AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1998
FILE NO. 333-51933
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM SB-2
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
PTN MEDIA, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7371 38-3399098
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
313 NORTH FIRST ST., SUITE 8B, ANN ARBOR, MICHIGAN 48104 (734) 327-0579
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
313 NORTH FIRST ST., SUITE 8B, ANN ARBOR, MICHIGAN 48104
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
PETER KLAMKA, PRESIDENT
PTN MEDIA, INC.
313 NORTH FIRST ST., SUITE 8B, ANN ARBOR, MICHIGAN 48104 (734) 327-0579
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------
COPIES TO:
DAVID N. FELDMAN, ESQ.
LAW OFFICES OF DAVID N. FELDMAN
36 WEST 44TH STREET, SUITE 1201
NEW YORK, NEW YORK 10036
(212) 869-7000
FAX: (212) 997-4242
----------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
----------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED SHARE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock,
par value $. 001 per share................... 400,000 Shares $5.00 $2,000,000 $ 590
</TABLE>
- ------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
ii
<PAGE>
Preliminary Prospectus dated August 14, 1998. Subject to Completion.
PROSPECTUS
PTN MEDIA, INC.
400,000 Shares of Common Stock
PTN MEDIA, INC., a Delaware corporation (the "Company") is offering hereby
400,000 shares (the "Shares") of Common Stock, $.001 par value per share (the
"Common Stock") of the Company. This offering (the "Offering") will terminate at
5:00 p.m. on the date which is 30 days after the date of this Prospectus, unless
extended at the Company's discretion for up to an additional 30 day period (the
"Expiration Date"). Pending the closing of the sale of the Shares, all proceeds
will be deposited in a non-interest bearing escrow account at University Bank,
Ann Arbor, Michigan. All subscriptions for Shares are irrevocable. No minimum
number of Shares is required to be sold by the Company in this Offering. If at
the Expiration Date less than all of the Shares have been subscribed for,
subscriptions that have been received by the Company shall remain effective and
this Offering shall terminate with respect to the unsubscribed Shares. None of
the Company's officers, directors or stockholders owning five percent or more of
the Company's securities will participate in this Offering. See "Plan of
Distribution."
The Company will offer and sell the Shares on a "best efforts" basis to
investors directly through its officers and directors, and may also engage
registered broker-dealers ("Selling Agents") to provide financial advice and to
assist, on a "best efforts" basis, as selling agents, in the solicitation of a
portion of the subscriptions to purchase Shares in this Offering. No Selling
Agent will have any obligation to purchase or accept any Shares. See "Plan of
Distribution."
Prior to the Offering, there has been no public market for the Common
Stock. There is no assurance that an active trading market in the Common Stock
will develop or that, if developed, any such market will be sustained. The
offering price of the Shares has been determined by the Company and bears no
relationship to the Company's asset value, net worth or other established
criteria of value. See "Risk Factors" and "Plan of Distribution."
THESE SECURITIES ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. IN ADDITION, PURCHASERS OF THE SECURITIES WILL SUFFER IMMEDIATE
SUBSTANTIAL DILUTION IN THAT THE BOOK VALUE PER SHARE OF THE COMMON STOCK AFTER
THIS OFFERING WILL BE SUBSTANTIALLY LESS THAN THE PUBLIC OFFERING PRICE OF THE
COMMON STOCK. SEE "RISK FACTORS" AND "DILUTION" AT PAGES 8 AND 21.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Selling Agent
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $5.00 $.50 $4.50
- ----------------------------------------------------------------------------------------------------
Total .................................... $2,000,000 $200,000 $1,800,000
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects selling commissions of up to 10% of the offering price which may
be payable with respect to those Shares offered and sold through Selling
Agents, on the Company's behalf. It is assumed for the purposes of this
table that all 400,000 Shares are sold in this Offering and that all such
Shares are sold through Selling Agents. The Company will agree to indemnify
any participating Selling Agents against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See "Plan of
Distribution."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $200,000. See "Use of Proceeds" and "Plan of Distribution."
The Shares are offered subject to prior sale, allotment, withdrawal,
cancellation or modification of this Offering without notice, delivery and
acceptance by the Company and/or any Selling Agents, approval of counsel and
certain further conditions. The Company reserves the right, in its discretion,
to reject orders, in whole or in part, for the purchase of any of the Shares
offered hereby.
The date of this Prospectus is ___________________, 1998
<PAGE>
PICTURES
At the date of this Prospectus (the "Effective Date"), the Company will
become subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and, in accordance therewith, will be
required to file reports, proxy information statements and other information
with the Securities and Exchange Commission (the "Commission"). Accordingly,
such reports, proxy statements and other information can be inspected and copied
at the Commission's principal office, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549; the Northeast Regional Office of the
Commission at 7 World Trade Center, Suite 1300, New York, New York 10048; and
the Midwest Regional Office of the Commission, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, where copies may be obtained upon
payment of the fees prescribed by the Commission. Such documents may also be
obtained through the web site maintained by the Commission at
http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited and reported on by its independent
public accounting firm and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety and should carefully consider the matters set forth
in "Risk Factors." Unless otherwise indicated, the information in this
Prospectus does not give effect to (i) the exercise of 45,000 warrants to
purchase Common Stock issued in July and August 1997 (the "1997 Warrants"), (ii)
the exercise of 108,334 warrants to purchase Common Stock issued in August 1998
(the "1998 Warrants"), or (iii) the exercise of options granted or to be granted
under or pursuant to the Company's 1998 Stock Option Plan (the "Option Plan").
Unless the context otherwise requires, as used in this Prospectus, "PTN"
and "the Company" refer to PTN Media, Inc. and its predecessor, Interactive
Entertainment Studio, Inc., which was incorporated in the State of Nevada in May
1997, and which was merged with and into PTN Media, Inc. on March 9, 1998, for
the sole purpose of changing the domicile of the company to Delaware.
THE COMPANY
PTN is an interactive media content provider focusing on providing leading
branded content for well-defined target audiences using a combination of new and
traditional media. The Company's strategy is to create content that is of great
appeal to its targeted audience and attract advertisers desiring to reach this
audience. The Company currently provides this content on its interactive web
site known as "Fashion House with Niki Taylor", which utilizes the name and
likeness of well-known model Niki Taylor. The Company also plans to provide
similar content on additional web sites hosted by other well-known models and
celebrities, television, print and other forms of traditional media. The
Company's initial web sites will focus primarily on fashion, beauty, style,
fitness and related subjects. In addition, the Company plans to create, market
and sell calendars and electronic planners featuring photographs of models and
other celebrities.
