, and
test results must indicate a sufficient level of projected demand to support the
products being offered. Tools for Living's web site offers a full range of
products conveniently organized under the categories of Health and Exercise,
Personal Care, Products for the Home, Watches, Gadgets and Gizmos, and Beauty.
Products chosen for promotion through direct marketing channels and through
toolsforliving.com, usually are not widely distributed in mass channels, and are
often unique and innovative in nature. Many of the products marketed by Tools
for Living are exclusive in the media chosen. Full commitments to market
products are made only after full consideration is given to the direct marketing
test results, margin contribution of the particular products or products and the
fulfillment characteristics of those products.
The profitability of Tools for Living's business is highly dependent on
its ability to actively monitor and manage controllable costs. To allow for
variations in order volume, fulfillment and warehouse demands, characteristic of
the business of Tools for Living, Tools for Living utilizes third party contract
fulfillment services providing complete customer service, pick pack and ship and
warehousing services. These services are provided by Stark Brothers Fulfillment
Services ("Stark"), a division of Foster and Gallagher, and are located in
Louisiana Missouri. Stark has the capacity to ship well in excess of 1,000,000
packages annually which is currently more than sufficient to accommodate Tools
for Living's current and near-term projected order volume.
2
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Through Stark's representatives, customer service representatives are
available 24-hours, seven days a week, throughout the entire year. Customer
service representatives are provided detailed product information, and samples
of the products offered, and have full access to the details of each customer's
individual order and their order history. All customer orders, either through
direct response or via the web site, are processed by Stark's representatives.
Stark utilizes Sigma Micro, a state of the art sales order processing,
fulfillment, warehousing and reporting application. Square footage of storage
capacity available to the Company is in excess of the Company's requirements.
Most packages are shipped within 48-hours of receipt of the customers orders.
Stark utilizes United States Postal Service ("USPS") and United Parcel Service
("UPS") as primary means of shipping packages to customers, and will utilize the
most efficient means to deliver the customer orders depending on the services
provided by either USPS or UPS.
Cybershop.com and electronics.net
Up until February 2000, the Company's operations had included its Cybershop.com
division and electronics.net, its joint venture with Tops Applicance City, Inc.
("TOPS"). The Cybershop.com division consisted of an online and direct market
retail operation, whose online operations consisted of the cybershop.com web
site, and, through the first quarter of 1999, the egift.com website, and the
cybershop.com store located in the Department store area of the AOL shopping
channel. The Cybershop.com division offered discounted, or "off-price", quality
brand-name apparel, appliances, gifts, home accessories, toys, games, and
watches. The web sites offered high quality color pictures and detailed
information and recommendations conveniently organized by brand and category.
The products offered through the Cybershop.com division were promoted in part
through strategic alliances with other online companies such as America Online,
MSN, Excite and Yahoo!, whereby marketing and promotional agreements would be
entered into to promote the Company's products on these companies web sites.
Additionally, the Company engaged in direct marketing techniques to promote
Cybershop.com's products, through advertisement in major print publications
containing pictures and detailed descriptions of the products offered. In
October of 1998, the Company launched electronics.net, which shifted the focus
of electronics from the Cybershop.com web site to the electronics.net site.
Historically, prior to this time, sales of electronics accounted for between 25%
and 35% of Cybershop.com's revenues. Electronics.net offered a wide selection of
brand name electronic merchandise, including television and video equipment,
home and car audio equipment, home appliances, home office equipment and related
accessories. electronics.net's products were promoted through strategic
alliances with other online companies such as Yahoo! and MSN, and the domain
name www.electronics.net would appear in advertisements placed by TOPS and was
imprinted on the TOPS trucks used to transport product.
Both the Cybershop.com and electronic.net operations utilized
proprietary technology developed for use in the online operations consisting of
a publishing system containing information about all items in the online stores,
including retail price, cost, color and size characteristics, which when the
products were available would be published to the web sites. In addition, both
third party and proprietary systems were utilized in the order taking and
fulfillment process functions.
As a result of the Company's decision to cease these operations, it
entered into negotiations to sell the majority of the operating assets of
electronics.net to two former executives of the Company, and in March 2000 sold
the cybershop.com domain name and customer lists in exchange for (i) $100,000 in
cash and (ii) equity in a privately owned company valued at approximately
$900,000.
Employees
As of December 31, 1999 the Company had thirty-seven full-time
employees (including management), including 17 in operations and development,
seven in merchandising and marketing, six in customer service and seven in
general and administrative. As of December 31, 1999, the Company also had three
part-time employees focused on customer service. The Company's employees are not
represented by any collective bargaining organization. The Company has never
experienced work stoppage and considers relations with its employees to be good.
Subsequent to the change of the Company's operations in February 2000, the
number of full-time employees (including management) was reduced to 11.
3
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Trademarks and Patents
GSV, and CyberShop (and its related logo) are United States service
marks of the Company. In addition, the Company has filed intent to use
applications with the United States Patent and Trademark Office for the
following trademarks and/or service marks: the @home department store,
egift.com, electronics.net and Gifts Wrapped & Ready. Any other trade names,
trademarks or service marks appearing in this Annual Report are the property of
their respective owners and are not the property of the Company.
Risks Associated With New Business Strategy and Newly Acquired Business
Internet Incubator and Investment Strategy
The Company recently refocused the core business strategy to an
Internet incubator and investment model, from an online retailing model. The
Company doesn't know whether this strategy will be successful.
The Company expects that its future Internet incubator partner
companies will be in the early stages of development and will have limited or no
revenues. Because these companies, even if successful, typically generate
significant losses while they grow, the Company does not expect its partner
companies to generate income for the foreseeable future, and they may never
generate income. Further, the income, if any, generated by partner companies
will be offset by the losses of other partner companies. Moreover, the Company's
continuing acquisitions of interests in, and establishment of, early stage
partner companies may further delay or prevent profitability. In addition, the
Company expects its expenses to increase significantly as it develops the
infrastructure necessary to implement its new business strategy.
The success of the Company's Internet incubator and investment
operation depends on its ability to identify opportunities to acquire interests
in and to successfully negotiate the terms of any investments it makes. The
Company is currently in active discussions with potential partner companies, but
does not have plans to acquire interests in or establish a specific number of
new partner companies or to commit a target amount of capital to these
transactions. Instead, it continuously seeks to identify opportunities suitable
for its business strategy. The Company's management may fail to properly
identify partner companies in which to acquire interests or to establish and
effectively complete these transactions.
The Company faces intense competition from traditional venture capital
firms, companies with business strategies similar to its own, corporate
strategic investors and other capital. Competitors with business strategies
similar to the Company's own include publicly-held CMGI, Internet Capital Group
and Safeguard Scientifics, Divine Interventures as well as Idealab! and other
private companies. Many of the Company's competitors have more experience
identifying and acquiring interests in businesses and have greater financial and
management resources, brand name recognition and industry contacts than it does.
This intense competition could limit the Company's opportunities to acquire
interests in partner companies or force the Company to pay higher prices to
acquire these interests, which would result in lower returns or losses on
acquisitions. In addition, some of the Company's competitors, including venture
capital firms, private companies with business strategies similar to the
Company's and corporate strategic investors, may have a competitive advantage
over the Company because they have more flexibility in structuring acquisitions
in partner companies as they do not need to acquire majority or controlling
interests in companies to avoid regulation under the Investment Company Act
(see below).
The Company may incur significant costs to avoid investment company
status and may suffer other adverse consequences if deemed to be an investment
company under the Investment Company Act of 1940. The Company may incur
significant costs to avoid investment company status and may suffer adverse
consequences if deemed to be an investment company. Some equity investments in
other businesses made by the Company may constitute investment securities under
the 1940 Act.
The Company may issue shares of its common stock or other equity
securities convertible into our common stock, in the future to raise capital to
carry out its Internet incubator and investment strategy. The Company may also
issue these shares or convertible securities as consideration in acquisitions of
interests of partner companies. These issuances may cause further dilution to
the Company's stockholders.
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Tools for Living
A significant portion of the revenues associated with the Company's
Tools for Living division are derived through direct response print
advertisements placed in national consumer magazines. Each advertisement
identifies a limited number of products, from one to eight, depending on the
size of the advertisement. Accordingly, Tools for Living's revenues are
dependent upon, and may fluctuate materially, based upon, the Company's ability
to successfully obtain cost effective advertising in sufficient quantities, and
in appropriate channels, to support the Company's product offerings. Tools for
Living's revenues are dependent upon, and may fluctuate, based upon, the
Company's ability to successfully obtain appropriate merchandise, which can be
sold at margins sufficient to absorb the cost of promoting the product. During
fiscal 1999 sales of one product accounted for approximately 48% of consolidated
revenues.
From time to time Tools for Living may experience significant short
term cash constraints due to the timing of cash payments made in advance to
reserve advertising space before the advertisement is published, make cash
payments to purchase the applicable product, and the receipt of cash from
customers who elect to use the installment payment plan to purchase the
Company's products. These cash constraints may impair Tools for Livings ability
to secure advertising and merchandise at sufficient volumes and in a timely
manner, consequently impairing Tools for Livings ability to generate revenues.
Tools for Living operates in a highly competitive environment.
Competition comes a variety of sources including catalogers, other direct
marketers and Internet retailers, and department stores. Many competitors are
larger companies with greater financial resources, a wider selection of
merchandise and a greater inventory availability. Increased competition may
adversely affect Tools for Living's business and operating results.
Item 2. Properties.
The Company's corporate headquarters are located at 116 Newark Avenue,
Jersey City, New Jersey 07302. The Company leases approximately 6,800 square
feet of office space at these facilities at a cost of $10,483 per month. The
term of the lease expires in December 31, 2008. 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.
In the second quarter of 1999 the Company began storing and shipping
certain products at a third party warehouse facility in Louisiana, Missouri.
Item 3. Legal Proceedings.
In March 2000, eight purported class actions entitled Ames v.
Cybershop, Ezeir v. Cybershop, Fuechtman v. Cybershop, Kaufman v. Cybershop,
Goldenberg v. Cybershop, Marino v. Cybershop, Waldarman v. Cybershop and Page v.
Cybershop were filed in the United States District Court for the District of New
Jersey against the Company and certain of its current and former officers and
directors. The complaints in those actions allege that the Company violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making or
causing the Company to make materially false and misleading statements about the
Company. The Company intends to vigorously defend these actions.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
5
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information.
The Company's Common Stock began trading on The Nasdaq Stock Market
(National Market) on March 23, 1998 under the symbol "CYSP." The following table
sets forth the range of high and low sales prices for shares of Common Stock for
each fiscal quarter during 1998 as reported by NASDAQ.
Fiscal Year 1999 1998
High Low High Low
---- --- ---- ---
First Quarter (1) $15.750 $6.125 $12.625 $7.000
Second Quarter 17.500 6.125 28.250 9.000
Third Quarter 9.938 5.125 17.250 2.813
Fourth Quarter 14.750 5.125 30.000 2.750
(1) The first quarter of fiscal 1998 contained the trading days between March
23, 1998 through March 31, 1998.
Holders.
As of March 9, 2000, 10,689,228 shares of Common Stock were issued and
were held of record by 89 persons, including several holders who are nominees
for an undetermined number of beneficial owners. The Company believes that there
are approximately 14,100 beneficial owners of Common Stock.
Dividends.
The Company has not declared or paid any cash dividends on its shares
of capital stock and does not anticipate paying cash dividends in the
foreseeable future. It is the present intention of the Board of Directors to
retain earnings, if any.
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Recent Sales of Unregistered Securities
On September 30, 1999, the Company completed a private placement of
equity securities raising gross proceeds of $5.1 million. The financing involved
the issuance of 784,616 shares of common stock at $6.50 per share and warrants
to purchase an aggregate of 156,922 shares of common stock at an exercise price
of $7.50 per share. As part of the financing another class of warrants was
issued ("September adjustable common stock warrants"). The September adjustable
common stock warrants provide the investors with the right to receive additional
shares if the price of the Company's stock trades below certain levels. In
November 1999, 43,668 shares of common stock were issued by the Company to the
investors upon exercise of all of the September adjustable common stock
warrants.
On December 8, 1999, the Company completed a private placement of
equity securities raising gross proceeds of $6.0 million. The financing involved
the issuance of 528,634 shares of common stock at $11.35 per share and warrants
to purchase an aggregate of 237,886 shares of common stock at an exercise price
of $12.00 per share. As part of the financing another class of warrants was
issued ("December adjustable common stock warrants"). The December adjustable
common stock warrants provide the investors with the right to receive additional
shares if the price of the Company's stock trades below certain levels. In
February 2000, 613,486 shares of common stock were issued by the Company to the
investors upon exercise of all of the December adjustable common stock warrants.
7
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Item 6. Selected Financial Data.
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 herein.
<TABLE>
<CAPTION>
For the year ended December 31, 1999 1998 1997 1996 1995
------------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $ 7,019,000 $ 222,000 $ -- $ -- $ --
Advertising & set up fees -- 5,000 -- -- --
------------- ------------ ----------- ---------- ---------
Total revenues 7,019,000 227,000 -- -- --
Cost of revenues 3,796,000 233,000 -- -- --
------------- ------------ ----------- ---------- ---------
Gross profit 3,223,000 (6,000) -- -- --
Operating expenses:
Sales and marketing 2,432,000 314,000 -- -- --
General and administrative 4,240,000 2,236,000 456,000 171,000 49,000
Amortization of goodwill and other
merger and acquisition related costs (1) 1,733,000 -- -- -- --
------------- ------------ ----------- ---------- ---------
Total operating expenses 8,405,000 2,550,000 456,000 171,000 49,000
------------- ------------ ----------- ---------- ---------
Loss from continuing operations before
Interest income and minority interest (5,182,000) (2,556,000) (456,000) (171,000) (49,000)
Interest income, net 245,000 619,000 17,000 3,000 6,000
Minority interest 482,000 385,000 -- -- --
------------- ------------ ----------- ---------- ---------
Loss from continuing operations (4,455,000) (1,552,000) (439,000) (168,000) (43,000)
Discontinued operations: (2)
Loss from operations (5,379,000) (6,415,000) (1,367,000) (482,000) (598,000)
Estimated loss on disposal (435,000) -- -- -- --
------------- ------------ ----------- ---------- ---------
Total discontinued operations (5,814,000) (6,415,000) (1,367,000) (482,000) (598,000)
------------- ------------ ----------- ---------- ---------
Net loss (1) $ (10,269,000) $ (7,967,000) $(1,806,000) $ (650,000) $(641,000)
============= ============ =========== ========== =========
Basic and diluted net loss per common
share: (3)
loss per common share from continuing
operations $ (0.53) $ (0.23) $ (0.12) $ (0.05) $ (0.01)
Effect of adjustable common stock warrants (0.05) -- -- -- --
------------- ------------ ----------- ---------- ---------
loss per common share from continuing
operations including effect of adjustable
common stock warrants (0.58) (0.23) (0.12) (0.05) (0.01)
loss per common share from discontinued
operations (0.64) (0.96) (0.36) (0.16) (0.21)
loss per common share from estimated loss
on discontinued operations (0.05) -- -- -- --
------------- ------------ ----------- ---------- ---------
Net loss per common share including effect of
adjustable common stock warrants $ (1.27) $ (1.19) $ (0.48) $ (0.21) $ (0.22)
============= ============ =========== ========== =========
Weighted average common shares outstanding,
basic and diluted 8,393,000 6,676,000 3,781,000 3,096,000 2,873,000
</TABLE>
(1) See note 3 of Notes to Consolidated Financial Statements
(2) See notes 1 and 4 of Notes to Consolidated Financial Statements
(3) See note 2 of Notes to Consolidated Financial Statements
8
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<TABLE>
<CAPTION>
As of December 31, 1999 1998 1997 1996 1995
------------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 8,471,000 $ 12,285,000 $ 787,000 $ 510,000 $ 111,000
Working capital (deficit) 5,492,000 8,793,000 (328,000) 143,000 (182,000)
Total assets 25,683,000 15,471,000 1,227,000 670,000 332,000
Stockholders' equity (deficit) 20,282,000 10,988,000 (5,000) 251,000 (99,000)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Safe Harbor for Forward-Looking Statements
From time to time, the Company may publish statements which are not
historical fact, but are forward-looking statements relating to such matters as
anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical and anticipated results or other expectations
expressed in the Company's forward-looking statements. Such forward-looking
statements may be identified by the use of certain forward-looking terminology,
such as "may," "will," "expect," "anticipate," "intend," "estimate," "believe,"
"goal," or "continue," or comparable terminology that involves risks or
uncertainties. Actual future results and trends may differ materially from
historical results or those anticipated depending on a variety of factors,
including, but not limited to, those set forth under "Overview" and "Liquidity
and Capital Resources" included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations. Particular attention should be
paid to the cautionary statements involving the Company's limited operating
history, the unpredictability of its future revenues, the unpredictable and
evolving nature of its key markets, the intensely competitive on-line commerce
environment, the Company's dependence on its strategic alliances and key
suppliers and distributors, and the risks associated with capacity constraints,
systems development, the management of growth, the inherent risks and
uncertainties of litigation, the risks of new business areas, as well as such
risks (or others) that exist to any portfolio company in which the Company
invests. Except as required by law, the Company undertakes no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise. Readers, however, should carefully review the facts
set forth in other reports or documents that the Company has filed or files from
time to time with the SEC.
Overview
GSV, Inc. (formerly Cybershop International, Inc. and Cybershop.com,
Inc.) and subsidiaries (the "Company") is a direct response and online consumer
retailer, and in February of 2000 began implementing its new Internet incubator
and investment operations. The Company was founded in 1994 and began operating
its online retail department store operation Cybershop.com in September 1995
through its store on the Internet and, in November 1996, on AOL. Both stores
operated as an online department store offering housewares, electronics, jewelry
watches, gifts, gourmet food and more. In March of 1998 the Company completed
its initial public offering ("IPO") of 3,220,000 shares of common stock, raising
net proceeds of $18,749,000. During the fourth quarter of 1998 the Company began
operating two more online stores, egift.com, a gift-oriented site, and
electronics.net, a 51% owned joint venture offering electronics and appliances.
During the fourth quarter of 1999 the remaining 49% interest in electronics.net
was assigned to the Company by the other party to the joint venture, as
described more fully below. During the second quarter of 1999, through the
acquisition of The Magellan Group, Inc. ("Magellan"), the Company began
operating its Tools for Living division. Tools for Living offers high quality
merchandise in the personal care, health and home accessories categories as
promoted through direct response print media campaigns in national consumer
magazines as well as through its web site. In February of 2000 the Company
announced a change in its core strategy to an Internet incubator and investment
model, and simultaneously announced its intention to discontinue the operations
of its remaining operating divisions with the exception of Tools for Living. The
discontinued operations are described more fully below.
Through its Internet incubator and investment operations, the results
of which will be reflected in the Company's year 2000 operating results, the
Company aims to identify and develop attractive early stage Internet
9
<PAGE>
companies, and to provide these companies, as needed, with management,
marketing, financing (including early stage seed capital), human resources,
accounting resources, use of its facilities and its extensive expertise in
business development. In exchange for these services the Company will seek
equity positions in these companies commensurate with the level and nature of
services provided and the stage of their development.
In order to more appropriately reflect its change in core strategy , in
March of 2000 the Company changed its name to GSV, Inc.
Results of Operations
As discussed below, under Discontinued Operations, the following
discussion of results of operations reflect the results of the Company's Tools
for Living division and electronics.net, as well as general corporate operations
as continuing operations, and the results of the Cybershop.com division have
been reflected as discontinued operations, for all periods presented.
Fiscal Year Ended December 31, 1999 compared to Fiscal Year Ended December 31,
1998
Revenues. Revenue is primarily comprised of sales of products offered
through advertisements placed in major national print publications as well as
through the Company's online stores. Total revenues increased by 2992% or
$6,792,000, from $227,000 in 1998 to $7,019,000 in 1999. This increase was
primarily attributable to the acquisition of Magellan and the establishment of
the Tools for Living division which contributed $5,298,000 or 75% of total
revenues in 1999, and also to the growth of electronics.net which began
operations in the fourth quarter of 1998 and represented all of the revenues for
that year. Electronics.net contributed $1,721,000 or 25% of total revenues in
1999. During 1999 sales of one product accounted for approximately 48% of total
revenues.
Cost of Revenues. Cost of revenues consists primarily of the cost of
products sold to customers, including shipping costs. Costs of revenues
increased by 1529%, or $3,563,000, from $233,000 in 1998 to $3,796,000 in 1999,
primarily due to the increased revenues associated with the Tools for Living
division as well as the growth in revenues of electronics.net. Gross profit
margins were 45.9% in 1999 compared to (2.6%) in 1998. The increase from 1998 to
1999 is primarily attributed to a more favorable product mix in the current year
as compared to the prior year which contained traditionally lower margin
consumer electronics.
Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of advertising, fulfillment, promotional costs and related payroll
expenses. Sales and marketing increased 675%, or $2,118,000, from $314,000 in
1998 to $2,432,000 in 1999. The increase was primarily due to expenditures made
to drive revenues at the Tools for Living division and to sustain the growth of
electronics.net. As a percentage of total revenues, sales and marketing expenses
were 35% in 1999 as compared to 138% in 1998. The increased efficiencies in 1999
are due to the startup nature of electronics.net in 1998, as compared to 1999,
which contained the more mature business of Tools for Living and the later
maturing of electronics.net.
General and Administrative Expenses. General and administrative
expenses consist primarily of payroll and payroll related expenses for
administrative, information technology, accounting, and management personnel,
legal fees and other general corporate expenses. General and administrative
expenses increased 90%, or $2,004,000 from $2,236,000 in 1998 to $4,240,000 in
1999. The increase was primarily due to increased general corporate overhead,
expenditures necessary to support the growth of electronics.net, and also
expenditures present in 1999 related to the Tools for Living division. As a
percentage of total revenues, general and administrative expenses were 60% in
1999 as compared to 985% in 1998. The increased efficiencies in 1999 are due to
increased revenues of electronics.net in 1999, as compared to the startup nature
of electronics.net in 1998, and the acquisition of the more mature business of
Tools for Living.
Amortization of goodwill and other merger and acquisition related
costs. Amortization of goodwill and other merger and acquisition related costs
of $1,733,000 in 1999 consists primarily of goodwill associated with the
purchase of Magellan which is being amortized on a straight line basis over five
years.
10
<PAGE>
Interest Income net. Interest income decreased $374,000 from $619,000
in 1998 to $245,000 in 1999. The decrease is primarily the result of a decrease
in average cash and cash equivalents to $6,132,000 in 1999 from $12,610,000 in
1998.
Minority Interest. Minority interest represents 49% of the net losses
of the joint venture, electronics.net. Minority interest increased $97,000, from
$385,000 in 1998, to $482,000 in 1999.
Net Losses. Loss from continuing operations increased by $2,903,000
from $1,552,000 in 1998, or ($0.23) per basic and diluted common share, to
$4,455,000 in 1999, or ($0.53) per basic and diluted common share. After the
effect of adjustable common stock warrants, as explained further below, loss per
common share from continuing operations was ($0.58) in 1999. Net loss increased
by $2,302,000 from $7,967,000 in 1998, or ($1.19) per basic and diluted common
share, to $10,269,000 in 1999, or ($1.22) per basic and diluted common share.
After the effect of adjustable common stock warrants net loss per common share
was ($1.27) in 1999.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997
Revenues. Total revenues in 1998 were $222,000, which consisted solely
of the revenues associated with electronics.net which began operations in the
fourth quarter of 1998. Consequently 1997 did not have revenues.
Cost of Revenues. Cost of revenues in 1998 were $233,000, which
consisted solely of the cost of product sold through electronics.net.
Consequently, 1997 did not have cost of revenues. Gross profit margins in 1998
were (2.6%) reflecting traditionally lower margin consumer electronics, higher
than anticipated shipping costs, and aggressive pricing as part of an overall
customer acquisition strategy.
Sales and Marketing Expenses. Sales and marketing expenses in 1998 were
$314,000, which reflect the startup of electronics.net.
General and Administrative Expenses. General and administrative
expenses increased 390%, or $1,780,000 from $456,000 in 1997 to $2,236,000 in
1998. The increase was primarily due to increased general corporate overhead as
the Company began building infrastructure subsequent to its IPO in March of
1998, as well as expenditures necessary to support the startup of
electronics.net.
Interest Income, net. The increase from 1997 to 1998 is primarily due
to the interest income earned on the remaining net proceeds from the Company's
IPO in March 1998.
Minority Interest. Minority interest of $385,000 in 1998 represents 49%
of the net loss of the joint venture, electronics.net.
Net Losses. Loss from continuing operations increased by $1,113,000
from $439,000 in 1997, or ($0.12) per basic and diluted common share, to
$1,552,000 in 1998, or ($0.23) per basic and diluted common share. Net loss
increased by $6,161,000 from $1,806,000 in 1997, or ($0.48) per basic and
diluted common share, to $7,967,000 in 1998, or ($1.19) per basic and diluted
common share.
Selected Quarterly Results of Operations
The following table sets forth unaudited quarterly 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
Annual Report on Form 10-K.
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended (Dollars in Thousands, except per share amounts)
---------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. Dec. 31,
1998 1998 1998 1998 1999 1999 30, 1999 1999
-------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ -- $ -- $ -- $ 227 $ 326 $ 1,529 $ 2,427 $ 2,737
Gross profit -- -- -- (6) (16) 849 1,279 1,111
Loss from continuing
operations (167) (108) (310) (967) (663) (478) (1,101) (2,213)
Loss from discontinued
operations (617) (1,539) (843) (3,416) (1,175) (1,395) (1,062) (1,747)
Estimated loss on disposal of
discontinued operations -- -- -- -- -- -- -- (435)
Net loss (784) (1,647) (1,153) (4,383) (1,838) (1,873) (2,163) (4,395)
loss per basic and diluted
common share from continuing
operations before the effect
of adjustable common stock
warrants (0.04) (0.01) (0.04) (0.13) (0.09) (0.06) (0.13) (0.23)
loss per basic and diluted
common share from continuing
operations including effect
of adjustable common stock
warrants (0.04) (0.01) (0.04) (0.13) (0.09) (0.06) (0.13) (0.27)
loss per basic and diluted
common share from discontinued
operations (0.14) (0.21) (0.11) (0.46) (0.16) (0.18) (0.12) (0.18)
loss per basic and
diluted common share from
disposal of discontinued
operations -- -- -- -- -- -- -- (0.05)
Net loss per basic and
diluted common share before
the effect of adjustable
common stock warrants (0.18) (0.22) (0.15) (0.59) (0.25) (0.24) (0.25) (0.46)
Net loss per basic and
diluted common share
including the effect of
adjustable common stock
warrants (0.18) (0.22) (0.15) (0.59) (0.25) (0.24) (0.25) (0.50)
</TABLE>
As a result of the acquisition of Dealaday, Inc, as discussed below,
which was accounted for as a pooling of interests, net losses for the three
months ended March 31, 1998, June 30, 1998, September 30, 1998 and December 31,
1998 include the net losses of Dealaday in loss from discontinued operations in
the amounts of $9,000, $27,000, $35,000 and $8,000, respectively.
In calculating the effect on the basic and diluted net loss per common
share calculation, of the common stock issued as a result of the adjustable
common stock warrants exercised by the parties to the September 30, 1999
12
<PAGE>
private placement, as described further below, the market value of the Company's
common stock on the last day of the first of the three adjustment periods, of
$9.19, was multiplied by the number of common shares issued upon exercise of
these warrants, resulting in a valuation for loss per common share purposes of
$401,000.
Liquidity and Capital Resources
On March 26, 1998, the Company completed its initial public offering
("IPO") of 3,220,000 shares of Common Stock at a price of $6.50 per share. Net
proceeds from the IPO, net of underwriting discounts and offering costs were
$18,749,000. Prior to the IPO, the Company had financed its operations primarily
from capital contributions from private investors.
On September 30, 1999 the Company completed a private placement of
equity securities raising gross proceeds of $5.1 million. The financing involved
the issuance of 784,616 shares of common stock at $6.50 per share and warrants
to purchase an aggregate of 156,922 shares of common stock at an exercise price
of $7.50 per share with a term expiring on September 30, 2004. The sale price of
the Company's common stock and the exercise price of the warrants issued in the
private placement were both higher than the last reported sale price of $5.81 on
the Nasdaq National Market on September 30, 1999. As part of the financing
another class of warrants were issued ("September adjustable common stock
warrants"). These warrants provided the investors with the right to receive
additional shares at an exercise price of $.001 per share if the price of the
Company's stock traded below certain levels during 22 consecutive business days
("adjustment period"), after the effective date of a registration statement
filed with the Securities and Exchange Commission ("the SEC"). A formula was
applied to one-third of the shares sold. That formula was based on determining
the average of the twelve lowest closing bid prices in the adjustment period.
This average lowest bid price was divided into a number equal to one-third of
the shares sold multiplied by the difference between $7.56 and the average
lowest bid price. In November 1999, 43,668 shares of common stock were issued by
the Company to the investors pursuant to the September adjustable common stock
warrants.
On December 8, 1999 the Company completed another private placement of
equity securities with the same investors raising gross proceeds of $6.0
million. The financing involved the issuance of 528,634 shares of common stock
at $11.35 per share and warrants to purchase an aggregate of 237,886 shares of
common stock at an exercise price of $12.00 per share with a term expiring on
December 8, 2004. The sale price of the common stock and the exercise price of
the warrants issued in the private placement were both higher than the last
reported sale price of $9.063 on the Nasdaq National Market on December 8, 1999.
As part of the financing another class of warrants were issued ("December
adjustable common stock warrants"). These warrants provided the investors with
the right to receive additional shares at an exercise price of $.001 per share
if the price of the Company's stock traded below certain levels during the 40
trading day period following the effective date of a registration statement
filed with the SEC. A formula was applied to the 528,634 shares sold. That
formula was based on determining the average of the twenty lowest closing bid
prices in the 40 trading day period. This average lowest bid price was divided
into the number of the shares sold multiplied by the difference between $11.35
and the average lowest bid price. In February 2000, 613,486 shares of common
stock were issued by the Company to the investors upon exercise of the December
adjustable common stock warrants
Under the terms of each of the September 30, 1999 and December 8, 1999
private placements, the Company agreed to register with the SEC the resale of
the shares sold as well as the shares underlying the warrants. The Company is
obligated to use its best efforts to keep the registration statements effective
for up to two years. The Company will incur substantial penalties if it fails to
meet these obligations. None of the investors, together with any affiliate
thereof, may beneficially own shares in excess of 4.999% of the outstanding
shares of common stock of the Company. Such restrictions may be waived by each
selling stockholder as to itself upon not less than 61 days' notice to the
Company.
At the Company's Annual Meeting of Stockholders held on June 3, 1999, the
Company's stockholders approved an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock that the Company
is authorized to issue from 25,000,000 to 75,000,000.
13
<PAGE>
The sufficiency of the Company's capital resources is substantially
dependent upon the number of investments the Company funds. Accordingly, it is
difficult to project the Company's capital needs. The Company, however, believes
that its existing capital resources will enable it to maintain its current
operations for, at least, the next twelve months.
Net cash used in operations was $7,782,000, $5,630,000 and $1,177,000
in 1999, 1998 and 1997, respectively, primarily as a result of net losses
generated during those periods. From time to time the Company may experience
material increases in the level of customer accounts receivables, primarily as a
result of the installment payment plan available to customers who purchase one
of the Company's most significant products. This is reflected in the increase in
accounts receivable, net of $938,000 in 1999. Additionally, the Company may make
payments to vendors for print advertising in advance of the time the advertising
is published. This is reflected in the increase in prepaid expenses and other
current assets of $622,000 in 1999. These uses of cash were partially offset by
decreases in inventory of $144,000 and accounts payable and accrued liabilities
of $900,000 in 1999.
Net cash used in investing activities was $7,419,000, $2,016,000 and
$89,000 in 1999, 1998 and 1997, respectively. Purchases of property and
equipment in those periods were $655,000, $2,016,000 and $89,000, respectively,
and were primarily for computer equipment and software to support the Company's
expansion and increased infrastructure, leasehold improvements, and furniture
and equipment relating to the Company's relocation to new office space in 1998.
Effective August 1998, the Company entered into a 10-year, five month lease for
space in Jersey City, New Jersey. The Company made capital expenditures for
leasehold improvements, furniture and equipment relating to this space of
approximately $587,000 in 1998. The Company moved into the new space in late
August, 1998. No other material commitments for capital expenditures are
currently outstanding or contemplated.
During 1999, the Company's changed the fulfillment operation of
Cybershop.com from a vendor drop ship model to maintaining inventory in a third
party warehouse for the majority of the merchandise offered on the cybershop.com
online store. As a result the Company implemented a new sales order processing
and warehouse system to accommodate this change in fulfillment strategy.
Additionally, the Company upgraded its existing financial and accounting
software. Primarily as a result of these changes, the Company recorded a charge
in the fourth quarter of 1999 of $517,000 for the loss on disposal of property
and equipment.
In the fourth quarter of 1998, the Company recorded a charge of
approximately $750,000 representing costs previously capitalized during 1998 in
connection with the development of an expanded front-end order entry system.
Based on the growth of its existing business and the projected growth of planned
business acquisitions, it had been determined that these requirements would be
more effectively handled through the combined use of an expansion of
pre-existing front-end systems offered by third parties supplemented by in-house
systems. The Company has not capitalized any internal costs as part of its
expansion.
Acquisitions of businesses, net of cash acquired of $6,764,000 in 1999,
was primarily related to the acquisition of Magellan, as described more fully
below.
Net cash provided from financing activities was $11,387,000,
$19,144,000 and $1,543,000 in 1999, 1998 and 1997, respectively. The majority of
the net cash provided from financing activities in 1999 was the result of the
two private placement of the Company's common stock discussed above. The primary
source of cash from financing activities in 1998 was the Company's IPO, as
discussed above. Net cash provided by financing activities in 1997 was primarily
the result of capital contributions from private investors.
Acquisitions
Effective June 1, 1999 the Company acquired all of the
outstanding common stock of Magellan, a direct response and online retailer of
high quality personal care, home and health related products, in exchange for
1,000,000 shares of the Company's common stock and $5,000,000 in cash. The
acquisition was accounted for as a purchase with essentially all of the
$14,870,000 purchase price allocated to goodwill. The results of Magellan are
included in the Company's consolidated financial results beginning on the date
of acquisition. In addition, the Company is required to pay the former
shareholders of Magellan earn-out payments based upon the profitability of a
particular product through May 31, 2001. As of December 31, 1999, $467,000 of
earn-out payments have been
14
<PAGE>
made, and accounted for as part of the purchase price. Concurrent with the
acquisition, one of these former shareholders of Magellan was appointed a member
of the Company's board of directors.
The pro forma unaudited combined consolidated financial
information for the 12 months ended December 31, 1999 and 1998, as though
Magellan had been acquired on January 1, 1998, would have resulted in net sales
of $9,790,000 and $5,277,000, net loss of $11,970,000 and $10,922,000, and basic
and diluted net loss per share including effect of adjustable common stock
warrants of ($1.40) and ($1.42), respectively. The pro forma unaudited net loss
includes amortization of goodwill of $2,933,000 and $2,881,000 for the 12 months
ended December 31, 1999 and 1998, respectively. This unaudited pro forma
combined consolidated financial information is presented for illustrative
purposes only and is not necessarily indicative of the consolidated results of
operations in future periods or the results that actually would have been
realized had the Company and Magellan been a combined company during the
specified periods.
On March 24, 1999 the Company issued 250,000 shares of common
stock in exchange for all of the outstanding common stock of Dealaday, Inc
("Dealaday"). Dealaday, an Internet retailer targeting off-price branded women's
and children's apparel and accessory products, began operations in February
1998. The transaction was accounted for as a pooling of interests and, as a
result, the Company's financial statements have been restated for all periods
presented.
Separate results for Dealaday included in loss from
discontinued operations in the accompanying consolidated statements of
operations for the periods prior to the acquisition consisted of net sales and
net losses for the 12-month period ending December 31, 1999 of $90,000 and
$42,000, respectively, and net sales and net losses for the 10-month period
ending December 31, 1998 of $240,000 and $78,000, respectively.
Discontinued Operations
As discussed above, in February of 2000 the Company announced
a change in its core strategy to an Internet incubator and investment model, and
simultaneously announced its intention to discontinue the operations of its
remaining operations with the exception of Tools for Living. As a result the
Company has entered into negotiations to sell the majority of the operating
assets of electronics.net to two former executives of the Company, as discussed
below, and in March 2000 sold the cybershop.com domain name and customer lists
in exchange for (i) $100,000 in cash and (ii) equity in a privately owned
company valued at approximately $900,000 (see Investment in ECS below).
Accordingly, the consolidated financial statements and accompanying notes
reflect the operating results of Tools for Living and electronics.net as
continuing operations. The operating results of the Cybershop.com division are
reflected as discontinued operations and an estimated loss on disposal of
$435,000 has been recorded. Total revenues applicable to the Cybershop.com
division during 1999, 1998 and 1997 were $2,898,000, $4,827,000, and $1,495,000,
respectively.
Total revenues for the Cybershop.com division decreased in 1999 from
1998 as the result of several factors, including:
o the startup of the Company's new joint venture, electronics.net,
in the fourth quarter of 1998 which shifted the sales focus of
electronics products from the Cybershop.com stores to
electronics.net. Sales of electronics on the Cybershop.com stores
prior to the fourth quarter of 1998 had historically contributed
between 25% and 35% of Cybershop.com's revenues.
o the closing of the egift.com store, whose operations are reflected
within the Cybershop.com division, in the first quarter of 1999,
which contributed approximately 14% of the division's revenues in
1998 and 3% in 1999,
o the closing of the Cybershop "Rainman" AOL store in the first
quarter of 1999, due to AOL's decision to no longer offer this
proprietary platform. The Cybershop AOL store contributed
approximately 42% of the divisions revenues in 1998 and 11% in
1999.
Total losses generated by the Cybershop.com division during 1999, 1998
and 1997 were $5,379,000, $6,415,000 and $1,367,000, respectively.
15
<PAGE>
electronics.net
electronics.net, the Company's joint venture with Tops
Appliance City ("TOPS"), was formed in June 1998 and began operations in the
fourth quarter of 1998, as an online retail consumer website offering consumer
electronics, appliances, home office equipment and related accessories. At the
time of inception the joint venture was 51% owned by the Company and 49% by
TOPS. In September of 1999, TOPS, the joint venture's primary supplier of
merchandise, announced its intention to discontinue selling consumer
electronics. As a result, effective November 15, 1999, TOPS exited the joint
venture and assigned its membership interest without cost to the Company.
Additionally, in the event of any sale of the rights to the name and web site
address of the joint venture, the net proceeds therefrom shall be distributed
51% to the Company and 49% to TOPS. As a result of the above, electronics.net
has been accounted for in the accompanying consolidated financial statements as
a 51% owned subsidiary from inception through November 15, 1999 and as a wholly
owned subsidiary thereafter. Accordingly, the net losses attributable to TOPS'
interest in electronics.net from inception through November 15, 1999 have been
reflected as minority interest in the accompanying consolidated statements of
operations.
As of December 31, 1999 and 1998 amounts owed by TOPS to the Company,
representing TOPS' obligation under the joint venture operating agreement exist
in the amount of $622,000 and $140,000, respectively. These amounts have been
classified as other assets in the accompanying consolidated balance sheets. As
of December 31, 1999 and 1998, amounts owed by the Company to TOPS,
representing, primarily, the cost of merchandise supplied to the joint venture
by TOPS, was $910,000 and $190,000, respectively. In February of 2000 TOPS filed
a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the District of New Jersey.
As a result of the Company's decision in February 2000 to discontinue
certain online retailing operations including electronics.net, the Company has
entered into a letter of intent with two former executives of the Company for
the sale of the majority of the operating assets of electronics.net. In exchange
for these assets, the Company would receive 19.9% of the outstanding equity of a
company newly formed ("Newco") by the two former executives as well as a note
convertible into common stock of Newco, subject to certain conditions. The
Company expects to account for its investment in Newco using the equity method
of accounting.
Investment in ECS
As discussed above, in March 2000, the Company sold the Cybershop.com
domain name and customer lists to e-Commerce Solutions, LLC ("ECS") in exchange
for $100,000 cash and 150,000 shares of common stock of ECS. Based upon a recent
valuation, pursuant to a private placement by ECS, the value of the common stock
received is approximately $900,000. ECS is a developer and operator of
customized online marketplaces for merchants and major Internet portals and
destination sites, currently operating approximately 100 sites.
ECS, using its proprietary technology, enables client sites to
immediately offer e-commerce retail platforms by distributing merchants on the
clients' web sites. ECS aims to provide a full suite of services to its
merchants to enable them to be a part of the online marketplace at a reduced
cost, and in less time than if they established their own site. In addition, ECS
provides client sites with a private label turnkey e-commerce shopping system to
improve profitability at a lower cost and, and in less time than building and
implementing their own shopping site.
Litigation
In March 2000, eight purported class actions entitled Ames v.
Cybershop, Ezeir v. Cybershop, Fuechtman v. Cybershop, Kaufman v. Cybershop,
Goldenberg v. Cybershop, Marino v. Cybershop, Waldarman v. Cybershop and Page v.
Cybershop were filed in the United States District Court for the District of New
Jersey against the Company and certain of its current and former officers and
directors. The complaints in those actions allege that defendants violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making or
causing the Company to make materially false and misleading statements about the
Company. The Company intends to vigorously defend these actions.
16
<PAGE>
Year 2000
Prior to December 31, 1999 the Company believed that its computer
system and software products were fully year 2000 compatible. The initial
rollover period was successful with no significant problems encountered. No
internal business interruption was experienced, and direct costs associated with
Year 2000 remedies were not material. The Company does not expect to experience
any material residual effects or costs related to the Year 2000 compliance issue
in the future.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivatives and for hedging activities. As issued, SFAS
No. 133 was effective for all quarters of all years beginning after June 15,
1999. In June 1999, SFAS No. 137 was issued, effectively deferring the date of
required adoption of SFAS No. 133 to quarters of all years beginning after June
15, 2000. The Company is studying the statement to determine its effect on the
consolidated financial position or results of operations, if any. The Company
will adopt SFAS No. 133, as required, in fiscal year 2001.
Item 8. Financial Statements and Supplementary Data.
The financial information required by Item 8 is included elsewhere in
this report. See Part IV, Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required with respect to directors and executive
officers and the information required by Rule 405 of Regulation S-K is set forth
in the Company's definitive Proxy Statement to be filed pursuant to Regulation
14A and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required is set forth under the captions "Executive
Compensation" and "Certain Transactions" in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required is set forth under the caption "Security
Ownership of Certain Beneficial Owners" in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A and is incorporated herein by
reference.
17
<PAGE>
Item 13. Certain Relationships and Related Transactions.
The information required is set forth under the caption "Certain
Transactions" in the Company's definitive Proxy Statement to be filed pursuant
to Regulation 14A and is incorporated herein by reference.
18
<PAGE>
PART IV
Item l4. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)
(1) - (2)Financial statements and financial statement schedules.
The consolidated financial statements and financial statement
schedules listed in the accompanying Index to Consolidated Financial
Statements and Financial Statement Schedules are filed as part of this
Annual Report.
(3) Exhibits.
The exhibits listed on the accompanying Index of Exhibits are
filed as part of this Annual Report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of 1999.
19
<PAGE>
GSV, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc. and Cybershop.com, Inc.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GSV, Inc. (Formerly Cybershop International, Inc. and Cybershop.com, Inc.):
We have audited the accompanying consolidated balance sheets of GSV,
Inc., a Delaware Corporation, (Formerly Cybershop International, Inc. and
Cybershop.com, Inc.) and subsidiaries as of December 31, 1999 and 1998, 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, 1999. 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
reasonably 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 GSV, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
February 29, 2000
F-2
<PAGE>
GSV, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc. and Cybershop.com, Inc.)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,471,000 $12,285,000
Accounts receivable, net of allowance for doubtful accounts
of $106,000 and $5,000, respectively 1,119,000 181,000
Inventories 282,000 526,000
Prepaid expenses and other current assets 937,000 235,000
----------- -----------
Total current assets 10,809,000 13,227,000
Property and equipment, net 1,032,000 1,944,000
Goodwill, net 13,137,000 --
Other assets 705,000 300,000
----------- -----------
Total assets $25,683,000 $15,471,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,383,000 $ 2,407,000
Accrued liabilities 860,000 1,955,000
Current portion of capital lease obligation 74,000 --
Deferred revenues -- 72,000
----------- -----------
Total current liabilities 5,317,000 4,434,000
Deferred rent 84,000 49,000
----------- -----------
Total liabilities 5,401,000 4,483,000
----------- -----------
Stockholders' equity:
Common stock, $.001 par value; 75,000,000 shares
authorized; 10,033,961 and 7,493,350 shares issued and
outstanding, respectively 10,000 7,000
Additional paid-in capital 37,878,000 18,318,000
Accumulated deficit (17,606,000) (7,337,000)
----------- -----------
Total stockholders' equity 20,282,000 10,988,000
----------- -----------
Total liabilities and stockholders' equity $25,683,000 $15,471,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-3
<PAGE>
GSV, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc. and Cybershop.com, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the year ended December 31, 1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product sales $ 7,019,000 $ 222,000 $ --
Advertising & set up fees -- 5,000 --
------------ ------------ ------------
Total revenues 7,019,000 227,000 --
Cost of revenues 3,796,000 233,000 --
------------ ------------ ------------
Gross profit 3,223,000 (6,000) --
Operating expenses:
Sales and marketing 2,432,000 314,000 --
General and administrative 4,240,000 2,236,000 456,000
Amortization of goodwill and other merger and
acquisition related costs 1,733,000 -- --
------------ ------------ ------------
Total operating expenses 8,405,000 2,550,000 456,000
------------ ------------ ------------
Loss from continuing operations before interest income
and minority interest (5,182,000) (2,556,000) (456,000)
Interest income, net 245,000 619,000 17,000
Minority interest 482,000 385,000 --
------------ ------------ ------------
Loss from continuing operations (4,455,000) (1,552,000) (439,000)
Discontinued operations:
Loss from operations (5,379,000) (6,415,000) (1,367,000)
Estimated loss on disposal (435,000) -- --
------------ ------------ ------------
Total discontinued operations (5,814,000) (6,415,000) (1,367,000)
------------ ------------ ------------
Net loss $(10,269,000) $ (7,967,000) $ (1,806,000)
============ ============ ============
Basic and diluted net loss per common share (See Note 2):
loss per common share from continuing operations $ (0.53) $ (0.23) $ (0.12)
Effect of adjustable common stock warrants (0.05) -- --
------------ ------------ ------------
loss per common share from continuing operations including
effect of adjustable common stock warrants (0.58) (0.23) (0.12)
loss per common share from discontinued operations (0.64) (0.96) (0.36)
loss per common share from estimated loss on
discontinued operations (0.05) -- --
------------ ------------ ------------
Net loss per common share including effect of adjustable common
stock warrants $ (1.27) $ (1.19) $ (0.48)
============ ============ ============
Weighted average common shares outstanding,
basic and diluted 8,393,000 6,676,000 3,781,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-4
<PAGE>
GSV, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc. and Cybershop.com, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
--------------------------------
Members Additional
Par Capital Paid-in
Shares Value Interest Capital
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- $ 1,589,000 $ --
Issuance members' capital interest -- -- 1,550,000 --
Net loss
------------- ------------ ----------- -------------
Balance at December 31, 1997 -- -- 3,139,000 --
Contribution of members' capital
Interest in exchange for the
Issuance of common stock 4,000,000 4,000 (3,139,000) (639,000)
Issuance of common stock 250,000 -- -- 139,000
Sale of common stock 3,220,000 3,000 -- 18,746,000
Non-cash compensation expense 33,000
Exercise of stock options 23,350 -- 39,000
Net loss
------------- ------------ ----------- -------------
Balance at December 31, 1998 7,493,350 7,000 -- 18,318,000
Issuance of common stock 1,000,000 1,000 -- 8,124,000
Sale of common stock 1,313,250 2,000 -- 10,664,000
Non-cash compensation expense -- -- -- 51,000
Exercise of stock options 155,025 -- 523,000
Exercise of stock warrants 72,336 -- -- 198,000
Net loss
------------- ------------ ----------- -------------
Balance at December 31, 1999 10,033,961 $ 10,000 $ -- $ 37,878,000
============= ============ =========== =============
Accumulated
Deficit Total
------------- ------------
Balance at December 31, 1996 $ (1,338,000) $ 251,000
Issuance members' capital interest 1,550,000
Net loss (1,806,000) (1,806,000)
------------- ------------
Balance at December 31, 1997 (3,144,000) (5,000)
Contribution of members' capital
Interest in exchange for the
Issuance of common stock 3,774,000 --
Issuance of common stock 139,000
Sale of common stock 18,749,000
Non-cash compensation expense 33,000
Exercise of stock options 39,000
Net loss (7,967,000) (7,967,000)
------------- ------------
Balance at December 31, 1998 (7,337,000) 10,988,000
Issuance of common stock 8,125,000
Sale of common stock 10,666,000
Non-cash compensation expense 51,000
Exercise of stock options 523,000
Exercise of stock warrants 198,000
Net loss (10,269,000) (10,269,000)
------------- ------------
Balance at December 31, 1999 $ (17,606,000) $ 20,282,000
============= ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-5
<PAGE>
GSV, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc. and Cybershop.com, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31, 1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (10,269,000) $ (7,967,000) $ (1,806,000)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation 709,000 209,000 89,000
Amortization of goodwill 1,733,000 -- --
Non-cash compensation expense 51,000 33,000 --
Minority interest (482,000) (385,000) --
Estimated loss on disposal of discontinued
operations 435,000 -- --
Increase (decrease) in cash from changes in:
Accounts receivable, net (938,000) (110,000) (27,000)
Inventories 144,000 (495,000) (31,000)
Prepaid expenses and other (622,000) (235,000) --
Loss on disposal of property and equipment 517,000 -- --
Other assets 77,000 46,000 (206,000)
Accounts payable 1,976,000 1,663,000 590,000
Accrued liabilities (1,076,000) 1,630,000 222,000
Deferred revenues (72,000) (63,000) (12,000)
Deferred rent 35,000 44,000 4,000
------------- ------------ ------------
Net cash used in operating activities (7,782,000) (5,630,000) (1,177,000)
------------- ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (655,000) (2,016,000) (89,000)
Acquisitions of businesses, net of cash acquired (6,764,000) -- --
------------- ------------ ------------
Net cash used in investing activities (7,419,000) (2,016,000) (89,000)
------------- ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 10,666,000 18,888,000 1,550,000
Minority capital contribution in joint venture -- 245,000 --
Proceeds from exercise of stock options 523,000 39,000 --
Proceeds from exercise of stock warrants 198,000 -- --
Proceeds of short-term loan -- 500,000 --
Repayment of short-term loan -- (500,000) --
Payments of capital lease obligations -- (28,000) (7,000)
------------- ------------ ------------
Net cash provided by financing activities 11,387,000 19,144,000 1,543,000
------------- ------------ ------------
Net increase (decrease) in cash (3,814,000) 11,498,000 277,000
Cash and cash equivalents, beginning of period 12,285,000 787,000 510,000
------------- ------------ ------------
Cash and cash equivalents, end of period $ 8,471,000 $ 12,285,000 $ 787,000
============= ============ ============
Supplemental cash flow information:
Cash paid for interest $ -- $ 3,000 $ 4,000
Common stock issued in connection with acquisition $ 8,125,000 -- --
Assets acquired under capital lease obligation $ 71,000 -- $ 15,000
</TABLE>
F-6
<PAGE>
GSV, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc. and Cybershop.com, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION:
GSV, Inc. (formerly Cybershop International, Inc. and Cybershop.com,
Inc.) and subsidiaries (the "Company") is an online consumer and direct response
retailer, and in February of 2000 began implementing its Internet incubator and
investment operations. The Company was founded in 1994 and began operating its
online retail department store operation cybershop.com in September 1995 through
its store on the Internet and in November 1996 on AOL. Both stores offered
housewares, electronics, jewelry watches, gifts, gourmet food and more. In March
of 1998 the Company completed its initial public offering ("IPO") of 3,220,000
shares of common stock, raising net proceeds of $18,749,000. During the fourth
quarter of 1998 the Company began operating two more online stores, egift.com, a
gift-oriented site, and electronics.net, a joint venture offering electronics
and appliances as discussed further in note 5. In 1999 through the acquisition
of The Magellan Group, Inc. ("Magellan"), as discussed more fully in note 3, the
Company began operating its Tools for Living division ("Tools for Living").
Tools for Living offers high quality merchandise in the personal care, health
and home accessories categories as promoted through its web site and through
direct response print media campaigns in national consumer magazines. In
February of 2000 the Company announced a change in its core strategy to an
Internet incubator and investment model, and simultaneously announced its
intention to discontinue the operations of its remaining operating divisions
with the exception of Tools for Living, as more fully described in note 4.
Through its Internet incubator and investment operations, the results
of which will be reflected in the Company's year 2000 operating results, the
Company aims to identify and develop attractive early stage Internet companies,
and to provide these companies, as needed, with management, marketing, financing
(including early stage seed capital), human resources, accounting resources, use
of its facilities and its extensive expertise in business development. In
exchange for these services the Company will seek equity positions in these
companies commensurate with the level and nature of services provided and the
stage of their development.
In order to more appropriately reflect its change in core strategy , in
March of 2000 the Company changed its name to GSV, Inc.
(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 subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain prior period amounts have been
reclassified for comparative purposes.
Business Combinations
The acquisition of Magellan, as described more fully in note 3, has
been accounted for under the purchase method of accounting. Accordingly, the
accompanying consolidated financial statements include the results of operations
of Magellan from the date of acquisition. The excess of the purchase price of
Magellan over the
F-7
<PAGE>
estimated fair value of net assets acquired is included in goodwill in the
accompanying consolidated balance sheets.
The acquisition of Dealaday, Inc. ("Dealaday"), as described more fully
in note 3, has been accounted for under the pooling of interests method of
accounting . Accordingly the accompanying consolidated financial statements
reflect the restatement of all prior periods presented to present the
combination as though it had occurred on the date of Dealaday's formation in
February of 1998. Consequently, the accompanying consolidated statements of
operations, changes in stockholders' equity, and cash flows reflect the combined
results of the Company and Dealaday as though the combination had occurred on
the date of Dealaday's formation. Similarly, the accompanying consolidated
balance sheets present the combined assets, liabilities and stockholders' equity
of the Company and Dealaday at recorded values as of December 31, 1999 and 1998.
Cash and Cash Equivalents
The Company considers all short-term marketable securities with a
maturity of three months or less to be cash equivalents.
Accounts Receivable, net
Accounts receivable consist primarily of bankcard receivables from
customers and customer installment payment plan receivables.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Advertising
The recognition of advertising costs is in accordance with the
provisions of the American Institute of Certified Public ("AICPA") Statement of
Position ("SOP") 93-7, Reporting of Advertising Costs. Advertising costs other
than direct-response are expensed at the time the initial advertising takes
place. Direct-response advertising consists primarily of the cost of print
advertisements placed in national magazines and newspapers which include unique
codes identifying each particular publication and the individual advertisement.
Direct-response advertising costs are amortized over the period during which
associated net revenues are expected, generally approximating three months or
less.
Advertising costs reported as prepaid expenses and other current assets
in the accompanying consolidated balance sheets were $569,000 and $63,000 as of
December 31, 1999 and 1998, respectively. Advertising expense was $3,039,000,
$4,276,000 and $450,000 during 1999, 1998 and 1997, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the assets' estimated useful lives which
range from three to ten years.
Goodwill, net
Goodwill represents the excess of the purchase price of Magellan, as
described further in note 3, over the fair value of assets acquired, and is
being amortized on a straight line basis over five years. Total goodwill in the
accompanying consolidated balance sheet is stated net of total accumulated
amortization of $1,733,000.
Long-Lived Assets
The Company reviews 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.
F-8
<PAGE>
Revenue Recognition
The Company recognizes revenue on product sales when the goods are
shipped to the customer. At the time of sale, the Company provides a reserve
equal to the gross profit on projected merchandise returns, based on its prior
returns experience. 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.
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.
Deferred Revenues
Deferred revenues as of December 31, 1999 and 1998 relate to payments
from customers for products not yet shipped and unamortized set up fee revenues.
Stock Based Compensation
The Financial Accounting Standards Board has issued "Accounting for
Stock-Based Compensation ("SFAS 123"). SFAS 123 requires that an entity account
for employee stock based 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 pro forma disclosures of net loss and loss per
share as if the fair value based method of accounting under SFAS 123 had been
applied. The Company continues to account for employee stock-based compensation
under Opinion 25 and has included in note 13 the pro forma disclosures required
under SFAS 123.
Income Taxes
Prior to March 18, 1998 the Company was treated as a limited liability
company ("LLC") for both Federal and state income tax purposes. The net loss for
those periods was included in the individual income tax returns of the limited
liability company members. As a result of the events described in note 1, on
March 18, 1998, the Company became subject to Federal and state income taxes.
The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using the enacted federal, state and local income tax rates and laws
that are expected to be in effect when the differences reverse.
Net Loss Per Common Share
Basic and diluted net loss per common share is calculated by dividing
net loss per common share after effect of adjustable common stock warrants, as
explained below and in note 12, by the weighted average number of shares of
common stock outstanding during the period as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- ----------------------------------
Per Per
Loss Shares Share Loss Shares Share
---- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Loss from continuing
operations $ (4,455,000) 8,393,000 $ (0.53) $ (1,552,000) 6,676,000 $ (0.23)
Effect of adjustable common
stock warrants (401,000) (0.05) -- --
------------- --------- ------- ------------ --------- -------
Loss from continuing
operations including effect
of adjustable common stock
warrants (4,856,000) 8,393,000 (0.58) (1,552,000) 6,676,000 (0.23)
Loss from discontinued
operations (5,379,000) (0.64) (6,415,000) (0.96)
Estimated loss on disposal
of discontinued operations (435,000) (0.05) -- --
------------- --------- ------- ------------ --------- -------
Net loss including effect of
adjustable common stock
warrants $ (10,670,000) 8,393,000 $ (1.27) $ (7,967,000) 6,676,000 $ (1.19)
============= ========= ======= ============ ========= =======
</TABLE>
F-9
<PAGE>
1997
----------------------------------------
Per
Loss Shares Share
---- ------ -----
Loss from continuing
operations $ (439,000) 3,781,000 $ (0.12)
Effect of adjustable common
stock warrants -- --
------------- ---------- -------
Loss from continuing
operations including effect
of adjustable common stock
warrants (439,000) 3,781,000 (0.12)
Loss from discontinued
operations (1,367,000) (0.36)
Estimated loss on disposal
of discontinued operations -- --
------------- ----------- -------
Net loss including effect of
adjustable common stock
warrants $ (1,806,000) 3,781,000 $ (0.48)
============= =========== =======
In calculating the effect on the basic and diluted net loss per common
share calculation, of the common stock issued as a result of the September
adjustable common stock warrants exercised by the parties to the September 30,
1999 private placement, as described further in note 12, the market value of the
Company's common stock on the last day of the first of the three adjustment
periods, of $9.19, was multiplied by the number of common shares issued upon
exercise of these warrants, resulting in a valuation for loss per common share
purposes of $401,000.
During the first quarter of 2000 adjustable common stock warrants were
exercised by the parties to the December 8, 1999 private placement, as described
further in note 12, resulting in 613,486 shares of common stock issued by the
Company. The market value of the Company's common stock on the last day of the
adjustment period was $5.16.
There were 540,850, 714,304 and 273,630 options outstanding as of
December 31, 1999, 1998 and 1997. There were 230,000 and 593,688 common stock
warrants, other than adjustable common stock warrants, outstanding as of
December 31, 1999 and 1998 and none as of December 31, 1997. Both the options
and the warrants have been excluded from the above calculations as they would
be antidilutive.
(3) ACQUISITIONS:
Effective June 1, 1999 the Company acquired all of the
outstanding common stock of Magellan, an online and direct response retailer of
high quality personal care, home and health related products, in exchange for
1,000,000 shares of the Company's common stock and $5,000,000 in cash. The
acquisition was accounted for as a purchase with all of the $14,870,000 purchase
price allocated to goodwill. The results of Magellan are included in the
Company's consolidated financial results beginning on the date of acquisition.
In addition, the Company is required to pay the former shareholders of Magellan
earn-out payments based upon the profitability of a particular product through
May 31, 2001. As of December 31, 1999, $467,000 of earn-out payments have been
made, and accounted for as part of the purchase price. Concurrent with the
acquisition, one of these former shareholders of
F-10
<PAGE>
Magellan was appointed a member of the Company's board of directors.
The unaudited pro forma combined consolidated financial information for
the 12 months ended December 31, 1999 and 1998, as though Magellan had been
acquired on January 1, 1998, would have resulted in net sales of $9,790,000 and
$5,277,000, net loss of $11,970,000 and $10,922,000, and basic and diluted net
loss per share including effect of adjustable common stock warrants of ($1.40)
and ($1.42), respectively. The unaudited pro forma net loss includes
amortization of goodwill of $2,933,000 and $2,881,000 for the 12 months ended
December 31, 1999 and 1998, respectively. This unaudited pro forma combined
consolidated financial information is presented for illustrative purposes only
and is not necessarily indicative of the consolidated results of operations in
future periods or the results that actually would have been realized had the
Company and Magellan been a combined company during the specified periods.