The Company, through its predecessor, commenced operations in May 1997. At
that time it entered into a License Agreement with a company controlled by Niki
Taylor. That agreement provides for, among other things, the right to use Ms.
Taylor's name and likeness in connection with the Company's "Fashion House with
Niki Taylor" web site. Since commencement of operations, the Company has entered
into an agreement with a web site designer and direct marketing agreements to
sell flowers, videos and music compact disks on the Niki Taylor web site. In
addition, the Company is currently negotiating with other well-known models to
develop web sites which they will host. The Company also has entered into
agreements with certain advertisers whose banner advertisements appear on its
initial web site, and is negotiating with additional advertisers to place banner
advertisements on its current and/or future web sites. There can be no assurance
that any of these negotiations will be successful.
Use of the Internet has grown steadily in recent years. According to
International Data Corporation, an industry source, the number of users of the
World Wide Web has increased from an estimated 16.1 million individuals at the
end of 1995 to approximately 34.6 million users at the end of 1996, and this
number is expected to increase to approximately 200 million users by the end of
the year 2000. The Company's initial strategy is to capitalize on the
opportunities created by the growth of this rapidly developing market,
particularly by creating web sites targeting young women, which the Company
believes is the fastest growing segment of the population using the Internet.
The Company's plan is to develop web sites featuring popular fashion models,
many of whom, such as Niki Taylor, are commonly referred to as "supermodels" in
publications and other media. The Company, in the future, also may create web
sites featuring other celebrities. These web sites are developed to appeal to
women between the ages of 18 and 30, although the Company believes that some of
the content it provides also appeals to men of similar ages. The Company's
current web site focuses primarily on fashion, beauty, style, fitness and
related subjects, and offers, or shortly will offer, several features, such as
monthly letters from Niki Taylor, daily updated fashion editorials, photo
scrapbooks featuring Niki Taylor, interactive chat sessions with Niki Taylor,
entertainment coverage (e.g. movie, television and book reviews) and cooking and
diet tips. The Company plans to operate additional web sites in the future,
which are expected to offer similar features and services.
3
<PAGE>
The Company, similar to other web site operators, has recognized the
growing commercial opportunities presented by the Internet and the World Wide
Web, which the Company believes is emerging as a global marketplace for the
transaction of business. The Company's strategy is to take advantage of many of
these commercial outlets, including the sale of banner advertisements and
sponsorships on its web sites to advertisers targeting consumers with similar
demographic characteristics as visitors to the Company's web sites, direct
response marketing of related products and services through arrangements with
third parties, sales of downloadable electronic and paper calendars featuring
host models, licensing of proprietary content and intellectual property rights
to third parties, and subscription and membership online chat services.
The Company plans to advertise and promote its web sites through various
forms of media. It also plans to purchase banner advertisements on search
engines on the World Wide Web, on a limited basis, as well as enter into
advertising barter arrangements with other web sites. The Company further
intends to promote its web sites through (i) advertising and promotional spots
contained within Company-sponsored radio programs and (ii) by advertising in
selected publications. The Company also will arrange for the promotion of its
web sites by host models, to the extent that they are not prohibited from
participating in any such promotion as a result of other commitments, or such
promotion is limited by the terms of the Company's license with any model.
Finally, promotional advertising in connection with products offered by the
Company, including calendars and electronic planners, is another means by which
the Company intends to promote its web sites.
Although there are currently several web sites that focus on fashion and/or
models, including sites that are operated by well-known publications and
modeling agencies, the Company believes, although there can be no assurance,
that its web sites will have a competitive advantage over these other sites,
based on the popularity of its host models, among the audience that these sites
target. The Company also believes, although there can be no assurance, that it
will be able to enter into exclusive engagements with additional models and
celebrities having significant appeal to the same targeted users of the World
Wide Web. In addition, the Company plans to offer an online avenue for
interactive communication covering topics such as fashion and health, with the
primary focus on its web sites' models and celebrity hosts. The Company's goal
is to operate the exclusive online access to select models such as Niki Taylor,
and to provide visitors and members with information, photos and other content
unavailable elsewhere. In the event the Company's strategy is successful, of
which there can be no assurance, it believes that it will be one of few web site
operators that offers features relating to fashion and beauty with the quality
of content and celebrity appeal it intends to provide.
Effective January 1, 1998, the Company had entered into a license agreement
with a company controlled by well-known model, Tyra Banks, similar to the
license agreement relating to Niki Taylor. In addition, the Company also entered
into an agreement with Ms. Banks' company in connection with its creation,
marketing and sale of calendars and electronic planners featuring photographs of
Ms. Banks. She has recently declared the Company in breach of both of these
agreements and has refused to perform under either of them. To date, the Company
has advanced funds to Ms. Banks' company in the aggregate amount of $134,000.
Although no litigation has been commenced against the Company as of the date of
this Prospectus, the Company could be required to pay Ms. Banks' company up to
an additional $153,000, in the event that an action is commenced against the
Company for additional amounts alleged to be owed to Ms. Banks' company under
the agreements, and such action is successful, or, in the alternative, the
Company may elect to settle any such claim, if instituted, for a lesser amount.
Any additional amounts which the Company would be required to pay to Ms. Banks'
company will be paid out of the proceeds of this Offering. The Company also
believes that it has certain claims under these agreements against Ms. Banks
and/or her company, but has not yet determined whether to pursue these claims.
The Company was incorporated under the laws of Delaware in January 1998,
and is the surviving corporation of a merger with its predecessor Interactive
Entertainment Studio, Inc., a Nevada corporation. The Company's executive
offices are located at 313 North First Street, Ann Arbor, Michigan 48104 and its
telephone number is (734) 327-0579.
4
<PAGE>
THE OFFERING
Common Stock offered
by the Company.................................. 400,000 shares
Common Stock to be outstanding
after the Offering ............................. 3,441,680 shares(1)
Estimated Net Proceeds............................ $1,600,000
Use of Proceeds...................................