On March 24, 1999 the Company issued 250,000 shares of common stock in
exchange for all of the outstanding common stock of Dealaday, Inc ("Dealaday").
Dealaday, an Internet retailer targeting off-price branded women's and
children's apparel and accessory products, began operations in February 1998.
The transaction was accounted for as a pooling of interests and, as a result,
the Company's financial statements have been restated for all periods presented.
Separate results for Dealaday included in loss from discontinued
operations in the accompanying consolidated statements of operations for the
periods prior to the acquisition consisted of net sales and net losses for the
12-month period ending December 31, 1999 of $90,000 and $42,000, respectively,
and net sales and net losses for the 10-month period ending December 31, 1998 of
$240,000 and $78,000, respectively.
(4) DISCONTINUED OPERATIONS:
As discussed above, in February of 2000 the Company announced a change
in its core strategy to an Internet incubator and investment model, and
simultaneously announced its intention to discontinue all operations with the
exception of Tools for Living. As a result the Company has entered into
negotiations to sell the majority of the operating assets of electronics.net to
two former executives of the Company, as discussed below, has sold the
cybershop.com domain name and customer lists, and is currently in the process of
selling, or otherwise disposing of, the remaining assets of its Cybershop.com
division. As a result, the consolidated financial statements and accompanying
notes reflect the operating results of Tools for Living and electronics.net as
continuing operations. The operating results of the Cybershop.com division are
reflected as discontinued operations and an estimated loss on disposal of
$435,000 has been recorded. Included in the loss on disposal are estimated
operating losses associated with Cybershop.com from the measurement date of
January 1, 2000 through the disposal date of February 9, 2000 of $660,000, a
reduction in the carrying amounts of current assets and fixed assets of $120,000
and $415,000, respectively, reserves for future obligations of $240,000 and a
gain on the sale of the cybershop.com domain name and customer lists, as
discussed further in note 14, of $1,000,000. Total revenues applicable to the
Cybershop.com division during 1999, 1998 and 1997 were $2,898,000, $4,827,000,
and $1,495,000, respectively. Total losses generated by the Cybershop.com
division during 1999, 1998 and 1997 were $5,379,000, $6,415,000 and $1,367,000,
respectively.
The carrying value of the assets and liabilities of the Cybershop.com
division as of December 31, 1999 are as follows:
Accounts receivable, net $ 422,000
Inventories 189,000
Prepaid expenses and other current assets 105,000
Property plant and equipment, net 331,000
Current liabilities (1,424,000)
-----------
Net liabilities of discontinued operation $ (377,000)
===========
(5) electronics.net:
electronics.net, the Company's joint venture with Tops
Appliance City ("TOPS"), was formed in June 1998 and began operations in the
fourth quarter of 1998, as an online retail consumer web site offering consumer
electronics, appliances, home office equipment and related accessories. At the
time of inception the joint venture was 51% owned by the Company and 49% by
TOPS. In September of 1999, TOPS, the joint venture's
F-11
<PAGE>
primary supplier of merchandise, announced its intention to discontinue selling
consumer electronics. As a result, effective November 15, 1999, TOPS exited the
joint venture and assigned its membership interest without cost to the Company.
Additionally, in the event of any sale of the rights to the name and web site
address of the joint venture, the net proceeds therefrom shall be distributed
51% to the Company and 49% to TOPS. As a result of the above, electronics.net
has been accounted for in the accompanying consolidated financial statements as
a 51% owned subsidiary from inception through November 15, 1999 and as a wholly
owned subsidiary thereafter. Accordingly, the net losses attributable to TOPS'
interest in electronics.net from inception through November 15, 1999 have been
reflected as minority interest in the accompanying consolidated statements of
operations.
As of December 31, 1999 and 1998 amounts owed by TOPS to the Company,
representing TOPS' obligation under the joint venture operating agreement to
fund the operations of electronics.net in accordance with its non-controlling
49% interest, exist in the amount of $622,000 and $140,000, respectively. These
amounts have been classified as other assets in the accompanying consolidated
balance sheets. As of December 31, 1999 and 1998, amounts owed by the Company to
TOPS, representing, primarily, the cost of merchandise supplied to the joint
venture by TOPS, was $910,000 and $190,000, respectively. In February of 2000
TOPS filed a voluntary petition for relief under Chapter 11 of the Bankruptcy
Code in the United States Bankruptcy Court for the District of New Jersey.
As a result of the Company's decision in February 2000 to discontinue all
operating divisions, including electronics net but excluding Tools For Living,
the Company has entered into a letter of intent with two former executives of
the Company for the sale of the majority of the operating assets of
electronics.net. In exchange for these assets, the Company would receive 19.9%
of the outstanding equity of a company newly formed ("Newco") by the two former
executives, as well as a note convertible into common stock of Newco, subject to
certain conditions. Under the terms of the existing letter of intent, a
sufficient level of influence is expected to be maintained by the Company over
the operations of Newco, and as a result the Company expects to account for its
investment using the equity method of accounting, beginning on the effective
date of the sale, should the definitive agreement contain the same relevant
provisions as the current letter of intent.
(6) PROPERTY AND EQUIPMENT:
December 31,
1999 1998
------------ -----------
Office equipment and software $ 781,000 $ 1,752,000
Furniture and fixtures 253,000 228,000
Leasehold improvements 353,000 353,000
----------- -----------
1,387,000 2,333,000
Less: Accumulated depreciation (355,000) (389,000)
----------- -----------
$ 1,032,000 $ 1,944,000
=========== ===========
(7) LEASES:
Assets under capital leases as of December 31, 1999 are $88,000 and
represent computer equipment classified within property and equipment in the
accompanying consolidated balance sheets. The amount remaining under the lease
obligation as of December 31, 1999 of $74,000 is due within one year and is
classified as current portion of capital lease obligation in the accompanying
consolidated balance sheets.
Future commitments for minimum rentals under non-cancellable operating
leases are as follows:
F-12
<PAGE>
2000....................... $140,000
2001....................... 140,000
2002....................... 133,000
2003....................... 126,000
2004....................... 126,000
Thereafter................. 504,000
Rent expense for the years ended December 31, 1999, 1998 and 1997
amounted to $124,000, $73,000 and $37,000, respectively.
(8) COMMITMENTS AND CONTINGENCIES:
The Company entered into Internet marketing agreements under which the
Company is obligated to pay minimum fees totaling approximately $225,000 during
2000.
The Company has entered into employment agreements with certain key
executive officers. Commitments for base salary under these agreements amount to
$552,000, $263,000 and $9,000 during 2000, 2001 and 2002, respectively.
As discussed in note 3, contingent purchase payments may be made to the
former shareholders of Magellan based upon the profitability of a particular
product.
(9) INCOME TAXES:
Deferred taxes are recognized on the differences between the financial
reporting and income tax basis of assets and liabilities using enacted tax
rates.
The tax effects of temporary differences and the net operating loss
carry-forwards that give rise to significant portions of the net deferred income
tax asset at December 31, 1999 and 1998 are as follows:
December 31,
1999 1998
------------ -----------
Net operating loss carryforwards $ 5,794,000 $ 2,903,000
Discontinued operation reserves 174,000 --
Operating reserves 275,000 92,000
----------- -----------
6,243,000 2,995,000
Valuation allowance (6,243,000) (2,995,000)
----------- -----------
$ -- $ --
=========== ===========
Due to the uncertain realization of the deferred tax asset, the Company
has provided a full valuation allowance. As of December 31, 1999, the Company
had net operating loss carry-forwards of approximately $14,500,000, which begin
to expire in 2013.
(10) SHORT TERM LOAN:
On March 19, 1998, 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 were utilized by the Company for working capital purposes. The loan
was secured by common stock in the Company owned the Company's Chairman and
Chief Executive Officer. The loan was repaid on March 27, 1998.
F-13
<PAGE>
(11) ACCRUED LIABILITIES:
December 31,
--------------------------
1999 1998
----------- ---------------
Advertising and Promotions $ 200,000 $ 1,227,000
Systems Integration -- 220,000
Sales returns and allowances 280,000 190,000
Other 380,000 318,000
--------- -----------
$ 860,000 $ 1,955,000
========= ===========
(12) STOCKHOLDERS' EQUITY:
On March 18, 1998, the members of CyberShop L.L.C. contributed all of
their members capital interests in exchange for 4,000,000 shares of the
Company's common stock. 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
interests and accumulated deficit to common stock and additional paid in capital
at the time of the contribution.
On March 26, 1998, the Company completed its IPO of 3,220,000 shares of
common stock at a price of $6.50 per share. Net proceeds from this offering, net
of underwriting discounts and offering costs, were $18,749,000.
On September 30, 1999 the Company completed a private placement of
equity securities raising gross proceeds of $5.1 million. The financing involved
the issuance of 784,616 shares of common stock at $6.50 per share and warrants
to purchase an aggregate of 156,922 shares of common stock at an exercise price
of $7.50 per share with a term expiring on September 30, 2004. The sale price of
the Company's common stock and the exercise price of the warrants issued in the
private placement were both higher than the last reported sale price of $5.81 on
the Nasdaq National Market on September 30, 1999. As part of the financing
another class of warrants were issued ("September adjustable common stock
warrants"). These warrants provided the investors with the right to receive
additional shares at an exercise price of $.001 per share if the price of the
Company's stock traded below certain levels during 22 consecutive business days
("adjustment periods"), after the effective date of a registration statement
filed with the Securities and Exchange Commission ("the SEC"). A formula was
applied to one-third of the shares sold. That formula was based on determining
the average of the twelve lowest closing bid prices in the adjustment period.
This average lowest bid price was divided into a number equal to one-third of
the shares sold multiplied by the difference between $7.56 and the average
lowest bid price. In November 1999, 43,668 shares of common stock were issued by
the Company to the investors pursuant to the September adjustable common stock
warrants.
On December 8, 1999 the Company completed another private placement of
equity securities with the same investors raising gross proceeds of $6.0
million. The financing involved the issuance of 528,634 shares of common stock
at $11.35 per share and warrants to purchase an aggregate of 237,886 shares of
common stock at an exercise price of $12.00 per share with a term expiring on
December 8, 2004. The sale price of the common stock and the exercise price of
the warrants issued in the private placement were both higher than the last
reported sale price of $9.063 on the Nasdaq National Market on December 8, 1999.
As part of the financing another class of warrants were issued ("December
adjustable common stock warrants"). These warrants provided the investors with
the right to receive additional shares, at an exercise price of $.001 per share,
if the price of the Company's stock traded below certain levels during the 40
trading day period following the effective date of a registration statement
filed with the SEC. A formula was applied to the 528,634 shares sold. That
formula was based on determining the average of the twenty lowest closing bid
prices in the 40 trading day period. This average lowest bid price was divided
into the number of the shares sold multiplied by the difference between $11.35
and the average lowest bid price. In February 2000, 613,486 shares of common
stock were issued by the Company to the investors upon exercise of the December
adjustable common stock warrants
Under the terms of each of the September 30, 1999 and December 8, 1999
private placements, the Company agreed to register with the SEC the resale of
the shares sold as well as the shares underlying the warrants. The Company is
obligated to use its best efforts to keep the registration statements effective
for up to two years. The Company will incur substantial penalties if it fails to
meet these obligations. None of the investors, together
F-14
<PAGE>
with any affiliate thereof, may beneficially own shares in excess of 4.999% of
the outstanding shares of common stock of the Company. Such restrictions may be
waived by each selling stockholder as to itself upon not less than 61 days'
notice to the Company.
At the Company's Annual Meeting of Stockholders held on June 3, 1999, the
Company's stockholders approved an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock that the Company
is authorized to issue from 25,000,000 to 75,000,000.
(13) STOCK OPTIONS:
Prior to 1998, the Company had issued non-qualified stock options to
officers, employees and consultants, which are summarized as follows:
Weighted
Average
Exercise
Shares Price
------ -----
Outstanding at December 31, 1996.................... 107,441 $ 1.67
Granted............................................. 166,189 3.00
------- ----
Outstanding at December 31, 1997.................... 273,630 2.48
Cancelled........................................... (5,076) 3.00
Exercised........................................... (23,350) 1.67
------- ----
Outstanding at December 31, 1998.................... 245,204 2.54
Cancelled........................................... (595) 3.00
Exercised........................................... (136,983) 2.31
------- ----
Outstanding at December 31, 1999.................... 107,626 $2.89
======= =====
As of December 31, 1999 all of the above options were
exercisable.
In 1998, the Company adopted the 1998 Stock Option Plan (the
"1988 Option Plan"). Under the 1998 Option Plan, stock options may be granted to
directors, officers, employees, and consultants of the Company. At the
Company's Annual Meeting of Stockholders held in June 1999 the Company's
stockholders approved an amendment to the 1998 Stock Option Plan increasing the
number of shares available for issuance from 1,000,000 to 3,000,000.
The 1998 Option PLan is summarized as follows:
Weighted
Average
Exercise
Shares Price
------ -----
Granted............................................. 487,100 $ 5.53
Cancelled........................................... (18,000) 7.54
------- ----
Outstanding at December 31, 1998.................... 469,100 5.46
Granted............................................. 757,750 7.29
Cancelled........................................... (733,823) 6.45
Exercised........................................... (59,803) 4.92
------- ----
Outstanding at December 31, 1999.................... 433,224 $7.12
======= =====
As of December 31, 1999, there were 145,029 options
exercisable under the 1998 Option Plan, and no options exercisable as of
December 31, 1998. All outstanding options vest one-third annually over three
years and expire five years from the date of grant.
In 1998, the Company adopted the 1998 Directors' Stock Option
Plan (the "Directors' Plan"). Pursuant to the Directors' Plan, each member of
the Board of Directors who is not an employee of the Company who is elected or
continues as a member of the Board of Directors is entitled to receive options
to purchase 3,000
F-15
<PAGE>
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.
As of December 31, 1998, there were 9,000 options granted and
outstanding under the Directors' Plan with a weighted average exercise price of
$7.38, all of which were exercisable. All options issued under the Directors'
Plan vest after the first anniversary of the date of grant and expire three
years thereafter.
Effective January 1, 1996, the Company adopted the provisions
of SFAS 123. As permitted by the statement, the Company has elected 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
value. Had the fair value method of accounting been applied to all of 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 $44,000 or $0.05 per share in
1999, $287,000 or $0.04 per share in 1998 and $19,000 or $0.00 per share in
1997. 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, 1999, 1998 and 1997 was $5.62, $2.93
and $0.36, respectively. The fair value was estimated using the Black-Sholes
option pricing model based on the following weighted average assumptions: risk
free interest rate of 6.5% in 1997, 1998 and 1999, no volatility in 1997, 75%
volatility in 1998, and 131% volatility in 1999, no assumed dividends and an
expected life of two years in 1997, and three years in 1998 and 1999.
(14) SUBSEQUENT EVENTS
Sale of cybershop.com web site address
In conjunction with the sale of the operating assets of the
discontinued Cybershop.com operating division, in March of 2000, the Company
completed the sale of its cybershop.com domain name and customer lists. In
exchange, the Company received (i) $100,000 in cash and (ii) equity in a
privately owned company valued at approximately $900,000.
Change of name
During March 2000 the Company changed its name from Cybershop.com, Inc.
(for which it had been previously changed during June of 1999 from Cybershop
International, Inc.) to GSV, Inc.
F-16
<PAGE>
(15) LITIGATION
In March 2000, eight purported class actions entitled Ames v.
Cybershop, Ezeir v. Cybershop, Fuechtman v. Cybershop, Kaufman v. Cybershop,
Goldenberg v. Cybershop, Marino v. Cybershop, Waldarman v. Cybershop and Page v.
Cybershop were filed in the United States District Court for the District of New
Jersey against the Company and certain of its current and former officers and
directors. The complaints in those actions allege that the Company violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making or
causing the Company to make materially false and misleading statements about the
Company. The Company intends to vigorously defend these actions.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GSV, Inc. (formerly Cybershop International, Inc. and Cybershop.com, Inc.):
We have audited in accordance with generally accepted auditing
standards, the 1999, 1998 and 1997 consolidated financial statements of GSV,
Inc. and subsidiaries included on pages F-3 through F-17 of this annual report
on Form 10-K and have issued our report thereon dated February 29, 2000. Our
audits were 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, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 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
February 29, 2000
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GSV, INC.
By /s/ Jeffrey S. Tauber
-------------------------------------
Jeffrey S. Tauber
Chairman and Chief Executive Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
/s/ Jeffrey S. Tauber March 30, 2000
- - --------------------------------------------
Jeffrey S. Tauber
Chairman; Chief Executive Officer,
(Principal Executive Officer) and Director
/s/ Jeffrey Leist March 30, 2000
- - --------------------------------------------
Vice President, Chief Operating Officer and
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
/s/ Michael Kempner March 30, 2000
- - --------------------------------------------
Michael Kempner
Director
/s/ Warren Struhl March 30, 2000
- - --------------------------------------------
Warren Struhl
Director
/s/ Ian S. Phillips March 30, 2000
- - --------------------------------------------
Ian S. Phillips
Director
<PAGE>
INDEX OF EXHIBITS
Item
No. Item Title
- - --- ----------
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession: None
3. Articles of Incorporation:
3.1 Certificate of Incorporation, as amended (Incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form S-1.
File No. 333-42707).
3.2 Certificate of Amendment of The Certificate of Incorporation of
Cybershop International, Inc. (Incorporated by reference to Exhibit
3.2 of the Registrant's Report on Form 10Q for the fiscal quarter
ended June 30, 1999. File No. 000-23901)
3.5 Certificate of Merger of GSV, Inc into Cybershop.com, Inc. (Filed
herewith.)
By-Laws:
3.4 By-Laws as currently in effect (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 (File No.
333-42707).
4. Instruments defining the rights of security holders, including debentures:
4.1 Specimen of Certificate for Common Stock (Incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on Form S-1.
File No. 333-42707)
4.2 Form of Warrant dated September 30, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 D to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-75507).
4.3 Form of Warrant dated September 30, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 E to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-75507).
4.4 Form of Warrant dated December 8, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 D to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-92861).
4.5 Form of Warrant dated December 8, 1999 issued to Strong River
Investments, Inc. and Montrose Investments L.P. (Incorporated by
reference to Exhibit 4 E to the Company's Registration Statement on
Post Effective Amendment on Form S-3. File No. 333-92861).
9. Voting Trust Agreements: None
10. Material Contracts:
10.1 Stock Purchase Agreement dated March 24, 1999, by and between Edward
Mufson and Cybershop International, Inc. (Incorporated by reference
to Exhibit 10.1 of the Registrant's Report on Form 10Q for the
fiscal quarter ended March 31, 1999. File No. 000-23901)
10.2 Employment Agreement dated March 24, 1999, by and between Edward
Mufson and Cybershop International, Inc. (Incorporated by reference
to Exhibit 10.2 of the Registrant's Report on Form 10Q for the
fiscal quarter ended March 31, 1999. File No. 000-23901)
10.3 Employment Agreement dated February 7, 1999, by and between Jeffrey
Leist and Cybershop International, Inc.(Incorporated by reference to
Exhibit 10.3 of the Registrant's Report on Form 10Q for the fiscal
quarter ended March 31, 1999. File No. 000-23901)
10.4 Form of Officer and Director Indemnification Agreement (Filed as
exhibit 10.4 to the Company's Registration Statement on Form S-1,
effective March 20, 1998. File No. 333-42707)
10.5 1998 Stock Option Plan of the Company (Filed a exhibit 10.5 to the
Company's Registration Statement on Form S-1, effective March 20,
1998. File No. 333-42707)
10.6 1998 Directors' Stock Option Plan (Filed as exhibit 10.6 to the
Company's Registration Statement on Form S-1, effective March 20,
1998. File No. 333-42707)
10.7 Agreement and Plan of Merger by and among Cybershop International,
Inc., MG Acquisition Corp., The Magellan Group, Inc., Ian S.