For marketing, sales and
consulting services, payment
of licensing fees to models,
design and development of
additional web sites,
equipment, professional fees,
photography sessions,
repayment of indebtedness to
an executive officer and
others, and working capital
and general corporate
purposes. See "Use of
Proceeds."
Risk Factors...................................... The Shares offered hereby are
speculative and involve a
high degree or risk and
immediate substantial
dilution and should not be
purchased by investors who
cannot afford the loss of
their entire investment. See
"Risk Factors" and
"Dilution."
(1) Assumes the sale of all 400,000 Shares in this Offering. All share and
per share data and information contained in this Prospectus relating to
or based upon the number of shares of Common Stock outstanding does not
include (i) 45,000 shares of Common Stock issuable upon the exercise of
the 1997 Warrants, (ii) 108,334 shares of Common Stock issuable upon
the exercise of the 1998 Warrants, (iii) 106,000 shares of Common Stock
subject to options previously granted by the Company pursuant to the
Option Plan or (iv) up to an additional 394,000 shares of Common Stock
reserved for issuance upon the exercise of options which may, in the
future, be granted under the Option Plan. See "Management - 1998 Stock
Option Plan" and "Description of Securities."
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial information set forth below is derived from the
more detailed financial statements appearing elsewhere in this Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto.
<TABLE>
<CAPTION>
May 27, 1997
(Inception) Six
to Months Ended
December 31, 1997 June 30, 1998
----------------- -------------
STATEMENT OF OPERATIONS:
<S> <C> <C>
Net sales................................. $ - $ -
Cost of revenues.......................... 150,000 200,000
Product development costs................. 29,630 204,715
General and administrative costs.......... 79,387 135,261
Loss from operations...................... (259,017) (539,976)
Interest expense--net..................... 2,250 12,553
Net loss.................................. (261,267) (552,529)
Basic loss per share...................... $ (0.09) $ (0.18)
Weighted average number of shares......... 3,041,680 3,041,680
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
JUNE 30, 1998
----------------------------------------------------------------
December 31,
1997 Actual Pro forma (1) As Adjusted(2)
------------ ------ ------------- --------------
<S> <C> <C> <C> <C>
Working capital (deficit) $(259,294) $(606,725) $(606,725) $1,011,518
Total assets 25,075 61,682 196,682 1,082,432
Short-term debt 282,385 646,021 781,021 66,771
Shareholders equity (257,310) (584,339) (584,339) 1,015,661
(deficit)
<FN>
- ----------------------
(1) Gives effect to the receipt of loans from Peter Klamka, the Company's
Chairman, President and Chief Executive Officer, in July and August
1998, in the aggregate principal sum of $135,000. See "Certain
Transactions."
(2) Gives effect to the sale of all 400,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom,
which includes (i) the repayment of loans to Mr. Klamka, in the
aggregate principal amount of $405,000, (ii) the repayment of an
additional outstanding indebtedness in an aggregate principal amount
of $56,250, (iii) the payment of license fees to certain models in
the aggregate amount of $200,000 and (iv) expenses related to the
Tyra Banks calender in the amount of $53,000. See "Use of Proceeds."
</FN>
</TABLE>
6
<PAGE>
DISCLOSURE REGARDING FORWARD LOOKING-STATEMENTS
This Prospectus includes statements that are "forward-looking
statements" including statements regarding the Company's expectations, hopes,
beliefs, intentions or strategies regarding the future. All statements other
than statements of historical facts included in this Prospectus, including,
without limitation, statements under "Prospectus Summary," "Risk Factors,"
"Management's Plan of Operations" and "Business" regarding the Company's
financial position, business strategy and other plans and objectives for future
operations, and future product demand, supply, manufacturing, costs, marketing,
transportation and pricing factors, are forward-looking statements. All
forward-looking statements included in this Prospectus are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update such forward-looking statements. Although the Company
believes that the assumptions and expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct or that the Company will take any actions that may
presently be planned. Certain important factors that could cause actual results
to differ materially from the Company's expectations are disclosed under "Risk
Factors" and elsewhere in this Prospectus. All written or oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by such factors.
7
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is highly speculative
and involves a high degree of risk, including, but not limited to, the risks
described below. An investment should be made only by investors who can afford
the loss of their entire investment. Each prospective investor, prior to making
an investment decision, should carefully consider the following risk factors in
addition to all of the other information provided in this Prospectus.
EXTREMELY LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; Anticipated
Losses. The Company commenced operations through a predecessor company in May
1997 and was incorporated on January 14, 1998. The Company has generated
extremely limited revenues to date, and has an extremely limited operating
history upon which an evaluation of the Company, its business and its prospects
can be made. The likelihood of the success of the Company must be considered in
light of the problems, expenses, difficulties, complications and delays
frequently encountered by companies in their early stage of development,
particularly companies in the new and rapidly evolving market for Internet
products and services. Specifically, such risks include the failure of the
Company to anticipate and adapt to a developing market, the rejection of the
Company's services and products by Internet users, development of equal or
superior services or products by competitors and the failure of the market to
adopt the Internet as a transaction medium.
The Company has had limited financial resources to date and has
incurred operating losses since its inception. As of June 30, 1998, the
Company had an accumulated deficit of $813,796. The Company expects to
continue to incur operating losses for the foreseeable future, due to the
significant expenses which the Company expects to incur in the development and
marketing of its initial web site hosted by model Niki Taylor, as well as any
additional sites developed by the Company. These expenses include substantial
advance royalty payments that the Company has agreed to make to Ms. Taylor.
Additionally, to the extent that the Company engages additional models and/or
celebrities for its web sites, it will most likely be required to pay advance
royalties to those persons. The Company has generated extremely limited revenues
to date from its "Fashion House with Niki Taylor" web site, and there can be no
assurance that the Company will ever generate significant revenues from this web
site or from any other business conducted by it. These initial revenues have
been generated primarily from advertising placed on the site. The Company also
expects to significantly increase its operating expenses to expand its sales and
marketing operations, to fund greater levels of product development, and to
develop other forms of revenue-generating business, such as direct response
sales, licensing of the Company's proprietary materials to others, and celebrity
chat clubs. While the Company believes, although there can be no assurance, that
such other related businesses will, in the future, generate revenues in excess
of the revenues generated by advertising, the Company does not expect
significant revenues from such other businesses prior to December 1998. As a
result of the foregoing factors, there can be no assurance that the Company's
services and products will ever generate sufficient revenues or that the
Company's operations will ever be profitable. See "Management's Plan of
Operations" and Financial Statements.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. Because of the Company's
extremely limited operating history and the emerging nature of the markets in
which it competes, management is unable to accurately forecast future revenues.
The Company, to date, has generated only extremely limited revenues. The
Company's contracts with advertisers typically guarantee the advertiser a
minimum number of impressions or times that an advertisement appears in page
views downloaded by visitors to the Company's web sites. To the extent that
minimum impression levels are not achieved for any reason, the Company may be
required to provide additional impressions after the contract term, which may
adversely affect the availability of advertising inventory. To the extent
minimum guaranteed impressions are not met, the Company will be required to
defer the recognition of corresponding revenues until guaranteed impression
levels are achieved. The Company's expense levels will be based in part on its
expectations concerning future revenues and to a large extent will be fixed.
Accordingly, the cancellation or deferral of a small number of advertising
contracts could have a material adverse effect on the Company's business,
results of operations or financial condition. The Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall in revenue would have an immediate
adverse effect on the Company's business, results of operations and financial
condition.
8
<PAGE>
The Company's operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are not in the
Company's control. Such factors include the level of usage of the Internet,
demand for Internet advertising, seasonal trends in both Internet usage and
advertising placements, the advertising budgeting cycles of advertisers, the
amount and timing of capital expenditures and other costs relating to the
expansion of the Company's operations, the introduction of new services or
products by the Company or its competitors, pricing changes in the industry,
technical difficulties with respect to the Company's web sites, general economic
conditions and economic conditions specific to the Internet and online media. As
a result of any of the foregoing conditions, the Company may be required to make
certain decisions in connection with the operation of its business which could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Management's Plan of Operations" and Financial
Statements.
DEVELOPING MARKET; DEPENDENCE ON CONTINUED GROWTH IN USE OF INTERNET;
ACCEPTANCE OF INTERNET AS AN ADVERTISING MEDIUM. The market for the Company's
services and products is relatively new and has only recently begun to develop.
This market also is rapidly evolving and is characterized by an increasing
number of market entrants who have introduced or developed services and products
for use on the Internet. The Company's business is highly dependent upon the
continued growth in use of the Internet, particularly by women of all ages, for
information, interaction, distribution and commerce. Although the Company
intends to create web sites that appeal to men and women of various ages, the
Company believes that women will constitute the primary audience for many of the
services and products to be offered on the Company's web sites. The Company's
ability to generate sufficient revenues will therefore be highly dependent on a
significant and continued increase in the use of the Internet, particularly by
women. Furthermore, the Internet is still an unproven medium for paid services
such as those which the Company currently provides and intends to provide in the
future, including the placement of effective advertising by site sponsors.
Accordingly, the Company's future operating results will depend substantially
upon such continued growth in use, as well as the emergence of the Internet as
an effective commerce medium. Additionally, critical issues concerning the
commercial use of the Internet (such as security, reliability, cost, ease of
use, access, quality of service and acceptance of advertising), remains a
barrier to entry for many individuals and businesses and therefore may impact
the rate of growth of Internet use. If widespread commercial use of the Internet
does not develop, or if the Internet does not develop as an effective commerce
medium, the Company's business, results of operations and financial condition
will be materially adversely affected.
DEPENDENCE ON ADVERTISING REVENUES. The Company expects to derive
substantially all of its initial revenues from the sale of advertisements on its
initial web site, and expects this to continue until at least December 1998. The
Company, to date, has obtained commitments from certain advertisers for
advertising on its "Fashion House with Niki Taylor" web site, and is currently
negotiating with additional advertisers for the sale of advertisements. There
can be no assurance that any of such negotiations will result in a commitment to
advertise on any of the Company's web sites. Existing advertising placement
contracts are for relatively short terms, generally three months or less, and
are terminable by advertisers at any time on very short notice. Consequently,
the Company's advertising clients will be able to eliminate or move their
advertising to competing Internet sites or from the Internet to traditional
media, quickly and at low cost. The Company's ability to generate advertising
revenues will depend upon, among other factors, the acceptance of the Company's
web sites as attractive and sustainable media, the development of a large
audience of users of the Company's web sites and the effective development of
media properties that provide user demographic characteristics that will be
attractive to advertisers.
There is currently intense competition in the sale of advertising on
the Internet. This competition has resulted in a wide range of advertising rates
for a variety of advertising services, making it difficult to project future
levels of Internet advertising revenues which may be realized by the Company or
any of its competitors. Competition among current and future web sites, as well
as competition from traditional media for advertising placements, could result
in significant price competition and reductions in the Company's projected
advertising prices and revenues. In the event that the Company fails to attract
advertising customers, loses customers after they have been retained, or is
forced to reduce advertising rates in order to retain or attract advertisers,
the Company's business, results of operations and financial condition could be
materially and adversely affected. See "Business - Sources of Revenue --
Advertising."
DEPENDENCE ON REVENUES FROM OTHER SOURCES. After the Company's web
sites have been established and have started to gain recognition (of which no
assurance can be given thereof), the Company's ability to expand its business
will become dependent upon its success in generating significant revenues from
sources other than advertising placements on its web sites. The Company intends
to enter into direct marketing arrangements with a variety of businesses in
connection with the sale of their products and services on the Company's web
sites. The Company, to date, has entered into a direct marketing agreement with
a company to promote the sale of flowers on the "Fashion House with Niki Taylor"
web site. This agreement
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provides for the payment of commissions to the Company based on a percentage of
net sales for flowers sold through the web site. The Company also has entered
into an agreement with another company to provide for the exclusive sale by that
company of videos and music compact disks on the "Fashion House with Niki
Taylor" web site for which the Company would similarly receive commissions based
on net sales. The Company expects product sales, with respect to the sale of
flowers, to commence on the web site on or before August 30, 1998. Sales of
music compact disks and videos have recently commenced on the Company's web
site. In addition, the Company has contracted the services of third parties to
create fashion and swimsuit electronic planners and paper calendars based on
models appearing on the Company's web sites. The electronic planners, to the
extent offered by the Company, will be created so that they can be downloaded to
a user's computer for a fee. The Company also plans to sell paper calendars
through its web sites and in retail stores. The Company also intends to create a
daily syndicated radio show, of approximately 90 seconds in length, covering
fashion and other subjects. The Company plans to use the syndicated show to
promote its web sites and other services and products, and also plans to sell
advertising time for up to 30 seconds per show, as an additional source of
revenues. There are several other businesses which provide similar services and
products as those contemplated by the Company and there can be no assurance that
the Company will ever be able to create and maintain other sources of revenue
sufficient for the Company to be profitable. In the event that the Company is
unable to generate significant revenues from any sources other than advertising
placements, the Company's business, results of operations and financial
condition could be materially and adversely affected. See "Business-Sources of
Revenue."