Phillips and Howard J. Kuntz III dated as of June 1, 1999
(incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K. File No. 0-23901)
<PAGE>
10.8 Employment Agreement dated June 1, 1999, by and between Ian S.
Phillips and MG Acquisition Corp which is a wholly owned subsidiary
of Cybershop International, Inc. (Incorporated by reference to
Exhibit 10.2 of the Registrant's Report on Form 10Q for the fiscal
quarter ended June 30, 1999. File No. 000-23901)
10.9 Warrant Agreement dated as of March, 1998 between the Company and
C.E. Unterberg, Towbin and Fahnstock & Co., Inc., including Warrant
Certificate of the Company (Filed as exhibit 10.9 to the Company's
Registration Statement on Form S-1, effective March 20, 1998. File
No. 333-42707)
10.10 Employment Agreement dated June 1, 1999, by and between Howard J.
Kuntz III and MG Acquisition Corp which is a wholly owned subsidiary
of Cybershop International, Inc. (Incorporated by reference to
Exhibit 10.3 of the Registrant's Report on Form 10Q for the fiscal
quarter ended June 30, 1999. File No. 000-23901)
10.11 Securities Purchase Agreement dated September 30, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Incorporated by reference to Exhibit 10.4 of the
Registrant's Report on Form 10Q for the fiscal quarter ended
September 30, 1999. File No. 000-23901)
10.12 Registration Rights Agreement dated September 30, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Incorporated by reference to Exhibit 10.4 of the
Registrant's Report on Form 10Q for the fiscal quarter ended
September 30, 1999. File No. 000-23901)
10.13 Securities Purchase Agreement dated December 8, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Filed herewith)
10.14 Registration Rights Agreement dated December 8, 1999 among
Cybershop.com, Inc., Strong River Investments, Inc. and Montrose
Investments, L.P. (Filed herewith.)
10.15 General release dated February 14, 2000, by and between Jeffrey
Leist and Cybershop.com, Inc. (Filed herewith.)
10.16 Modification to Employment Agreement dated February 7, 1999, by and
between Jeffrey Leist and Cybershop.com, Inc., dated March 29, 2000
(Filed herewith.)
10.17 Severance Agreement and General release dated January 20, 2000, by
and between Edward Mufson and Cybershop.com, Inc. (Filed herewith.)
10.18 Employment Agreement dated February 7, 2000, by and between Kevin S.
Miller and Cybershop.com, Inc.(Filed herwith.)
10.19 Agreement dated January 12th, 2000, by and between Tops Appliance
City, Inc. and Cybershop Holding Corp, which is a wholly owned
subsidiary of Cybershop.com, Inc. (Filed Herewith.)
11. Statement re computation of per share earnings: Statement regarding
computation of per share earnings is not required because the computation
can be readily determined from the material contained in the financial
statements included herein.
13 Annual report to security holders: None
16. Letter re change in certifying accountant: None
18. Letter re change in accounting principles: None
21. Subsidiaries of the registrant: Filed herewith.
22. Published report regarding matters submitted to vote of security holders:
None
<PAGE>
23. Consent of Arthur Andersen LLP: Not applicable.
24. Power of Attorney: None
27. Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only (Filed herewith).
99. Additional Exhibits: None
<PAGE>
Exhibit 3.5
CERTIFICATE OF MERGER
of
GSV, Inc. (a Delaware corporation)
Into
Cybershop.com, Inc. (a Delaware corporation)
Pursuant to Section 253 of the
State of Delaware General Corporation Law
The undersigned, being the Surviving corporation, a
corporation formed under the laws of the State of Delaware, desiring to merge
GSV, Inc. pursuant to the provisions of Section 253 of the General Corporation
Law of the State of Delaware, hereby sets forth as follows:
FIRST: That Cybershop.com, Inc. is a corporation formed under
the laws of the State of Delaware, and its Certificate of Incorporation was
filed in the office of the Secretary of State on the 13th day of August, 1998.
That GSV, Inc. is a corporation formed under the laws
of the State of Delaware, and its Certificate of Incorporation was filed in the
office of the Secretary of State on the 14th day of February, 2000.
SECOND: That the Board of Directors of Cybershop.com, Inc., by
resolutions duly adopted on the 15th day of March, 2000, determined to merge
GSV, Inc. and to assume all obligations; said resolutions being as follows:
"WHEREAS, this corporation has acquired and now
lawfully owns 100% of the stock of GSV, Inc. and desires to merge said
corporation;
"NOW THEREFORE, BE IT RESOLVED, that this corporation
merge and it does hereby merge said GSV, Inc. and does hereby assume all of its
obligations; and
<PAGE>
"FURTHER RESOLVED, that the proper officers of this
corporation be, and they hereby are, authorized and directed to make and
execute, in its name and under its corporate seal, and to file in the proper
public offices, a certificate of such ownership, setting forth a copy of these
resolutions; and
"FURTHER RESOLVED, that the name of the Surviving
Corporation be, and the same hereby is, changed to GSV, Inc.; and
"FURTHER RESOLVED, that the officers of this
corporation be, and hereby are, authorized and directed to take such further
action as in their judgement may be necessary or proper to consummate the merger
provided for by these resolutions."
IN WITNESS WHEREOF, said Cybershop.com, Inc. has
caused this certificate to be executed by its officers thereunto duly authorized
this 15th day of March, 2000.
CYBERSHOP.COM, INC.
__________________________________
Name: Jeffrey S. Tauber
Title: Chairman
<PAGE>
Exhibit 10.13
- - --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
Between
CYBERSHOP.COM, INC.
and
THE INVESTORS SIGNATORY HERETO
Dated as of December 8, 1999
- - --------------------------------------------------------------------------------
<PAGE>
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December
8, 1999, among Cybershop.Com, Inc., a Delaware corporation (the "Company"), and
the investors signatory hereto on the date hereof (each such investor is a
"Purchaser" and all such investors are, collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase from the Company,
shares of the Company's common stock, $.001 par value per share (the "Common
Stock"), and certain other securities of the Company as more fully described in
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy are hereby acknowledged, the Company and the Purchasers agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchasers and
the Purchasers shall purchase an aggregate of 528,634 shares of Common Stock
(the "Shares") for an aggregate purchase price of $6,000,000. The closing of the
purchase and sale of the Shares (the "Closing") shall take place at the offices
of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson Silverman"), 1290
Avenue of the Americas, New York, New York 10104, immediately following the
execution hereof or such later date as the parties shall agree. The date of the
Closing is hereinafter referred to as the "Closing Date."
(ii) At the Closing, the parties shall deliver or
shall cause to be delivered the following: (A) the Company shall deliver to each
Purchaser (1) a stock certificate representing the number of Shares indicated
below such Purchaser's name on the signature page of this Agreement, registered
in the name of such Purchaser, (2) a Common Stock purchase warrant, in the form
of Exhibit A, registered in the name of such Purchaser, pursuant to which such
Purchaser shall have the right to acquire shares of Common Stock upon the terms
and in such number as set forth therein (each an "Adjustable Warrant"), (3) a
Common Stock purchase warrant, in the form of Exhibit B, registered in the name
of such Purchaser, pursuant to which such Purchaser shall have the right to
acquire the number of shares of Common Stock indicated below such Purchaser's
name on the signature page of this Agreement, upon the terms set forth therein,
at an exercise price per share (subject to adjustment as provided therein) of
$12.00 (each, a "Closing Warrant" and together with the Adjustable Warrants, the
"Warrants"), (4) the legal opinion of Davis & Gilbert LLP, outside counsel to
the Company, substantially in the form of Exhibit C, and (5) all other
documents, instruments and writings required to be delivered at or prior to the
Closing by the Company pursuant to this Agreement, including an executed
Registration Rights Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit D (the "Registration Rights Agreement"), and
the Transfer Agent
<PAGE>
Instructions, in the form of Exhibit E, delivered to and acknowledged by the
Company's transfer agent (the "Transfer Agent Instructions"); and (B) each
Purchaser shall deliver to the Company (1) the purchase price indicated below
such Purchaser's name on the signature page to this Agreement in United States
dollars in immediately available funds by wire transfer to an account designated
for such purpose prior to the Closing Date in writing by the Company, and (2)
all documents, instruments and writings required to have been delivered at or
prior to the Closing Date by such Purchaser pursuant to this Agreement,
including an executed Registration Rights Agreement.
1.2 Certain Defined Terms. For purposes of this Agreement,"Trading Day"
and "Per Share Market Value" shall have the meanings set forth in Exhibit A and
"Business Day" shall mean any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the
State of New York generally are authorized or required by law or other
governmental action to close. A "Person" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Purchasers:
(a) Organization and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth in
Schedule 2.1(a) (collectively, the "Subsidiaries"). Each of the Subsidiaries is
an entity, duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and assets and
to carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of the Securities (as defined
below) or any of this Agreement, the Registration Rights Agreement, the Transfer
Agent Instructions or the Warrants (collectively, the "Transaction Documents"),
(y) have or result in a material adverse effect on the results of operations,
assets, prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents (any of (x), (y) or (z), a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of
<PAGE>
the Transaction Documents and otherwise to carry out its obligations thereunder.
The execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company. Each of the Transaction Documents has
been duly executed by the Company and, when delivered in accordance with the
terms hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its
respective articles of incorporation, by-laws or other charter or organizational
documents.
(c) Capitalization. The number of authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c). Except
as disclosed in Schedule 2.1(c), the Company owns all of the capital stock of
each Subsidiary. Except as disclosed in Schedule 2.1(c), no securities of the
Company or any Subsidiary are entitled to preemptive or similar rights, nor is
any holder of securities of the Company or any Subsidiary entitled to preemptive
or similar rights arising out of any agreement or understanding with the Company
or any Subsidiary by virtue of any of the Transaction Documents. Except as
disclosed in Schedule 2.1(c), there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, except as a result of the purchase and sale of the
Securities, or rights or obligations convertible into or exchangeable for, or
giving any Person (as defined below) any right to subscribe for or acquire, any
shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the SEC Reports (as defined below) or
Schedule 2.1(c), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), or has the right to acquire by
agreement with or by obligation binding upon the Company, beneficial ownership
of in excess of 5% of the Common Stock..
(d) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the terms hereof and
the Warrants, shall have been duly and validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "Liens"). The Company has reserved a number
of duly authorized number of shares of Common Stock for issuance hereunder upon
exercise of the Warrants that is not less than the sum of (i) the aggregate
number of Shares to be issued hereunder; (ii) the maximum number of Underlying
Shares (as defined below) issuable upon exercise of the Adjustable Warrants,
assuming that the Per Share Market Value utilized to determine the number of
such Underlying Shares is 50% of the average Per Share Market Value on the
Trading Day immediately preceding the Closing Date; and (iii) the number of
Underlying Shares issuable upon exercise in full of the Closing Warrants (such
number of shares of Common Stock as contemplated in clauses (i), (ii) and (iii),
the "Initial Minimum"). The shares of Common Stock issuable upon exercise of the
Warrants are referred to herein as the "Underlying Shares." The Shares, the
Warrants and the Underlying Shares are collectively referred to herein as, the
"Securities."
<PAGE>
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's articles of
incorporation, bylaws or other charter documents (each as amended through the
date hereof), or (ii) subject to obtaining the Required Approvals (as defined
below), and except as set forth in Schedule 2.1(e), conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), as could not, individually
or in the aggregate, have or result in a Material Adverse Effect. The business
of the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations which,
individually or in the aggregate, could not have or result in a Material Adverse
Effect.
(f) Filings, Consents and Approvals. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.11, (ii) the filing with the Securities and Exchange Commission (the
"Commission") of a registration statement meeting the requirements set forth in
the Registration Rights Agreement and covering the resale of the Shares and the
Underlying Shares by the Purchasers (the "Underlying Shares Registration
Statement"), (iii) the application(s) to the Nasdaq National Market ("NASDAQ")
for the listing of the Shares and the Underlying Shares with the NASDAQ (and
with any other national securities exchange of market in which the Common Stock
is then listed) in the time and manner required thereby , (vi) applicable Blue
Sky filings, and (v) in all other cases where the failure to obtain such
consent, waiver, authorization or order, or to give such notice or make such
filing or registration could not have or result in, individually or in the
aggregate, a Material Adverse Effect (the items described in clauses (i)-(vi)
are collectively, the "Required Approvals").
(g) Litigation; Proceedings. Except as specified in the SEC
Reports, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, have or result in a Material Adverse Effect.
<PAGE>
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or governmental body,
or (iii) is in violation of any statute, rule or regulation of any governmental
authority, except as could not individually or in the aggregate, have or result
in a Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither the Company
nor any Person acting on its behalf has taken or is, to the knowledge of the
Company, contemplating taking any action which could subject the offering,
issuance or sale of the Securities to the registration requirements of the
Securities Act including soliciting any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(j) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act for the two years preceding
the date hereof (or such shorter period as the Company was required by law to
file such material) (the foregoing materials being collectively referred to
herein as the "SEC Reports" and, together with the Schedules to this Agreement
the "Disclosure Materials") on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Reports. The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. Since June 30,1999, except as
specifically disclosed in the SEC Reports, (a) there has been no event,
occurrence or development that has or that could result in a Material Adverse
Effect, (b) the Company has not incurred any liabilities (contingent or
otherwise) other than (x) liabilities incurred in the ordinary course of
business consistent with past practice and (y) liabilities not required to be
reflected in
<PAGE>
the Company's financial statements pursuant to GAAP or required to be disclosed
in filings made with the Commission, (c) the Company has not altered its method
of accounting or the identity of its auditors and (d) the Company has not
declared or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock or stock option plans) with respect to its capital stock, or
purchased, redeemed (or made any agreements to purchase or redeem) any shares of
its capital stock.
(k) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. No fees or commissions will be payable by
the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other person, with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchasers, their employees, officers,
directors, agents, and partners, and its respective Affiliates, from and against
all claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
(m) Form S-3 Eligibility. The Company is eligible to register
its Common Stock for resale under Form S-3 promulgated under the Securities Act.
(n) Listing and Maintenance Requirements. The Company has not,
in the two years preceding the date hereof, except for notice sent by NASDAQ to
the Company in error, received notice (written or oral) from the NASDAQ or any
other stock exchange, market or trading facility on which the Common Stock is or
has been listed (or on which it has been quoted) to the effect that the Company
is not in compliance with the listing or maintenance requirements of such
exchange, market or trading facility. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.
(o) Patents and Trademarks. The Company and its Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
rights (collectively, the "Intellectual Property Rights") which are necessary or
material for use in connection with their respective business as described in
the SEC Reports and as contemplated to be conducted, and which the failure to so
have would have a Material Adverse Effect. Neither the Company nor any
Subsidiary has received a written notice that the Intellectual Property Rights
used by the Company or its Subsidiaries violates or infringes upon the rights of
any Person, to the best knowledge of the Company. All such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights.
<PAGE>
(p) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
(q) Title. Except as set forth in Schedule 2.1(q), the Company
and the Subsidiaries have good and marketable title in fee simple to all real
property and personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company and its Subsidiaries. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.
(r) Disclosure. The Company confirms that neither it nor any
Person acting on its behalf has provided the Purchasers or their agents or
counsel with any information that constitutes or might constitute material
non-public information. The Company understands and confirms that the Purchasers
shall be relying on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers regarding
the Company, its business and the transactions contemplated hereby, including
the Schedules to this Agreement, furnished by or on behalf of the Company are
true and correct and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein not misleading.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of this Agreement and the Registration Rights Agreement has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act and in compliance
with applicable federal and
<PAGE>
state securities laws or under an exemption from such registration. Nothing
contained herein shall be deemed a representation or warranty by such Purchaser
to hold Securities for any amount of time.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and at each exercise date
under the Warrants, it will be, an "accredited investor" as defined in Rule
501(a)(8) under the Securities Act.
(d) Experience of such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of any Purchaser
or its representatives or counsel shall modify, amend or affect a Purchaser's
right to rely on the truth, accuracy and completeness of the Disclosure
Materials and the Company's representations and warranties contained in the
Transaction Documents.
(g) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
(h) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to it without registration under
the Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that no Purchaser makes or
has made representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.2.
<PAGE>
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act, and in
compliance with any applicable federal and state securities laws. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities Act. Notwithstanding
the foregoing, the Company, without requiring a legal opinion as described in
the immediately preceding sentence, hereby consents to and agrees to register on
the books of the Company and with any transfer agent for the securities of the
Company any transfer of Securities by a Purchaser to an Affiliate of such
Purchaser or to one or more funds or managed accounts under common management
with such Purchaser, and any transfer among any such Affiliates or one or more
funds or managed accounts, provided that the transferee certifies to the Company
that it is an "accredited investor" within the meaning of Rule 501(a) under the
Securities Act and that it is acquiring the Securities solely for investment
purposes (subject to the qualifications hereof). Any such transferee shall agree
in writing to be bound by the terms of this Agreement and shall have the rights
of the Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
Neither Shares nor Underlying Shares shall contain the legend
set forth above nor any other legend at any time while an Underlying Shares
Registration Statement is effective under the Securities Act or, in the event
there is not an effective Registration Statement at such time if such legend is
not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the day that such Registration Statement is declared effective by the
Commission. The Company agrees that if any Shares or Underlying
<PAGE>
Shares are issued with a legend in accordance with this Section 3.1(b), it will,
within three (3) Trading Days after request therefor by a Purchaser and the
surrender by such Purchaser of the certificate representing the applicable
Shares or Underlying Shares, provide such Purchaser with a certificate or
certificates representing such Shares or Underlying Shares, free from such
legend at such time as such legend would not have been required under this
Section 3.1(b) had such issuance occurred on the date of such request. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon exercise of the Warrants will result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares upon exercise of the Warrants
pursuant to the terms thereof is unconditional and absolute regardless of the
effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchasers own
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. So long as the Purchasers own Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Purchasers and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act such information as is required for the
Purchasers to sell the Securities under Rule 144 promulgated under the
Securities Act. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell Underlying Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
the legal opinion referenced above in this Section. Upon the request of any such
Person, the Company shall deliver to such Person a written certification of a
duly authorized officer as to whether it has complied with such requirements.
3.4 Integration. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate shall, sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of the Nasdaq Stock Market.
3.5 Increase in Authorized Shares. If on any date the Company would be,
if a notice of exercise were to be delivered on such date, precluded from
issuing 200% of the number of Underlying Shares as would then be issuable upon
exercise in full of the Adjustable Warrants (the "Current Required Minimum") due
to the unavailability of a sufficient number of authorized but unissued or
reserved shares of Common Stock, then the Board of Directors of the Company
shall promptly (and in any case, within 30 Business Days from such date) prepare
and mail to the stockholders of the Company proxy materials requesting
authorization to amend the Company's articles of incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue to at
least such number of shares as is reasonably adequate to enable the
<PAGE>
Company to comply with its issuance, exercise and reservation of shares
obligations as set forth in this Agreement and the Warrants (the sum of (x) the
number of shares of Common Stock then outstanding plus all shares of Common
Stock issuable upon exercise of all outstanding options, warrants and
convertible instruments other than the Adjustable Warrants, and (y) the Current
Required Minimum, shall be a reasonable number). In connection therewith, the
Board of Directors shall (a) adopt proper resolutions authorizing such increase,
(b) recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the earlier to occur of the 60th day after
delivery of the proxy materials relating to such meeting and the 90th day after
request by a holder of Warrants to issue the number of Underlying Shares in
accordance with the terms hereof) and (c) within five (5) Business Days of
obtaining such stockholder authorization, file an appropriate amendment to the
Company's articles of incorporation to evidence such increase.
3.6 Reservation and Listing of Underlying Shares. (a) The Company shall
(i) in the time and manner required by the NASDAQ and such other national
securities exchange or market or trading or quotation facility on which the
Common Stock is then listed for trading, prepare and file with the NASDAQ (and
such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed for trading) an additional
shares listing application covering a number of shares of Common Stock which is
not less than the Initial Minimum, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing in the NASDAQ (as well as on
any such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchasers evidence of such listing, and
the Company shall maintain the listing of its Common Stock thereon. If the
number of Underlying Shares issuable upon exercise of the then unexercised
portion of the Adjustable Warrants exceeds 85% of the number of Underlying
Shares previously listed on account thereof with NASDAQ (and any such other
required exchanges), then the Company shall take the necessary actions to
immediately list a number of Underlying Shares as equals no less than the then
Current Required Minimum with respect thereto.
(b) The Company shall maintain a reserve of shares of Common
Stock for issuance upon exercise in full of the Warrants in accordance with the
Warrants, in such amount as may be required to fulfill its obligations in full
under the Warrants, which reserve shall equal no less than the then Current
Required Minimum.
3.7 Exercise Procedures. The Transfer Agent Instructions and Form of
Election to Purchase under the Warrants set forth the totality of the procedures
with respect to the exercise of the Warrants, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchasers to exercise the Warrants.
3.8 Notice of Breaches. Each of the Company and the Purchasers shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of
<PAGE>
the Closing Date. However, no disclosure by a party pursuant to this Section
shall be deemed to cure any breach of any representation, warranty or other
agreement contained in any Transaction Document.
3.9 Right of First Refusal; Subsequent Registrations. (a) The Company
shall not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or a transaction intended to be exempt or not subject to registration
under the Securities Act (a "Subsequent Placement") until the 180th day after
the Underlying Shares Registration Statement is first declared effective by the
Commission, except (i) the granting of options or warrants to employees,
officers and directors, and the issuance of shares upon exercise of options
granted, under any stock option plan heretofore or hereinafter duly adopted by
the Company, (ii) shares of Common Stock issuable upon exercise of currently
outstanding options and warrants and upon conversion of any currently
outstanding convertible securities of the Company, in each case to the extent
disclosed in Schedule 2.1(c) but not with respect to any amendment or
modification thereof, and (iii) shares of Common Stock issuable upon exercise of
the Warrants in accordance with the terms thereof, unless (A) the Company
delivers to each Purchaser a written notice (the "Subsequent Placement Notice")
of its intention to effect such Subsequent Placement, which Subsequent Placement
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Placement, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Placement shall be effected, and attached to which
shall be a term sheet or similar document relating thereto and (B) such
Purchaser shall not have notified the Company by 5:30 p.m. (New York City time)
on the fifth (5th) Trading Day after its receipt of the Subsequent Placement
Notice of its willingness to cause such Purchaser to provide (or to cause its
sole designee to provide), subject to completion of mutually acceptable
documentation, financing to the Company on the same terms set forth in the
Subsequent Placement Notice. If the Purchasers shall fail to notify the Company
of their intention to enter into such negotiations within such time period, the
Company may effect the Subsequent Placement substantially upon the terms and to
the Persons (or Affiliates of such Persons) set forth in the Subsequent
Placement Notice; provided, that the Company shall provide the Purchasers with a
second Subsequent Placement Notice, and the Purchasers shall again have the
right of first refusal set forth above in this Section (a), if the Subsequent
Placement subject to the initial Subsequent Placement Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Placement
Notice within thirty (30) Trading Days after the date of the initial Subsequent
Placement Notice with the Person (or an Affiliate of such Person) identified in
the Subsequent Placement Notice. The rights of the Purchasers under this Section
shall apply to each Subsequent Placement contemplated by the Company or such
Subsidiary, regardless of any prior waivers or non-participation.
(b) Except for (w) Shares, (x) Underlying Shares, (y) other
"Registrable Securities" (as such term is defined in the Registration Rights
Agreement) to be registered, and securities of the Company as set forth in
Schedule 6(b) of the Registration's Rights Agreement to be registered, in the
Underlying Shares Registration Statement in accordance with the Registration
Rights Agreement, and (z) Common Stock permitted to be issued pursuant to
paragraph (a)(i) - (iii) of Section 3.9 (a), the Company shall not, for a period
of not less than 90 Trading Days after the date that the Underlying Shares
Registration Statement is declared
<PAGE>
effective by the Commission, without the prior written consent of the Purchasers
(i) issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities pursuant to Regulation S promulgated under the
Securities Act, or (ii) file a registration statement for the issuance or resale
of any securities of the Company. Any days that a Purchaser is not permitted or
unable to utilize the prospectus or otherwise to sell Underlying Shares under
the Underlying Shares Registration Statement shall be added to such 90 Trading
Day period for the purposes of this Section.
3.10 Certain Securities Laws Disclosures; Publicity. The Company shall:
(i) on the Closing Date, issue a press release acceptable to the Purchasers
disclosing the transactions contemplated hereby, (ii) file with the Commission a
Report on Form 8-K or Form 10-Q (as applicable) disclosing the transactions
contemplated hereby within ten (10) Business Days after the Closing Date, and
(iii) timely file with the Commission a Form D promulgated under the Securities
Act as required under Regulation D promulgated under the Securities Act and
provide a copy thereof to the Purchasers promptly after the filing thereof. The
Company shall, no less than two (2) Business Days prior to the filing of any
disclosure required by clauses (ii) and (iii) above, provide a copy thereof to
the Purchasers. The Company and the Purchasers shall consult with each other in
issuing any press releases or otherwise making public statements or filings and
other communications with the Commission or any regulatory agency or stock
market or trading facility with respect to the transactions contemplated hereby
and neither party shall issue any such press release or otherwise make any such
public statement, filings or other communications pertaining to the transactions
contemplated hereby without the prior written consent of the other, which
consent shall not be unreasonably withheld or delayed, except that no prior
consent shall be required if such disclosure is required by law and such consent
can not reasonably be expected to be received prior to the time required to
complete such filing or make such statement in accordance with such applicable
law, in which such case the disclosing party shall provide the other party with
prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of a Purchaser, or include the name of a Purchaser in any filing with the
Commission, or any regulatory agency, trading facility or stock market without
the prior written consent of such Purchaser, except to the extent such
disclosure (but not any disclosure as to the controlling Persons thereof) is
required by law, in which case the Company shall provide such Purchaser with
prior notice of such disclosure.
3.11 Transfer of Intellectual Property Rights. Except in connection
with the sale of all or substantially all of the assets of the Company, the
Company shall not transfer, sell or otherwise dispose of any Intellectual
Property Rights, or allow any of the Intellectual Property Rights to become
subject to any Liens, or fail to renew such Intellectual Property Rights (if
renewable and it would otherwise lapse if not renewed).
3.12 Use of Proceeds. The Company shall use the net proceeds from the
sale of Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than trade payables in
the ordinary course of business), to redeem any Company equity or
equity-equivalent securities or to settle any outstanding litigation. Pending
application of the proceeds of this placement in the manner permitted hereby,
the Company will invest such proceeds in interest bearing accounts and/or
short-term, investment grade interest bearing securities.
<PAGE>
3.13 Reimbursement. If any Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or entity in connection with
the transactions contemplated by this Agreement.
3.14 Purchasers' Obligations Under Letter Agreement. The parties agree
that upon the Closing hereunder, the obligations of the Purchasers under the
letter agreement between the parties, dated September 30, 1999, will be
satisfied in full.
3.15 Warrant Shares. The parties agree that, notwithstanding anything
to the contrary contained therein, the Adjustable Warrants issued to the
Purchasers on September 30, 1999, will no longer vest from and after the Closing
Date. However, any vesting for a prior Vesting Date (as defined in Section 3(a)
of the Adjustable Warrant dated September 30, 1999) will be honored.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall
reimburse the Purchasers for their legal fees and expenses incurred in
connection with the preparation and negotiation of the Transaction Documents by
paying to Robinson Silverman $25,000 for the preparation and negotiation of the
Transaction Documents. The $25,000 may be deducted from the proceeds of the
Purchase Price payable to the Company and paid directly by the Purchasers to
Robinson Silverman. Other than the amounts contemplated in the immediately
preceding sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
<PAGE>
4.2 Entire Agreement; Amendments. The Transaction Documents,
together with the Exhibits and Schedules thereto contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Agreement later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: Cybershop.Com, Inc.
116 Newark Avenue,
Jersey City, New Jersey 07302
Facsimile No.: (201) 234-5052
Attn: Chief Financial Officer
With copies to: Davis & Gilbert LLP
1740 Broadway
New York, NY 10019
Facsimile No.: (212) 468-4888
Attn: Walter M. Epstein, Esq.
If to a Purchaser: To the address
set forth under such
Purchaser's name on the
signature pages hereto.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
<PAGE>
4.5 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchasers. Except as set
forth in Section 3.1(a), the Purchasers may not assign this Agreement or any of
the rights or obligations hereunder without the consent of the Company.
4.7 No Third-Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective successors and
permitted assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.
4.8 Governing Law. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
exercise of the Warrants.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Severability. In case any one or more of the provisions
of this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and
<PAGE>
the parties will attempt to agree upon a valid and enforceable provision which
shall be a reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.
4.12 Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents. Each of the Company and the Purchasers
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.
4.13 Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser under any Transaction Document is several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by the Transaction Document. Each Purchaser shall
be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the Transaction
Documents, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
. CYBERSHOP.COM, INC..
By:_________________________________
Name:
Title:
<PAGE>
STRONG RIVER INVESTMENTS, INC.
By:_________________________________
Kenneth L. Henderson
Attorney-in-Fact
Purchase Price for Common Stock
to be acquired at Closing: $3,000,000
Number of Shares to be acquired at
Closing: 264,317
Warrant Shares subject to Closing
Warrant; 118,943
Address for Notice:
Strong River Investments, Inc.
c/o Gonzalez-Ruiz & Aleman (BVI) Limited
Wickhams Cay I, Vanterpool Plaza
P.O. Box 873
Road Town, Tortolla. BVI
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Kenneth L. Henderson, Esq.
Eric L. Cohen, Esq.
<PAGE>
MONTROSE INVESTMENTS LTD.
By:_________________________________
Name:
Title:
Purchase Price for Common Stock
to be acquired at Closing: $3,000,000
Number of Shares to be acquired at
Closing: 264,317
Warrant Shares subject to Closing
Warrant; 118,942
Address for Notice:
Montrose Investments, Ltd.
300 Crescent Court, Suite 700
Dallas, TX 75201
Facsimile: (214) 758-1221
Attn: Will Rose
Kim Rozman
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Kenneth L. Henderson, Esq.
Eric L. Cohen, Esq.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of December 8, 1999,among Cybershop.com, Inc., a Delaware
corporation (the "Company"), and the investors signatory hereto (each such
investor is a "Purchaser" and all such investors are, collectively, the
"Purchasers").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof, among the Company and the Purchasers
(the "Purchase Agreement").
In consideration of the mutual covenants contained in the Purchase Agreement and
in this Agreement, the Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that
are defined in the Purchase Agreement shall have the meanings given such terms
in the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Adjustable Warrants" shall have the meaning set forth in the
Purchase Agreement.
"Advice" shall have meaning set forth in Section 6(e).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday or a day on which banking
institutions in the state of New York generally are authorized or required by
law or other governmental action to close.
"Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Closing Warrants" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
<PAGE>
"Common Stock" means the Company's common stock, $.001 par
value per share and any other securities into which such stock shall hereafter
be redistributed or recapitalized.
"Effectiveness Date" means the 60th day following the Closing
Date.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 10th Business Day following the
Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registration Delay Payments" shall have the meaning set forth
in Section 2(e).
"Registrable Securities" means (i) the Shares and (ii) the
shares of Common Stock issuable upon exercise of the Warrants.
"Registration Statement" means the registration statement and
any additional registration statement contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
<PAGE>
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any rule or regulation hereafter adopted by the Commission to replace such
Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any rule or regulation hereafter adopted by the Commission to replace such
Rule.
"Rule 424" means Rule 424 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any rule or regulation hereafter adopted by the Commission to replace such
Rule.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Shares" means the shares of Common Stock issued to the
Purchasers on the Closing Date pursuant to the Purchase Agreement.
"Special Counsel" means one special counsel to the Holders for
which the Holders will be reimbursed by the Company pursuant to Section 4.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Vesting Period" shall have the meaning set forth in the
Adjustable Warrants.
"Warrants" means the Closing Warrants and the Adjustable
Warrants.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering the
resale of all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form S-3
(except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith as the Holders may consent). The
Company shall use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the Effectiveness Date, and shall use
its best efforts to keep such Registration Statement continuously effective
under the Securities Act until the date which is two (2) years after the date
that such Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144(k) as determined by the counsel to the Company pursuant to a written
opinion letter to such effect, addressed and acceptable to the Company's
transfer agent
<PAGE>
(the "Effectiveness Period"), provided, that the Company shall not be deemed to
have used its best efforts to keep the Registration Statement effective during
the Effectiveness Period if it voluntarily takes any action that would result in
the Holders not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
(b) In order to account for the fact that the number of shares
of Common Stock that are issuable upon exercise of the Adjustable Warrants is
determined in part upon the Per Share Market Value (as defined in the Adjustable
Warrants) on the Vesting Period, the initial Registration Statement to be filed
hereunder shall include (but not be limited to) a number of shares of Common
Stock equal to no less than the sum of (i) the number of shares issuable upon
exercise of the Adjustable Warrants, assuming, for the purposes of this
subsection (i), that the Adjustment Period Price (as defined in the Adjustable
Warrants) on the Vesting Period is 50% of the Per Share Market Value for the
Trading Day (as defined in the Adjustable Warrants) immediately preceding the
Closing Date, (ii) the number of shares issuable upon exercise in full of the
Closing Warrant and (iii) the number of Shares (the sum of (i), (ii) and (iii),
the "Initial Minimum").
(c) If the Holders of a majority of the Registrable Securities
then outstanding so elect, an offering of Registrable Securities pursuant to a
Registration Statement may be effected in the form of an Underwritten Offering.
In such event, and, if the managing underwriters advise the Company and such
Holders in writing that in their opinion the amount of Registrable Securities
proposed to be sold in such Underwritten Offering exceeds the amount of
Registrable Securities which can be sold in such Underwritten Offering, there
shall be included in such Underwritten Offering the amount of such Registrable
Securities which in the opinion of such managing underwriters can be sold, and
such amount shall be allocated pro rata among the Holders proposing to sell
Registrable Securities in such Underwritten Offering.
(d) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker that will administer the offering
will be selected by the Holders of a majority of the Registrable Securities
included in such offering upon consultation with the Company. No Holder may
participate in any Underwritten Offering hereunder unless such Holder (i) agrees
to sell its Registrable Securities on the basis provided in any underwriting
agreements approved by the Persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
(e) If (i) the initial Registration Statement is not filed on
or before the Filing Date (if the Company files such Registration Statement
without affording the Holder the opportunity to review and comment on the same
as required by Section 3(a) hereof, the Company shall not be deemed to have
satisfied this clause (i)), or (ii) the Company fails to file with the
Commission a request to accelerate in accordance with Rule 12d1-2 promulgated
under the Exchange Act within five (5) days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed" or is not subject to further
review, or (iii) the initial Registration Statement filed hereunder is not
declared effective by the Commission on or before the Effectiveness Date, or
(iv) after a Registration Statement has been declared effective by the
Commission, such
<PAGE>
Registration Statement is either not effective as to all Registrable Securities
required to be covered thereby throughout the Effectiveness Period or the
Holders are not permitted for any reason to make sales thereunder during such
period, (v) an amendment to the Registration Statement is not filed by the
Company with the Commission within ten (10) days of the Commission's notifying
the Company that such amendment is required in order for a Registration
Statement to be declared effective, or (vi) trading in the Common Stock shall be
suspended from the NASDAQ (as defined herein) or a Subsequent Market (as defined
herein) for more than three (3) Business Days (which need not be consecutive
days) (any such failure or breach being referred to as an "Event," and for
purposes of clauses (i), (iii) and (iv) the date on which such Event occurs, or
for purposes of clause (ii) the date on which such five (5) day period is
exceeded, or for purposes of clause (v) the date on which such ten (10) day
period is exceeded, or for purposes of clause (vi) the date on which such three
(3) Business Day period is exceeded being referred to as "Event Date"), then, in
any such case, as partial relief for the damages suffered therefrom by the
Holder (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company, other than with respect to an Event caused by a
failure under clause (ii) above, shall on the Event Date and on each monthly
anniversary thereof until the triggering Event is cured, pay to the Holder an
amount in cash, as liquidated damages for the estimated cost to the Holders of
not having liquid securities in the time contemplated by the Transaction
Documents and not as a penalty, equal to 2% of the purchase price paid by such
Holder for its Shares pursuant to the Purchase Agreement. In the event that the
Company fails to request that a Registration Statement be declared effective not
later than the 5th day after it is notified by the Commission that the
Registration Statement is not subject to "a review" or no further "review", then
for each day after such 5th day that the Registration Statement has not been
declared effective by the Commission, the Company shall pay to the Holders as
liquidated damages, not as a penalty, the sum of $50,000. The payments to which
the Holders shall be entitled pursuant to this Section are referred to herein as
"Registration Delay Payments." Registration Delay Payments shall be calculated
on a cumulative basis and paid within five (5) Business Days of the Event Date
and each monthly anniversary thereof. If the Company fails to make Registration
Delay Payments in a timely manner, such Registration Delay Payments shall bear
interest at the rate of 2.0% per month (or the maximum rate permitted by law),
pro-rated for partial months, until paid in full.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form agreed to by
the Company and the Holders) which shall contain the "Plan of Distribution"
attached hereto as Annex A (except if otherwise directed by the Holders), and
cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than five (5) Business Days
prior to the filing of a Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall, (i) furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such
<PAGE>
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, their Special Counsel and such managing underwriters, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within ten (10)
days, to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as reasonably
possible provide the Holders true and complete copies of all correspondence from
and to the Commission relating to the Registration Statement; and (iv) comply in
all material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) (i) File additional Registration Statements if the number
of Registrable Securities at any time exceeds 85% of the number of shares of
Common Stock then registered in a Registration Statement. The Company shall have
twenty (20) days to file such additional Registration Statements after its
receipt of notice of the requirement thereof which the Holders may give at any
time when the number of Registrable Securities exceeds 85% of the number of
shares of Common Stock then registered in a Registration Statement hereunder. In
such event, the Registration Statement required to be filed by the Company shall
include a number of shares of Common Stock equal to no less than the Initial
Minimum and any other Registrable Securities not then registered in a
Registration Statement.
(ii) File such supplements or attach "stickers" to
the Registration Statement or Prospectus as and when required by the Commission
to evidence a material amount of resales by a Holder pursuant to a Prospectus.
In connection therewith, if such supplements or "stickers" are periodically
required by the Commission, the Company shall, within four (4) Business Days,
file such supplements or attach such "stickers" whenever a Holder has sold 50%
of the Registrable Securities covered by the then outstanding Prospectus (as
last supplemented or "stickered") in order to cover 100% of the number of the
outstanding Registrable Securities.
(d) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than five (5) Business Days
(or, in the case of a supplement or "sticker"
<PAGE>
required to be filed or attached pursuant to Section 3(c)(ii), within one (1)
Business Day) prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one (1) Business Day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a "review" of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders); and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event or passage of time that makes
the financial statements included in the Registration Statement ineligible for
inclusion therein or any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(e) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(f) If requested by any managing underwriter or the Holders of
a majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
reasonable information as such managing underwriters and such Holders agree
should be included therein, and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment as soon as practicable
after the Company has received notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment; provided, however, that
the Company shall not be required to take any action pursuant to this Section
3(f) that would, in the opinion of counsel for the Company, violate applicable
law or be materially detrimental to the business prospects of the Company.
(g) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent
<PAGE>
requested by such Person (including those previously furnished or incorporated
by reference) promptly after the filing of such documents with the Commission.
(h) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders and any underwriters in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(i) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(j) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by the Purchase Agreement, of all restrictive legends, and to enable
such Registrable Securities to be in such denominations and registered in such
names as any such managing underwriters or Holders may request.
(k) Upon the occurrence of any event contemplated by Section
3(d)(vi), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(l) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq National
Market ("NASDAQ") or on any other stock market or trading facility on which the
shares of Common Stock are traded, listed or quoted (each a "Subsequent Market")
as and when required pursuant to the Purchase Agreement.
<PAGE>
(m) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not an
underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings (subject to the
scheduling of appropriate exceptions to insure such representations and
warranties are accurate), and confirm the same if and when requested; (ii) in
the case of an Underwritten Offering obtain and deliver copies thereof to each
Holder and the managing underwriters, if any, of opinions of counsel to the
Company and updates thereof addressed to each Holder and each such underwriter,
in form, scope and substance reasonably satisfactory to any such managing
underwriters and Special Counsel to the selling Holders covering the matters
customarily covered in opinions requested in Underwritten Offerings and such
other matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an Underwritten Offering, at the time of delivery
of any Registrable Securities sold pursuant thereto, use its best reasonable
efforts to obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to the Company in form and substance as are customary in
connection with Underwritten Offerings; (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and procedures
no less favorable to the selling Holders and the underwriters, if any, than
those set forth in Section 5 (or such other provisions and procedures acceptable
to the managing underwriters, if any, and holders of a majority of Registrable
Securities participating in such Underwritten Offering); and (v) deliver such
documents and certificates as may be reasonably requested by the Holders of a
majority of the Registrable Securities being sold, their Special Counsel and any
managing underwriters to evidence the continued validity of the representations
and warranties made pursuant to Section 3(m)(i) above and to evidence compliance
with any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(n) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by
<PAGE>
such Person; or (iv) such information becomes available to such Person from a
source other than the Company and such source is not known by such Person to be
bound by a confidentiality agreement with the Company.
(o) Comply in all material issues with all applicable rules
and regulations of the Commission.
(p) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request. If the Registration Statement
refers to any Holder by name or otherwise as the holder of any securities of the
Company, then such Holder shall have the right to require (if such reference to
such Holder by name or otherwise is not required by the Securities Act or any
similar Federal statute then in force) the deletion of the reference to such
Holder in any amendment or supplement to the Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.
5. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not pursuant
to an Underwritten Offering and whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the NASDAQ and any
Subsequent Market on which the Common Stock is then listed for trading, and (B)
in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
the Holders of a majority of Registrable Securities may designate)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses of the
Company, (iv) fees and disbursements of counsel for the Company and Special
Counsel for the Holders at a sum not higher than $15,000, (v) Securities Act
liability insurance, if the Company so desires such insurance, and (vi) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement. In addition,
the Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange as required hereunder.
<PAGE>
(b) If the Holders require an Underwritten Offering pursuant
to the terms hereof, and there shall be at such time no effective Registration
Statement meeting the requirements hereof and covering all of the Registrable
Securities pursuant to which the Holders are both named Selling Security holders
thereunder and permitted to utilize the Prospectus thereunder to resell such
Registrable Securities held by them, then the Company shall be responsible for
all costs, fees and expenses in connection therewith, except for the fees and
disbursements of the Underwriters (including any underwriting commissions and
discounts) and their legal counsel and accountants. By way of illustration which
is not intended to diminish from the provisions of Section 4(a), the Holders
shall not be responsible for, and the Company shall be required to pay the fees
or disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof. However, if the
Holders require an Underwritten Offering at a time when all of the circumstances
specified in the opening clause to the first sentence of this Section 4(b) are
present, then such Holders shall bear all costs associated with such
Underwritten Offering, including those costs specified in Section 4(a) above.
4. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement or approved by Special Counsel, such Prospectus or
such form of Prospectus or in any amendment or supplement thereto or (2) in the
case of an occurrence of an event of the type specified in Section
3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
<PAGE>
contemplated in Section 6(e). The Company shall notify the Holders promptly of
the institution, threat or assertion of any Proceeding of which the Company is
aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus, or in any amendment or supplement thereto. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such
<PAGE>
counsel shall be at the expense of the Indemnifying Party). The Indemnifying
Party shall not be liable for any settlement of any such Proceeding effected
without its written consent, which consent shall not be unreasonably withheld.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the proceeds actually received by such Holder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
<PAGE>
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
5. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has entered, as of the date hereof, nor shall the Company or
any of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specified in Schedule 6(b)
hereto, neither the Company nor any of its subsidiaries has previously entered
into any agreement granting any registration rights with respect to any of its
securities to any Person that have not been satisfied in full. Without limiting
the generality of the foregoing, without the written consent of the Holders of a
majority of the then outstanding Registrable Securities, the Company shall not
grant to any Person the right to request the Company to register any securities
of the Company under the Securities Act unless the rights so granted are subject
in all respects to the prior rights in full of the Holders set forth herein, and
are not otherwise in conflict or inconsistent with the provisions of this
Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
(d) Compliance. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
(e) Discontinued Disposition. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a notice from
the Company of the occurrence of any event of the kind described in Sections
3(d)(ii), 3(d)(iii), 3(d)(iv), 3(d)(v) or 3(d)(vi), such Holder will forthwith
discontinue disposition of such Registrable Securities under the Registration
Statement until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 3(k),
or until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that
<PAGE>
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph.
(f) Piggy-Back Registrations. If at any time when there is not
an effective Registration Statement covering all of the Registrable Securities
then outstanding and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder of Registrable
Securities written notice of such determination and, if within fifteen (15) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered, provided such
Registrable Securities are not freely tradable without volume restrictions under
Rule 144k.
(g) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(h) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 8:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Cybershop.Com, Inc.
116 Newark Avenue,
Jersey City, New Jersey 07302
Facsimile No.: (201) 234-5052
Attn: Chief Financial Officer
<PAGE>
With copies to: Davis & Gilbert LLP
1740 Broadway
New York, NY 10019
Facsimile No.: (212) 468-4888
Attn: Walter M. Epstein, Esq.
If to any other Person who is then the registered Holder:
To the address of such Holder
as it appears in the stock transfer books of the
Company or such other address as may be designated in
writing hereafter, in the same manner, by such
Person.
(i) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
Holders of a majority of Registrable Securities then outstanding. Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under this Agreement and the Purchase Agreement.
(j) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(k) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(l) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
<PAGE>
It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(o) Shares Held by the Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
(p) Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
CYBERSHOP.COM, INC.
By:_____________________________________
Name:
Title:
<PAGE>
STRONG RIVER INVESTMENTS, INC.
By:_____________________________________
Kenneth L. Henderson
Attorney-in-Fact
Address for Notice:
Strong River Investments, Inc.
c/o Gonzalez-Ruiz & Aleman (BVI) Limited
Wickhams Cay I, Vanterpool Plaza
P.O. Box 873
Road Town, Tortolla. BVI
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq. and
Eric L. Cohen, Esq.
<PAGE>
MONTROSE INVESTMENTS LTD.
By:_____________________________________
Name:
Title:
Address for Notice:
Montrose Investments, Ltd.
300 Crescent Court, Suite 700
Dallas, TX 75201
Facsimile: (214) 758-1221
Attn: Will Rose
Kim Rozman
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Kenneth L. Henderson, Esq.
Eric L. Cohen, Esq.
<PAGE>
Annex A
Plan of Distribution
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the
box, puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
<PAGE>
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
<PAGE>
Exhibit 10.15
GENERAL RELEASE
This General Release (the "Agreement") confirms the following understandings and
agreements between CYBERSHOP.COM, INC. ("Employer"), and JEFFRFEY LEIST
("Employee") concerning Employee's employment and termination thereof.
1. Employment Status:
Employee's employment shall be governed by the terms of a
letter dated February 14, 2000 ("Letter Agreement") which is attached hereto as
Exhibit A.
2. (a) Full Release: In consideration of the benefits and compensation
provided in the Letter Agreement, Employee, for himself, his heirs, executors,
administrator, successors, and assigns (hereinafter referred to as the
"Releasors") hereby fully releases and discharges Employer, its officers,
directors, employees, agents, insurers, underwriters, subsidiaries, parents,
affiliates, successors or assigns (all such persons, firms, corporations and
entities being deemed beneficiaries hereof and are referred to herein as the
"Releasees") from any and all actions, causes of action, claims, obligations,
costs, losses, liabilities, damages, attorneys' fees, and demands of whatsoever
character, whether or not known, suspected or claimed, which the Releasors have,
or hereafter may have, against the Releasees by reason of any matter, fact or
cause whatsoever from the beginning of time to the date of this Agreement,
including, without limitation, all claims arising out of or in any way related
to Employee's employment or the termination of his employment. This Agreement of
Employee shall be binding on the executors, heirs, administrators, successors
and assigns of Employee and shall inure to the benefit of the respective
executors, heirs, administrators, successors and assigns of the Releasees.
(b) For and in consideration of the release set forth in clause (a)
above, Employer, for and on behalf of the Releasees, releases Employee from any
and all actions, causes of action, claims, obligations, costs, losses,
liabilities, damages, attorneys' fees, and demands of whatsoever character,
whether or not known, suspected or claimed, which the Employer has, or hereafter
may have, against Employee by reason of any matter, fact or cause whatsoever
from the beginning of time to the date of this Agreement, including, without
limitation, all claims arising out of or in any way related to Employee's
employment or the termination of his employment.
3. Confidentiality: Employee agrees that the terms of this Agreement
have been and shall be held strictly confidential by him and his attorneys and
accountants, and that he shall not, and shall instruct his attorneys and
accountants not to disclose any such information, orally or in writing, to
anyone else, including without limitation, any past, present or future employee
or agent of the Employer. Employee recognizes that, in the event he or his
attorneys disclose any information contrary to the confidentiality provisions of
this Agreement, any such
<PAGE>
disclosure would be a material breach of the Agreement for which the Employer
shall be entitled to recover payments made under the Letter Agreement, in
addition to its other remedies in law and equity.
4. Releasees' Express Denial of Liability: The payment by the Releasees
of the amount specified herein above shall not be deemed an admission that any
liability of the Releasees exists, and in making such payment Releasees do not
admit, and expressly deny, any liability.
5. Waiver of Rights Under Other Statutes: Employee understands that his
Agreement includes the waiver of claims and rights Employee may have under other
applicable statutes, including without limitation, Title VII of the Civil Rights
Act of 1964; the Civil Rights Act of 1991; the Employee Retirement Income
Security Act; the Equal Pay Act; the Rehabilitation Act of 1973; the Americans
with Disabilities Act; the Family and Medical Leave Act; the New Jersey Family
Leave Act; the New Jersey Law Against Discrimination; the Fair Labor Standards
Act; the New Jersey Wage and Hour Act; and/or the New Jersey Conscientious
Employee Protection Act, and any and all amendments to any of same.
6. Waiver of Rights Under the Age Discrimination in Employment Act:
Employee understands that this Agreement, and the release contained herein,
waives claims and rights Employee might have under the Age Discrimination in
Employment Act ("ADEA"). The monies and other benefits offered to Employee in
this Agreement are in addition to any sums or benefits that Employee would be
entitled without signing this Agreement. For a period of seven (7) days
following execution of this Agreement, Employee may revoke the terms of this
Agreement by a written document received by Employer on or before the end of the
seven (7) day period (the "Effective Date"). The Agreement will not be effective
until said revocation period has expired. Employee acknowledges that he has been
given up to twenty-one (21) days to decide whether to sign this Agreement.
Employee has been advised to consult with an attorney prior to executing this
Agreement.
7. Return of Property: Employee agrees to return to the Employer all
Employer property, including without limitation, mailing lists, reports, files,
memoranda, records, computer hardware, software, credit cards, door and file
keys, computer access codes or disks and instructional manuals, and other
physical or personal property which Employee received or prepared or helped
prepare in connection with his employment with Employer, and that Employee will
not retain any copies, duplicates, reproductions or excerpts thereof. Employer
recognizes that Employee states that he has returned all Employer property in
his possession.
8. No Disparagement:
(a) Employee agrees that he shall not make, or cause to be
made, any statement or communicate any information (whether oral or written)
that disparages or reflects negatively on Employer or any of the Releasees.
Nothing herein shall preclude Employee from complying with a subpoena or other
lawful process.
(b) Employer agrees that it shall not make, or cause to be
made, any statement or communicate any information (whether oral or written)
that disparages or reflects negatively on Employee. Employer also agrees that
<PAGE>
it shall not interfere with Employee's efforts to obtain subsequent employment.
It shall not be a violation of this paragraph 9(b) if an employee or independent
contractor of Employer disparages Employee or interferes with his efforts to
obtain subsequent employment outside the scope of his or her employment or
without the authority of Employer. Nothing herein shall preclude Employer from
complying with a subpoena or other lawful process.
9. Employment Agreement is Terminated:With the exception of paragraphs
9 and 10 of your employment agreement (the "Employment Agreement") dated
February 7, 1999, which shall remain in full force and effect and is hereby
affirmed and ratified, the Employment Agreement and will be terminated as of the
Termination Date.
10. No Suit: Employee represents that he has not filed or permitted to
be filed against the Employer or any of the other Releasees, individually or
collectively, any lawsuits, and he covenants and agrees that he will not do so
at any time hereafter. Employee will not voluntarily participate in any judicial
proceeding against any of the Releasees that in any way involve the allegations
and facts that he could have raised against any of the Releasees in any forum as
of the date hereof. Employee agrees that he will not encourage or cooperate with
any other current or former employee of Employer or any potential plaintiff to
commence any legal action or make any claim against the Employer or against the
Releasees in respect of such persons employment with the Employer or otherwise.
11. Entire Agreement: Except as otherwise set forth herein, this
Agreement including Exhibit A, sets forth the entire agreement between the
parties relating to the subject matter hereof. This Agreement may not be changed
orally but changed only in a writing signed by both parties.
12. Miscellaneous:
(a) This Agreement shall be governed in all respects by laws
of the State of New Jersey.
(b) In the event that any one or more of the provisions of
this Agreement is held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions will not in any way be
affected or impaired thereby. Moreover, if any one or more of the provisions
contained in this Agreement is held to be excessively broad as to duration,
scope, activity or subject, such provisions will be construed by limiting and
reducing them so as to be enforceable to the maximum extent compatible with the
applicable law.
IN WITNESS THEREOF, Employer and Employee have executed this
General Release on this ____ day of ______________, 2000.
CYBERSHOP.COM, INC.
By:_____________________________
________________________________
JEFFREY LEIST
Date:___________________________
<PAGE>
Exhibit 10.16
Cybershop.com, Inc.
116 Newark Avenue
Jersey City, New Jersey 07302
March 30, 2000
Mr. Jeffrey Leist
61 Lower Shad Road
Pound Ridge, New York 10576
Re: Employment Term
Dear Jeff:
Reference is made to the Employment Agreement between you and
Cybershop.com, Inc. (formerly known as Cybershop International, Inc.) dated
February 7, 1999 (the "Employment Agreement"). The purpose of this letter is to
reflect our agreement modifying the terms of the Employment Agreement as
follows:
1. Your services under the Employment Agreement will be terminated at
the close of business on April 11, 2000 (the "Termination Date").
2. Salary payable under the Employment Agreement through the
Termination Date shall be paid on the same periodic basis as currently in
effect.
3. Disclosure of your termination shall be made at a mutually agreeable
time but in any event no later than the Termination Date.
4. After February 18, 2000 you shall not be required to be present at
our offices to perform services but you shall make yourself available as
requested to provide transition services, as required.
5. Through the Termination Date you shall have full access to your
office and voice mail.
6. No additional amounts shall be payable to you with respect to
vacation.
7. Your use of the corporate apartment in Jersey City shall end on
February 18, 2000.
8. Your health coverage under our group health plan will terminate on
the Termination Date. Thereafter, you will be provided an opportunity to
continue health coverage for yourself and qualifying dependents under our group
health plan in accordance with the Consolidated Omnibus Budget Reconciliation
Act ("COBRA"). From and after the Termination Date, you shall not be entitled to
receive any further compensation or monies from us or to receive any benefits or
participate in any benefit plan or program, including but not limited to, our
401(k) Plan.
9. Attached to this letter is a General Release to be executed by you
as well.
As you know the decision to terminate the Employment
Agreement is based upon the change in the overall business direction of the
Company. Your services have been of tremendous value to the Company. Please
<PAGE>
accept my thanks for your services. Will you please indicate your acceptance of
the terms of this letter by signing in the space indicated below and returning a
signed copy along with a signed copy of the General Release.
Sincerely,
Jeffrey Tauber, President
Cybershop.com, Inc.
Agreed and Accepted as of this
14th day of February, 2000.
______________________________
Jeffrey Leist
<PAGE>
Exhibit 10.17
SEVERANCE AGREEMENT AND GENERAL RELEASE
This Severance Agreement and General Release (the "Agreement") confirms the
following understandings and agreements between CYBERSHOP INTERNATIONAL, INC.
("Employer"), and EDWARD MUFSON ("Employee") concerning Employee's employment
and termination thereof.
13. Employment Status:
(a) Employee's last date of employment will be January 20,
2000 (the "Termination Date").
(b) Employee will be paid his salary through January 20, 2000
in accordance with normal payroll practices. Employee will also be paid for any
unused accrued vacation days, less applicable withholding taxes. Employee's
health coverage under the Employer's group health plan will terminate on January
31, 2000. Thereafter, Employee will be provided an opportunity to continue
health coverage for himself and qualifying dependents under the Employer's group
health plan in accordance with the Consolidated Omnibus Budget Reconciliation
Act ("COBRA").
(c) Except as otherwise set forth in this Agreement, from and
after the Termination Date, Employee shall not be entitled to receive any
further compensation or monies from Employer or to receive any benefits or
participate in any benefit plan or program of Employer, including but not
limited to, the Employer's 401(k) Plan.
14. Severance: Provided Employee complies with his obligations under
this Agreement, Employee shall be entitled to severance as follows:
(a) Severance: The Employer will pay Employee $75,000, less
applicable withholding taxes. Such payment will be made in a lump-sum in the
next payroll period following the Effective Date (as defined in paragraph 7).
Together with Employee's final paycheck, the gross amount of such payment will
be $79,615.38, and the net amount will be $59,442.64.
(b) The provisions of paragraph 2(a) will have no force and
effect if Employee revokes this Agreement as provided in paragraph 7 below.
15. (a) Full Release: In consideration of the benefits and compensation
provided in paragraph 2(a) herein, Employee, for himself, his heirs, executors,
administrator, successors, and assigns (hereinafter referred to as the
"Releasors") hereby fully releases and discharges Employer, its officers,
directors, employees, agents, insurers, underwriters, subsidiaries, parents,
affiliates, successors or assigns (all such persons, firms, corporations and
entities being
<PAGE>
deemed beneficiaries hereof and are referred to herein as the "Releasees") from
any and all actions, causes of action, claims, obligations, costs, losses,
liabilities, damages, attorneys' fees, and demands of whatsoever character,
whether or not known, suspected or claimed, which the Releasors have, or
hereafter may have, against the Releasees by reason of any matter, fact or cause
whatsoever from the beginning of time to the date of this Agreement, including,
without limitation, all claims arising out of or in any way related to
Employee's employment or the termination of his employment.
This Agreement of Employee shall be binding on the executors,
heirs, administrators, successors and assigns of Employee and shall inure to the
benefit of the respective executors, heirs, administrators, successors and
assigns of the Releasees.
(b) For and in consideration of the release set forth in
clause (a) above, Employer, for and on behalf of the Releasees, releases
Employee from any and all actions, causes of action, claims, obligations, costs,
losses, liabilities, damages, attorneys' fees, and demands of whatsoever
character, whether or not known, suspected or claimed, which the Employer has,
or hereafter may have, against Employee by reason of any matter, fact or cause
whatsoever from the beginning of time to the date of this Agreement, including,
without limitation, all claims arising out of or in any way related to
Employee's employment or the termination of his employment.
16. Confidentiality: Employee agrees that the terms of this Agreement
have been and shall be held strictly confidential by him and his attorneys and
accountants, and that he shall not, and shall instruct his attorneys and
accountants not to disclose any such information, orally or in writing, to
anyone else, including without limitation, any past, present or future employee
or agent of the Employer. Employee recognizes that, in the event he or his
attorneys disclose any information contrary to the confidentiality provisions of
this Agreement, any such disclosure would be a material breach of the Agreement
for which the Employer shall be entitled to recover payments made under
paragraph 2(a) of this Agreement, in addition to its other remedies in law and
equity.
17. Releasees' Express Denial of Liability: The payment by the
Releasees of the amount specified herein above shall not be deemed an admission
that any liability of the Releasees exists, and in making such payment Releasees
do not admit, and expressly deny, any liability.
18. Waiver of Rights Under Other Statutes: Employee understands that
his Agreement includes the waiver of claims and rights Employee may have under
other applicable statutes, including without limitation, Title VII of the Civil
Rights Act of 1964; the Civil Rights Act of 1991; the Employee Retirement Income
Security Act; the Equal Pay Act; the Rehabilitation Act of 1973; the Americans
with Disabilities Act; the Family and Medical Leave Act; the New Jersey Family
Leave Act; the New Jersey Law Against Discrimination; the Fair Labor Standards
Act; the New Jersey Wage and Hour Act; and/or the New Jersey Conscientious
Employee Protection Act, and any and all amendments to any of same.
<PAGE>
19. Waiver of Rights Under the Age Discrimination in Employment Act:
Employee understands that this Agreement, and the release contained herein,
waives claims and rights Employee might have under the Age Discrimination in
Employment Act ("ADEA"). The monies and other benefits offered to Employee in
this Agreement are in addition to any sums or benefits that Employee would be
entitled without signing this Agreement. For a period of seven (7) days
following execution of this Agreement, Employee may revoke the terms of this
Agreement by a written document received by Employer on or before the end of the
seven (7) day period (the "Effective Date"). The Agreement will not be effective
until said revocation period has expired. Employee acknowledges that he has been
given up to twenty-one (21) days to decide whether to sign this Agreement.
Employee has been advised to consult with an attorney prior to executing this
Agreement.
20. Return of Property: Prior to receiving the severance payment
described in paragraph 2(a), Employee agrees to return to the Employer all
Employer property, including without limitation, mailing lists, reports, files,
memoranda, records, computer hardware, software, credit cards, door and file
keys, computer access codes or disks and instructional manuals, and other
physical or personal property which Employee received or prepared or helped
prepare in connection with his employment with Employer, and that Employee will
not retain any copies, duplicates, reproductions or excerpts thereof. Employer
recognizes that Employee states that he has returned all Employer property in
his possession.
21. No Disparagement:
(a) Employee agrees that he shall not make, or cause to be
made, any statement or communicate any information (whether oral or written)
that disparages or reflects negatively on Employer or any of the Releasees.
Nothing herein shall preclude Employee from complying with a subpoena or other
lawful process.