TECHNOLOGICAL CHANGE. The primary market in which the Company competes
is characterized by rapidly changing technology, evolving industry standards,
frequent new service and product announcements, introductions and enhancements
and changing customer demands. Accordingly, the Company's success will depend in
significant part on its ability to adapt to rapidly changing technologies, the
ability to adapt its services and products to evolving industry standards, and
to continually improve the performance, features and reliability of its services
and products in response to evolving demands in the marketplace and competitive
service and product offerings. In addition, the widespread adoption of new web
functionality through developments such as "JAVA", Virtual Reality Modeling
Language and other multimedia technologies could require substantial
expenditures by the Company and could fundamentally affect the nature, viability
and measurability of web-based advertising. The failure of the Company to adapt
to such changes and evolution would have a materially adverse effect on the
Company's business, results of operations and financial condition.
UNPROVEN ACCEPTANCE OF THE COMPANY'S WEB SITES AND CONTENT. The
Company's success is dependent upon its ability to deliver original and
compelling content in order to attract users. Since the Company has only
recently launched its initial web site it is too early to determine the level of
its acceptance by consumers, and there can be no assurance that the Company's
current web site and/or future web sites, to the extent developed and launched,
will contain content which will be attractive to a sufficient number of users to
generate advertising revenues or that the Company will be able to anticipate,
monitor and successfully respond to rapidly changing consumer tastes and
preferences so as to attract a sufficient number of new and repeat users to its
sites. As is typical in a new and rapidly evolving industry, demand and market
acceptance for recently introduced products and services, such as the Company's
web sites are subject to a high level of uncertainty and risk. Because this
market is new and evolving, it is difficult to predict future growth. There can
be no assurance that the Company will be able to successfully develop a market
for its web sites or that demand will emerge or become sustainable. If the
Company's web sites and the content contained thereon are not accepted, or
develop more slowly than expected, or the market becomes saturated with
competitors, the Company's business, results of operations and financial
condition will be materially and adversely affected. See "Business - Web Sites."
DEPENDENCE ON LICENSES WITH MODELS AND OTHER CELEBRITY HOSTS. To date,
the Company has retained the services of one model to host its initial web site.
The Company has entered into a license with a company controlled by Niki Taylor
which permits the use of Ms. Taylor's name and likeness in connection with the
"Fashion House with Niki Taylor" web site, as well as certain services to be
provided by Ms. Taylor, including her appearance for one eight-hour photo shoot
(which has already taken place) and two four-hour publicity appearances. Ms.
Taylor, at her sole option, may also participate by telephone or in-person, in
exclusive interviews and/or on-line chat sessions. The Company expects to enter
into licenses with other models, in the near future, although there can be no
assurance that the Company will be able to successfully retain the services of
any other models on terms that are mutually agreeable to the Company and those
models. The Company's license with Ms. Taylor expires on September 30, 1998, but
will be automatically extended for two consecutive one year periods, unless
either the Company or Ms. Taylor terminates the license as of the end of the
then current term. There can be no assurance that Ms. Taylor will not terminate
this license as of September 30, 1998, although the Company has no reason
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to believe that she will do so. The expiration or termination of this license
would have a material adverse effect on the Company's business, results of
operations and financial condition.
Although the Company anticipates that the content of its web sites will
consist of articles and photographs pertaining to fashion, beauty, style and
entertainment, and that its web sites will provide an avenue for users to share
general tips and advice relating to these subjects, the Company believes that
the celebrity models whose services it obtains to host the Company's web sites
will be the principal attraction. In the event the Company is unable to retain
the services of a sufficient number of celebrities to host its web sites, or
maintain the services of such celebrities for an extended period of time, it is
highly unlikely that the Company's web sites would attract the number of users
which would be required to obtain significant advertising and merchandisers.
These circumstances would most likely result in the termination of the Company's
business and the loss of an investor's entire investment. In addition, the
success of the Company's web sites will be highly dependent on the continued
popularity of the celebrity models who host the sites. In the event that the
popularity of any such celebrity model fades in the public eye, including, for
among other reasons, disclosure of allegedly illegal or immoral acts by such
celebrity model, the Company will in all likelihood find it necessary to
terminate its relationship with that celebrity model. A suitable replacement may
not be available on a timely basis and on terms and conditions mutually
agreeable to the Company and any such potential replacement. In the event that
the Company is not able to timely replace a celebrity model, this failure could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business - Web Sites."
DEPENDENCE ON THIRD-PARTY DEVELOPERS AND CONTENT PROVIDERS. The Company
is in an early development stage and currently has only two employees. A key
element of the Company's business is the development and design of its web
sites. In connection therewith, the Company has and will continue to rely on the
development efforts of third-party developers. The Company's initial web site
was designed and developed by an independent third party, which also has agreed
to design and develop additional web sites for the Company. The Company believes
that this firm has the personnel and equipment to develop and design additional
web sites, upon the Company's request, to the specifications provided by the
Company. In the event that this developer is unable to successfully design and
develop any additional web sites, in a timely manner, or at all, the Company
would be required to engage the services of an alternate developer. While the
Company believes that there are several developers who could design and develop
the Company's web sites, the delays caused by the Company's need to engage the
services of another developer could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
the Company also will be relying on third parties to provide the content for the
Company's web sites. The Company also will require the services of additional
third-party developers and content providers to create the news, reviews and
other entertainment features which the Company intends to include on its web
sites, as well as personnel to handle the ongoing administration of the
Company's web sites, to the extent that the administration of the sites is not
performed by employees of the Company. There can be no assurance that the
Company's current or future affiliations with developers, content providers or
administrative personnel will result in effective content development and
administration of the Company's web sites, or that their efforts will result in
significant revenues for the Company. Any failure of such persons to develop and
maintain high quality and successful technology and content for the Company's
web sites would have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business - Design and
Development of Web Sites."
DEPENDENCE ON OTHER WEB SITES AND PROVIDERS. The Company's ability to
advertise on other web sites and the willingness of the owners of such sites to
direct users to the Company web sites through hypertext links will be critical
to the Company's operations. Search engines, directories and other navigational
tools managed by Internet service providers and web browser companies also will
significantly affect traffic to the Company's web sites. The Company also will
depend on its relationships with third party vendors of Internet development
tools and technologies in order to develop the content required to attract users
to its web sites. Developing and maintaining satisfactory relationships with
such persons could become more difficult and expensive as competition increases
among content providers. If the Company is unable to develop and maintain
satisfactory relationships with such third parties, or if the Company's
competitors are better able to maintain
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such relationships, the Company's business, results of operations and financial
condition could be materially and adversely affected.
RISK OF CAPACITY CONSTRAINTS. A key element of the Company's business
will be to generate a high volume of traffic to its web sites. Any system
failure that causes interruptions in the availability or increases response time
of the Company's services would reduce traffic to the Company's web sites and,
if sustained or repeated, would reduce the attractiveness of the Company's
services to advertisers and other future potential customers or visitors to the
Company's web sites. An increase in the volume of traffic to the Company's web
sites could adversely effect the capacity of the software or hardware deployed
by the Company, which could lead to slower response time or even system
failures. The Company is also dependent upon web browsers and Internet and
online services providers for access to its services and consumers may
experience difficulties due to system failures unrelated to the Company's
systems. To the extent that the above-described capacity constraints are not
effectively addressed by the Company, such constraints would have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business - Operations, Security and Technology."
SECURITY RISKS. Although the Company has engaged a third party, Digex,
Inc. ("Digex") to host its initial web site, and intends to engage third parties
to host all its web sites, which third parties typically will provide such
security as they are able, the Internet infrastructure is vulnerable to computer
viruses, break-ins and similar disruptive problems by its customers and other
Internet users. These factors could lead to interruption, delays or cessation in
service. In addition, unauthorized use of the Internet could also jeopardize the
security of confidential information stored in computer systems of the Company's
customers and other parties using the Internet, which could deter potential
customers from accessing the Company's web sites and give rise to liability to
users whose security or privacy has been infringed. A security breach could
result in loss of customers, damage to the Company's reputation, damage to the
Company's web sites, costs of repair and detection, and other expenses. The
occurrence of any of these events could have a material adverse effect on the
Company's business, results of operations and financial condition. See "Business
- - Operations, Security and Technology."
COMPETITION. The market for Internet services and products is highly
competitive and competition is expected to continue to increase significantly in
the future. In addition, the Company expects the market for web-based
advertising, to the extent it develops, to be intensely competitive. There are
no significant barriers to developing web sites, and the Company expects
competition to continue to grow. The Company competes with a significant number
of web content providers, several of which offer competitive services and/or
products, and address certain of the Company's target markets, including, among
others, Women's Wire, Elle Magazine, Ford Models, Inc. and Pataxi Entertainment
Network, Inc. (operator of supermodel.com). Many of these competitors have
significantly greater financial, technical and marketing resources than the
Company, and include companies that are larger and better capitalized than the
Company. These competitors may also have expertise and established brand
recognition in the Internet market. There can be no assurance that the Company's
competitors will not develop Internet services and products that are superior to
those currently offered or contemplated by the Company or that they will not
achieve greater market acceptance than the Company's contemplated services and
products. In addition, the Company competes with these competitors, online
services and other web site operators, for the same sources of advertising and
direct marketing revenue.
The Company's web site competes with (and any future developed web
sites will compete with) other forms of media, such as television, radio and
print media, many of which provide services and products that are similar to
those which the Company currently provides and also intends to provide through
its web sites. Although traditional media outlets do not offer many of the
interactive features available through the Internet (such as online chat rooms
and E-mail), there are numerous publications, as well as television and radio
programs, which provide editorial content similar to that which the Company
provides on its web site, as well as articles and features on fashion, beauty,
health and celebrities. The Company also will compete with these traditional
media outlets for advertising revenue and direct marketing revenue.
Although the Company believes that there exists a large share of
advertising dollars available to the Company and other web site operators, as
well as several other commercial opportunities for the generation of revenues
through the Company's contemplated web sites, competition among current and
future web sites, as well as competition with other forms of media for
advertising placements, could result in significant price competition and
reductions in advertising revenues. There can be no assurance that the Company
will ever be able to compete successfully with potential competitors or that the
competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business - Competition."
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PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY. The Company regards
its technology and content created for its web sites as proprietary and will
attempt to protect such proprietary rights through, among other means, trademark
and copyright registration, trade secret protection and confidentiality and
non-disclosure agreements with its employees and independent contractors. The
Company intends to pursue registration of certain trademarks and copyrights in
the United States and in any foreign countries in which such trademarks and
copyrights are used. Effective trademark, copyright and trade secret protection
may afford the Company only limited protection in the United States and may not
be available in every country in which the Company's web sites, and services and
products included thereon, are distributed or made available. Despite the
Company's efforts to protect such proprietary rights, the rapid pace of
technological innovation on the Internet makes it possible for third parties to
copy or otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. Policing
unauthorized use of the Company's technology and intellectual property will be
difficult. There can be no assurance that the precautions taken by the Company
will prevent misappropriation or infringement of its technology or intellectual
property. In addition, notwithstanding the Company's best efforts to obtain
confidentiality agreements from all employees and independent contractors
providing services in connection with the development and design of the
Company's web sites, no assurance can be given that others will not gain access
to the Company's trade secrets, that such agreements will be honored by
employees and independent contractors, or enforced by the courts, or that the
Company will be able to effectively protect its rights to its proprietary
technology and intellectual property.