(b) Employer agrees that it shall not make, or cause to be
made, any statement or communicate any information (whether oral or written)
that disparages or reflects negatively on Employee. Employer also agrees that it
shall not interfere with Employee's efforts to obtain subsequent employment. It
shall not be a violation of this paragraph 9(b) if an employee or independent
contractor of Employer disparages Employee or interferes with his efforts to
obtain subsequent employment outside the scope of his or her employment or
without the authority of Employer. Nothing herein shall preclude Employer from
complying with a subpoena or other lawful process.
22. Employment Agreement is Terminated:With the exception of paragraph
9 ("Confidentiality"), which agreement shall remain in full force and effect and
is hereby affirmed and ratified, the Employment Agreement entered into between
Employer and Employee dated March 24, 1999 is terminated as of the Termination
Date. Accordingly, Employee's agreements in paragraph 10 ("Non-Competition")
will terminate as of the Termination Date.
23. No Suit: Employee represents that he has not filed or permitted to
be filed against the Employer or any of the other Releasees, individually or
collectively, any lawsuits, and he covenants and agrees that he will not do so
at any time hereafter. Employee will not voluntarily participate in any judicial
proceeding against any of the Releasees that in any way involve the allegations
and facts that he could have raised against any of the Releasees in any forum as
of the date hereof. Employee agrees that he will not encourage or cooperate with
any
<PAGE>
other current or former employee of Employer or any potential plaintiff to
commence any legal action or make any claim against the Employer or against the
Releasees in respect of such persons employment with the Employer or otherwise.
24. Entire Agreement: Except as otherwise set forth herein, this
Agreement sets forth the entire agreement between the parties relating to the
subject matter hereof. This Agreement may not be changed orally but changed only
in a writing signed by both parties.
25. Miscellaneous:
(a) This Agreement shall be governed in all respects by laws
of the State of New Jersey.
(b) Neither the Employer nor the Employee shall issue a press
release announcing the termination of Employee's employment without the prior
approval of the other party.
(c) Employer will not interfere in any way with Employee's
ability to sell or otherwise transfer Employee's shares of Employer's stock.
(d) In the event that any one or more of the provisions of
this Agreement is held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions will not in any way be
affected or impaired thereby. Moreover, if any one or more of the provisions
contained in this Agreement is held to be excessively broad as to duration,
scope, activity or subject, such provisions will be construed by limiting and
reducing them so as to be enforceable to the maximum extent compatible with the
applicable law.
(e) The paragraph headings used in this Agreement are included
solely for convenience and shall not affect or be used in connection with the
interpretation of this Agreement.
IN WITNESS THEREOF, Employer and Employee have executed this Severance
Agreement and General Release on this ____ day of ______________, 2000.
CYBERSHOP INTERNATIONAL, INC.
By:_______________________________
__________________________________
EDWARD MUFSON
Date:_____________________________
<PAGE>
Exhibit 10.18
EMPLOYMENT AGREEMENT
AGREEMENT ("Agreement") made as of this 7th day of February, 2000 (the
"Effective Date"), by and between CyberShop.com, a Delaware corporation
(hereinafter "Employer"), and Kevin S. Miller (hereinafter "Executive").
W I T N E S S E T H:
WHEREAS, Employer wishes Executive to serve as an officer and executive
of Employer; and
WHEREAS, Executive wishes to be so employed;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. Effective Date and Duties. Commencing as of the Effective Date,
Employer employs Executive as President to perform the duties normally incident
to such positions. Without limiting the foregoing Executive's functions shall
include investment banking, legal, strategic planning and finance. Executive
shall at all times report to the Chairman of the Board President and Chief
Executive Officer of Employer.
2. Responsibilities. Executive agrees to devote all of Executive's
business time, efforts, skills and attention to fulfill Executive's duties and
responsibilities hereunder faithfully, diligently and competently.
<PAGE>
3. Term. The term of this Agreement shall commence on the Effective
Date and shall terminate two (2) years thereafter, unless sooner terminated as
hereinafter provided. Notwithstanding the foregoing, this Agreement may be
terminated by either party on 120 days prior written notice provided that the
earliest effective time of termination shall be six months from the Effective
Date.
4. Compensation. Employer shall pay to Executive as compensation for
all services to be rendered by Executive hereunder the following:
(a) A salary at the rate of Seventy- Five thousand ($75,000)
Dollars per annum. Such salary is hereinafter referred to as the Base
Salary.
(b) Executive shall be eligible for bonuses, at such time and
in such amounts as shall be determined at the discretion of Employer's
Board of Directors (the "Board) based on its assessment of Executive's
performance of Executive's duties and on the financial performance of
Employer.
(c) Employer will reimburse Executive for all reasonable
travel and business expenses incurred by Executive in connection with
Executive's services hereunder in accordance with the usual practices
and policies of Employer in effect from time to time, upon presentation
of vouchers. The Company will reimburse car travel expenses as
submitted of up to a maximum of $700 per month.
<PAGE>
(d) Employer will provide an apartment for the use of
Executive through ________________, 2000.
(e) Employer will make available to Executive health
benefits as currently in effect or as modified during the term of this
Agreement consistent with the health benefits offered to other
executives of Employer. In addition, Executive will be eligible for and
will be offered participation in any and all group insurance, hospital,
dental, major medical and disability benefits and stock option plans or
other similar fringe benefits which are currently offered or may
hereafter be offered to other executives of Employer during the term of
this Agreement. Under current policies the single health plan requires
a co-pay by Executive of $104 per pay period and the dental plan is
optional and requires a co-pay by Executive.
5. Stock Options. Executive shall be granted on the date hereof an
option (the "Option") to purchase 500,000 shares of Employer's common stock,
$.001 par value per share (the "Common stock") at an exercise price of $5.06 per
share said price being equal to the fair market value as determined under the
Company's 1998 Stock Option Plan on the date of grant. The Option shall vest and
be exercisable as follows: (i) 167,000 vest after 6 months (ii) Balance vest
1/18 every month over 18 months. The Options shall be non-qualified stock
options, shall expire five (5) years from the date of grant and shall otherwise
be governed by the Plan, as well as the applicable option agreement to be
entered into pursuant to the terms of the Plan. Vesting of the Options shall be
accelerated so that all Options become immediately vested upon the occurrence of
a change of control of the Company, the termination of the
<PAGE>
employment of Executive without cause or the raising of equity by the Company of
an aggregate of $10,000,000 after the date hereof. A "change in control" shall
be deemed to occur when, a corporation, partnership, association or entity,
directly or indirectly (through a subsidiary or otherwise), (i) acquires or is
granted the right to acquire, directly or though merger or similar transaction,
a majority of the Company's outstanding voting securities or shares, or (ii)
acquires all or substantially all of the Company's assets.
6. Termination on Death. In the event of Executive's death during the
term of this Agreement, this Agreement shall terminate immediately, provided,
however, that Executive's legal representatives shall be entitled to receive the
Base Salary which would otherwise have been due Executive had he worked through
the end of the month in which Executive died.
7. Termination on Disability. If during the term of this Agreement,
Executive is unable to perform Executive's duties hereunder on account of
illness or other incapacity, and such illness or other incapacity shall continue
for a period of more than three (3) consecutive months during any twelve (12)
month period Employer shall have the right, on thirty (30) days' notice to
Executive, given after such three (3) month period, to terminate this Agreement.
In the event of any such termination Employer shall be obligated to pay to
Executive the Base Salary which would otherwise be due Executive until the
expiration of the month of employment during which the termination occurred plus
three (3) additional months of the Base Salary for the year in which Executive
was terminated. If, prior to the date specified on such notice, Executive's
illness or incapacity shall have terminated and Executive shall have taken up
the performance of Executive's duties thereunder, Executive shall be entitled to
resume Executive's employment hereunder as though such notice had not been
given. The Board shall
<PAGE>
determine in good faith, upon consideration of medical evidence satisfactory to
it, whether Executive by reason of physical or mental disability shall be unable
to perform the services required of Executive hereunder.
8. Termination for Cause. If Employer shall terminate Executive's
employment hereunder for Cause, or if Executive shall voluntarily leave
Executive's employment hereunder, this Agreement shall terminate immediately and
Employer shall pay to Executive an amount equal to the Base Salary hereunder
through the date of such termination. Cause shall mean (i) any conviction of any
crime (whether or not involving Employer) constituting a felony in the
jurisdiction involved, (ii) engaging in any substantiated act involving moral
turpitude, (iii) engaging in any act which, in each case, subjects, or if
generally known would subject, Employer to public ridicule or embarrassment,
(iv) gross misconduct in the performance of Executive's duties hereunder, (v)
willful failure or refusal to perform such duties as may be relegated to
Executive commensurate with Executive's position, or (vi) material breach of any
provision of this Agreement by Executive.
9. Confidentiality. Executive covenants and agrees with Employer that
Executive will not, during the term of this Agreement and thereafter directly or
indirectly use, communicate, disclose or disseminate to anyone (except to the
extent reasonably necessary for Executive to perform Executive's duties
hereunder, except as required by law or except if generally available to the
public otherwise than through use, communication, disclosure or dissemination by
Executive) any Confidential Information (as hereinafter defined) concerning the
businesses or affairs of Employer or of any of its affiliates or subsidiaries
which Executive
<PAGE>
may have acquired in the course of or as incident to Executive's employment or
prior dealings with Employer or with any of its affiliates or subsidiaries.
"Confidential Information" shall mean (a) all knowledge,
information and material concerning Employer or its business or the business of
any of its affiliates or subsidiaries that shall become known to Executive as a
consequence of Executive's relationship with Employer, (b) all information that
has been disclosed to Employer by any third party under an agreement or
circumstances requiring such information to be kept confidential, and (c) all
knowledge, information or material concerning Inventions that are, under this
Agreement, owned by Employer or assigned by Executive to Employer; provided,
that Confidential Information shall not include knowledge, information or
material that is or becomes generally known or available to others in businesses
engaged in by Employer or to the public (other than through unauthorized
disclosure). Confidential Information shall include without limitation (a)
information of a technical nature, such as information regarding past, present
and future research, financial data, product information, marketing plans,
computer programs (whether in source or object code form or other form and
whether contained on program listings, magnetic tape, magnetic disks, CD ROMs or
other media), logic, flow charts, specifications, documentation and ideas
relating to the activities of Employer, (b) information of a business nature,
such as information regarding past, present and future client development,
strategies, procurement specifications, cost and financial data, contracts,
quotations and names of actual and prospective clients or customers, and (c) all
documents, drawings, reports, client lists, and other physical embodiments of
all such information.
<PAGE>
"Inventions" shall mean each of the following, but only to the
extent they relate to the business of commerce conducted over the Internet: all
inventions, discoveries, developments, ideas, works, improvements, enhancements,
works of authorship, products and computer software, whether or not patentable,
and anything else that is subject to or potentially subject to the patent,
copyright or trade secret laws of any jurisdiction.
10. Non-Competition. Executive acknowledges that Executive's services
and responsibilities are of particular significance to Employer and that
Executive's position with Employer has given and will give Executive close
knowledge of its policies and trade secrets.
Since Employer is in a creative and competitive business,
Executive's continued and exclusive service to Employer under this Agreement is
of a high degree of importance.
Executive covenants and agrees with Employer that Executive will
not, during the term of this Agreement and for a period of eighteen months after
the termination of Executive's employment hereunder, with respect to
subparagraph (i) and twelve months with respect to subparagraphs (ii) and (iii)
in any manner, directly or indirectly, (i) induce or attempt to influence any
present or future officer, employee, lessor, lessee, licensor or licensee of
Employer or its subsidiaries or its affiliates to leave its respective employ or
solicit or divert or service any of the customers or clients that Employer or
its subsidiaries or its affiliates has or had in the one (1) year previous to
the date of termination of this Agreement, (ii) engage, in North America or any
other territory in which Employer does or contemplates to do business, in any
businesses presently engaged in or to be engaged in by Employer or its
subsidiaries or affiliates during the term of this Agreement, and (iii) except
for ownership of no more than 1%
<PAGE>
of the capital stock, be a stockholder of any corporation, or directly or
indirectly own, manage, operate, conduct, control or participate in the
ownership, management, operation, conduct, control of, accept employment with,
or be connected in any other manner with, any business which engages in any
direct competitive activity including, without limitation, any business which
engages in retail commerce conducted over the Internet in any such geographic
region.
11. Remedies. Executive acknowledges that the remedy at law for any
breach or threatened breach by Executive of the covenants contained in
paragraphs 9 and 10 would be wholly inadequate, and therefore Employer or its
subsidiaries or its affiliates shall be entitled to preliminary and permanent
injunctive relief and specific performance thereof. Paragraphs 9 and 10
constitute independent and separable covenants that shall be enforceable
notwithstanding rights or remedies that Employer or its subsidiaries or it
affiliates may have under any other provision of this Agreement, or otherwise.
If any or all of the foregoing provisions of paragraphs 9 and 10 are held to be
unenforceable for any reason whatsoever, it shall not in any way invalidate or
affect the remainder or this Agreement which shall remain in full force and
effect. If the period of time or geographical areas specified in paragraphs 9
and 10 are determined to be unreasonable in any judicial proceeding, the period
of time or areas of restriction shall be reduced so that this Agreement may be
enforced in such areas and during such period of time as shall be determined to
be reasonable.
12. Full Review. Executive has carefully read and considered the
provisions hereof, and having done so, agrees that restrictions and remedies set
forth in paragraphs 9, 10 and 11 (including, but not limited to, the time
periods of restrictions) are fair and reasonable and are reasonably required for
the protection of the interests of Employer.
<PAGE>
13. Representation. Executive represents and warrants to Employer that
Executive is not now under any obligation of a contractual or other nature to
any person, firm or corporation which is inconsistent or in conflict with this
Agreement, or which would prevent, limit or impair in any way the execution of
this Agreement or the performance by Executive of Executive's obligations
hereunder and Executive will indemnify and hold harmless Employer, its
directors, officers and employees against and in respect of all liability, loss,
damage, expense or deficiency resulting from any misrepresentation, or breach of
any warranty or agreement made by Executive in connection with Executive's
employment hereunder.
14. Waiver. The waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
15. Notices. Any and all notices referred to herein shall be sufficient
if furnished in writing and sent by certified mail, return receipt requested, to
the respective parties at the addresses set forth below, or such other address
as either party may from time to time designate in writing.
To Executive: To Employer:
Kevin S. Miller CyberShop.com, Inc.
116 Newark Avenue
Jersey City, New Jersey 07302
Attention: Chairman of the Board
With copy to:
Davis & Gilbert LLP
1740 Broadway
New York, New York 10019
Attention: Walter M. Epstein, Esq.
<PAGE>
16. Assignability. This Agreement shall be binding upon, and shall
inure to the benefit of, Employer and its successors and assigns, and Executive
and Executive's legal representatives, heirs, legatees and distributees, but
neither this Agreement nor any rights hereunder shall be assignable, encumbered
or pledged by Executive.
17. Entire Agreement. This Agreement supersedes any and all prior
written or oral agreements between Employer and Executive and constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and no modification, amendment or waiver of any of the provisions of this
Agreement shall be effective unless in writing and signed by both parties
hereto.
18. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
20. Severability. If any provision or part of any provision of this
Agreement is held for any reason to be unenforceable, the remainder of this
Agreement shall nevertheless remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CYBERSHOP.COM, INC.
By:______________________________
Name: Jeffrey Tauber
Title: Chairman of the Board
Date:
_________________________________
Kevin S. Miller
Date:
<PAGE>
Exhibit 10.19
AGREEMENT
THIS AGREEMENT, dated this 12th day of January, 2000, by and between
TOPS APPLIANCE CITY, INC., a New Jersey corporation having a place of business
at 45 Brunswick Avenue, Edison, New Jersey 08818 ("TOPS") and CYBERSHOP HOLDING
CORP., a New Jersey corporation having a place of business at 116 Newark Avenue,
Jersey City, New Jersey 07302 ("Cybershop").
W I T N E S S E T H
WHEREAS, TOPS and Cybershop entered into a certain Operating Agreement
respecting Electronics.Net LLC (the "Joint Venture"), dated as of June 14, 1998
(the "Operating Agreement"); and
WHEREAS, pursuant to the Operating Agreement, among other things TOPS
and Cybershop formed the Joint Venture, which was intended to be a joint
venture; and
WHEREAS, TOPS entered into a Supply Agreement, dated June 14, 1998,
with the Joint Venture; and
WHEREAS, TOPS, Cybershop the Joint Venture desire to terminate their
relationships pursuant to the Operating Agreement and the Supply Agreement,
respectively, on the terms and conditions contained herein;
NOW, THEREFORE, in exchange for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto do agree as follows:
1. The Supply Agreement between TOPS and the Joint Venture
will be deemed to have terminated as of November 15, 1999. ("Effective
Date").
2. A determination will be promptly prepared by Cybershop
following the Effective Date of all tangible assets and all obligations
of the Joint Venture through the Effective Date including fixed
obligations after the Effective Date such as those under the Yahoo!
agreement, the MSN agreement and severance obligations. We estimate
such obligations to be $87,964 for Yahoo!, $63,000 for MSN and $28,366
for severance. The term tangible assets shall include cash, cash
equivalents, inventory and accounts receivable. All other assets
including fixed assets and intellectual property, excluding only the
name and URL "Electronics.net", shall be valued at $1 for purposes
hereof.
3. Both TOPS and Cybershop will cease to promote the name
"electronics.net" no later than January 31, 2000. Thereafter Cybershop
can continue to forward any hits on "electronics.net to its website
without charge. In the event of any sale of the rights to the name and
URL "Electronics.net" the net proceeds therefrom shall be distributed
51% to Cybershop and 49% to TOPS.
4. Based upon the determination either TOPS shall either pay
to the Joint Venture the net amount due from TOPS to the Joint Venture
or the Joint Venture shall pay to TOPS the net amount due from the
Joint Venture to TOPS. In making this determination TOPS shall be
treated as a 49% interest owner of the Joint Venture.
5. On the Effective Date the membership interest of TOPS shall
be assigned to Cybershop without cost.
6. On the Effective Date the Joint Venture shall deliver title
to the van currently used by it to TOPS in exchange for the payment by
TOPS to the Joint Venture of $10,000.00.
<PAGE>
7. All notices and other communications to be made hereunder
shall be in writing and shall be deemed to have been given when the
same are either: (i) personally delivered; (ii) mailed, registered or
certified mail, first class postage prepaid return receipt requested;
or (iii) delivered by a reputable private overnight courier service
utilizing a written receipt or other written proof of delivery, to the
applicable party at the address set forth above. Any party refusing
delivery of a notice shall be charged with knowledge of its contents.
8. This Agreement shall be binding upon and insure to the
benefit each of the parties hereto and their respective successors and
permitted assigns by merger, consolidation, transfer of business and
properties or otherwise.
9. In the event any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect other provisions hereof, and this Agreement shall be construed
as if such invalid, illegal or unenforceable provision never had been
contained herein.
10. IN WITNESS WHEREOF, the parties hereto have caused their
dully authorized officers to execute this Agreement and Acknowledgment
the date and year first set forth above.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Agreement and Acknowledgment the date and
year first set forth above.
TOPS APPLIANCE CITY, INC.
By_______________________
CYBERSHOP HOLDING CORP.
By_______________________
<PAGE>
Exhibit 21
Subsidiaries of GSV, Inc
1) Cybershop LLC, a New Jersey corporation, a wholly owned subsidiary of GSV,
Inc. (the "Company").
2) Electronics.net, LLC, a New Jersey corporation, a wholly owned subsidiary of
the Company.
3) M.G. Acquisition Corp., a Delaware corporation, a wholly owned subsidiary of
the Company.
<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> <C>
For the year ending December 31, 1997 $10,000 $ 11,000 $ (11,000) $ 10,000
For the year ending December 31, 1998 $10,000 $ 1,000 $ ( 6,000) $ 5,000
For the year ending December 31, 1999 $ 5,000 $ 262,000 $ (161,000) $ 106,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,471,000
<SECURITIES> 0
<RECEIVABLES> 1,225,000
<ALLOWANCES> (106,000)
<INVENTORY> 282,000
<CURRENT-ASSETS> 10,809,000
<PP&E> 1,387,000
<DEPRECIATION> (355,000)
<TOTAL-ASSETS> 25,683,000
<CURRENT-LIABILITIES> 5,317,000
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> 18,318,000
<TOTAL-LIABILITY-AND-EQUITY> 20,282,000
<SALES> 7,019,000
<TOTAL-REVENUES> 7,019,000
<CGS> 3,796,000
<TOTAL-COSTS> 3,796,000
<OTHER-EXPENSES> 8,405,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,455,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,873,000)
<DISCONTINUED> (5,873,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,269,000)
<EPS-BASIC> (1.27)
<EPS-DILUTED> (1.27)
</TABLE>