The Company believes that its trademarks, copyrights and other
intellectual property rights will not infringe the trademarks of others. There
can be no assurance that the Company will succeed in obtaining registrations of
its trademarks, or that others, who may have significantly greater resources
than the Company, will not challenge the Company's use of its trademarks and
other intellectual property, or seek to market their own services or products
using similar trademarks or other intellectual property. In the event that the
Company seeks to enforce its rights with respect to any intellectual property
rights, or a third party seeks to enforce its rights against the Company with
respect to any intellectual property right, litigation may be required, which
would result in substantial costs and diversion of the Company's resources and
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business - Trademarks and Proprietary
Rights."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. The Company's proposed
business is not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, covering issues such as user privacy, pricing,
characteristics and quality of products and services. The Telecommunications
Reform Act of 1996 imposes criminal penalties on anyone who distributes obscene,
indecent or patently offensive communications on the Internet (although certain
provisions of that law have recently been held to be unconstitutional). The
manner in which this law, or any similar law which may be adopted in the future,
will be interpreted and enforced and its effects on the Company's proposed
operations cannot yet be fully determined. The adoption of any additional laws
or regulations may decrease the growth of the Internet, which could in turn
decrease the demand for the Company's services and products and increase the
Company's cost of doing business. Furthermore, the applicability to the Internet
of existing laws in various jurisdictions governing issues such as property
ownership, libel and personal privacy is uncertain. Any such new legislation or
regulation could have an adverse effect on the Company's business, results of
operations and financial condition. See "Business - Government Regulations."
LIABILITY FOR INFORMATION DOWNLOADED FROM INTERNET; INSURANCE. Because
materials may be downloaded from the Company's web sites and subsequently
distributed to others, there is the possibility that claims will be made against
the Company for defamation, negligence, copyright or trademark infringement or
other theories based on the nature and content of the material on the Company's
web sites. These types of claims have been brought and sometimes successfully
argued, against online services. In addition, the Company could be exposed to
liability with respect to products that may be accessible through the Company's
web sites. For example, product liability claims could be made with respect to
products, purchased through the Company's web sites, which cause injury, or
claims could be made if material alleged to be inappropriate for viewing by
children may be accessed through the Company's web sites. Although the Company
carries general liability insurance which it believes to be sufficient for its
proposed business and consistent with standard industry practices, the insurance
may not cover potential claims of these types and may not be adequate to
indemnify the Company from all liability that may be imposed. Additionally, the
Company is expected to be named as an additional insured on the liability
policies carried by Digex, the web host of the "Fashion House with Niki Taylor"
web site, and will request to be
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included as an additional insured on the liability policies of any additional
web hosts that it engages to host the Company's web sites. No assurance can be
given that any of these web hosts will agree to name the Company as an
additional insured or that if so named that any such policies will adequately
protect the Company against potential claims. Any imposition of liability that
is not covered by insurance or is in excess of insurance coverage could have a
material adverse effect on the Company's business, results of operations and
financial condition.
RELIANCE ON KEY PERSONNEL. The success of the Company will be largely
dependent on the efforts of Peter Klamka, its Chairman, President and Chief
Executive Officer, and his ability to forge new relationships with celebrity
models and to maintain such relationships, as well as to oversee the development
and maintenance of the Company's web sites and other services and products. The
Company's success will also be highly dependent on Mr. Klamka's ability, as well
as the ability of others employed by the Company, to obtain advertising
placements consistent with the demographic characteristics of the users of the
Company's web sites. The Company has not entered into an employment agreement
with Mr. Klamka and Mr. Klamka has not entered into any agreement restricting
his involvement in a business which competes with the Company. As a result, Mr.
Klamka is an employee-at-will and has the right to leave the Company at any
time. Mr. Klamka has informed the Company that he intends to devote a
substantial portion of his working time to the business of the Company, and that
he also intends to devote a portion of his time to other business interests that
do not compete with the Company's business. In addition, Mr. Klamka is not
restricted from entering into a competing business, after the term of his
employment with the Company; provided, however, that he would not be permitted
to use proprietary information and trade secrets belonging to the Company. The
loss of his services would have a material adverse effect on the Company's
business and prospects. The success of the Company will also be dependent upon
its ability to hire and retain qualified writers, editors and technical
personnel, as well as qualified marketing, financial and other personnel.
Competition for qualified personnel is intense and there can be no assurance
that the Company will be able to hire or retain additional qualified personnel.
See "Management."
LACK OF COMMERCIAL INTERNET EXPERIENCE; UNCERTAIN ABILITY TO MANAGE
GROWTH. The Company's current management has only limited experience in managing
the commercial operation of web sites on the Internet. Since the industry is
relatively new, the availability of qualified personnel also may be limited. In
order to manage the possible rapid growth of its operations, the Company will be
required to implement and improve its operational and financial systems,
procedures and controls and to train, manage and control its growing employee
base. This growth could place a significant strain on the Company's financial,
management and other resources. The Company's future performance will depend in
part on its ability to manage expansion, including, without limitation, the
development, planning, timing and execution of the introduction of new services
and products, the design and development of new and entertaining web sites, and
the development and implementation of advertising and marketing strategies. In
addition, the Company's ability to manage any growth effectively will require it
to continue to improve its operational and financial control systems and
infrastructure, and to attract, train, motivate, manage and retain key
employees. If the Company's management were to become unable to manage growth
effectively, the Company's business, financial condition and results of
operations could be materially adversely affected.
CONTROL BY MANAGEMENT. Upon the consummation of this Offering, Peter
Klamka, Chairman, President and Chief Executive Officer of the Company, will
beneficially own greater than 50% of the Company's outstanding capital stock.
Accordingly, Mr. Klamka will be in a position to control the Company, elect all
of the Company's directors, increase the authorized capital, dissolve, merge, or
sell the assets of the Company and generally direct the affairs of the Company.
See "Management" and "Principal Stockholders."
POTENTIAL LITIGATION. Effective January 1, 1998, the Company had
entered into a license agreement with a company controlled by well-known model,
Tyra Banks, similar to the license agreement relating to Niki Taylor. In
addition, the Company also entered into an agreement with Ms. Banks' company in
connection with its creation, marketing and sale of calendars and electronic
planners featuring photographs of Ms. Banks. She has recently declared the
Company in breach of both of these agreements and has refused to perform under
either of them. To date, the Company has advanced funds to Ms. Banks' company in
the aggregate amount of $134,000. Although no litigation has been commenced
against the Company as of the date of this Prospectus, the Company could be
required to pay Ms. Banks' company up to an additional $153,000, in the event
that an action is commenced against the Company for additional amounts alleged
to be owed to Ms. Banks' company under the agreements, and such action is
successful. If litigation is commenced against the Company, the Company intends
to vigorously defend any causes of action stated, although there can be no
assurance than any such matters will be resolved in favor of the Company, that
the Company will not be required to expend significant funds to defend these
matters, or that the outcome of any
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litigation or settlement will not result in the payment of significant funds or
otherwise have an adverse effect on the Company. The Company also believes that
it has certain claims under the stated agreements against Ms. Banks and/or her
company, although there can be no assurance as to the viability of any such
claim or the Company's likelihood of success with respect thereto. The Company
has not yet determined whether to pursue any of these claims. Any amounts which
the Company would be required to pay to Ms. Banks' company will be paid out of
the proceeds of this Offering.
DEPENDENCE ON OFFERING PROCEEDS; NEED TO RAISE ADDITIONAL FUNDS. The
Company is dependent on and intends to use a substantial portion of the net
proceeds of this Offering to further its operations. The Company anticipates,
based on currently proposed plans and assumptions relating to its operations
(including the substantial start-up costs associated with its initial web
site), that the net proceeds of this Offering, assuming the sale of all 400,000
Shares offered hereby, together with projected cash flow from operations and
available cash resources, will be sufficient to satisfy anticipated cash
requirements for at least 18 months following the consummation of this Offering.
In the event that the Company raises less than the estimated maximum amount of
net proceeds available pursuant to this Offering, or the Company's plans change,
its assumptions change or prove to be inaccurate or the net proceeds of this
Offering or cash flow prove to be insufficient to fund operations (due to
unanticipated expenses, delays, problems, difficulties or otherwise), the
Company would be required to seek additional financing sooner than anticipated
or curtail certain of its planned activities. In the event that any of the
outstanding 1997 Warrants or 1998 Warrants are exercised, the Company could
raise additional gross proceeds of up to $571,000, although there can be no
assurance that any of the 1997 or 1998 Warrants will ever be exercised. The
Company may determine, depending on the opportunities available to it, to seek
additional equity or debt financing to fund the cost of its operations. To the
extent that the Company chooses to raise additional funds by issuing equity
securities, this issuance could result in the further substantial dilution of
the interests of the Company's stockholders. Additionally, to the extent that
the Company issues debt securities to raise funds or otherwise incurs
indebtedness, the Company will be subject to risks associated with incurring
substantial indebtedness, including the risks that interest rates may fluctuate
and cash flow may be insufficient to pay principal and interest on any such
indebtedness. The Company has no current arrangements with respect to, or
sources of, additional financing, and it is not anticipated that the existing
stockholders will provide any portion of the Company's future financing
requirements. There can be no assurance that additional financing will be
available to the Company on commercially reasonable terms, or at all. See "Use
of Proceeds" and "Management's Plan of Operations."
GOING CONCERN ISSUES IN INDEPENDENT AUDITORS' REPORT. As a result of
the Company's having been in the development stage since its inception, its lack
of revenues to date and its incurrence of net losses during such period, the
Company's independent certified public accountants have included an explanatory
paragraph in their report on the Company's financial statements for the period
ended December 31, 1997, regarding having substantial doubt about the Company's
ability to continue as a going concern without additional financing. See Note 1
to the Financial Statements included elsewhere in this Prospectus.
NO MINIMUM SALE REQUIREMENT OR PURCHASE COMMITMENT OFFERING. The
Company will use its best efforts to sell all of the Shares offered hereby.
These sales may be made either directly by the Company, through its officers and
directors, or with the assistance of one or more Selling Agents. None of the
Company, the Selling Agents, if any, or any other person, has made any
commitment to purchase any of the Shares offered hereby. Consequently, there can
be no assurance that any of the Shares will be sold. Additionally, there is no
minimum purchase required to effect the consummation of this Offering. Since
subscriptions by investors to purchase Shares in this Offering are irrevocable
upon receipt by the Company, there is a risk that this Offering will be
consummated with the Company receiving aggregate gross proceeds significantly
less than the maximum amount of $2,000,000, in the event that all 400,000 shares
are purchased in this Offering. To the extent that the net proceeds raised by
the Company are substantially less than the maximum amount, the Company's
opportunities would be severely diminished. In the event that an alternate
source of financing is not obtained in a timely manner, those investors who
participate in this Offering risk the loss of their entire investments. See "Use
of Proceeds," "Management's Plan of Operations" and "Plan of Distribution."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in the
Offering will experience immediate dilution in net tangible book value per share
of Common Stock of $4.70 from the public offering price per share (assuming sale
of all the Shares offered hereby) and may experience further dilution in that
value from issuances of Common Stock in connection with future acquisitions. See
"Dilution."
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BULLETIN BOARD; NO ASSURANCE OF PUBLIC MARKET. Prior to this Offering,
there has been no public trading market for the Common Stock. The Company's
shares of Common Stock will be traded in the over-the-counter market. It is
anticipated that they will be quoted on the "Electronic Bulletin Board", an
NASD-sponsored and operated inter-dealer automated quotation system for equity
securities not included in the Nasdaq SmallCap Market or National Market, or, in
the event that the Company is unable to include its shares of Common Stock for
quotation on the Bulletin Board then in the NQB "Pink Sheets" published by the
National Quotation Bureau Incorporated. Although the Bulletin Board has recently
begun to receive greater recognition from the brokerage community, the trading
volume of securities quoted on the Bulletin Board is normally significantly less
than that of securities traded in the Nasdaq SmallCap and National Markets.
Trading volume in the Pink Sheets also is significantly less than on the
Bulletin Board. As a result, purchasers of the Company's shares of Common Stock
may have more difficulty selling or obtaining quotations of the price of the
Company's securities than they would have if they were listed on Nasdaq or a
national securities exchange, particularly if the shares are traded in the Pink
Sheets. Unless and until the Company's Common Stock is listed on the Nasdaq or a
national securities exchange (of which no assurance can be given), the liquidity
of the Company's Common Stock may be impaired, not only in the number of shares
which could be bought and sold, but also through delays in the timing of
transactions, reduction in securities analysts and the news media's coverage of
the Company, if any, and lower prices for the Company's shares of Common Stock
than might otherwise be obtained. Additionally, since the Company is not
utilizing the services of an underwriter in connection with its sale of the
Shares in this Offering, there can be no assurance that any broker-dealer will
make a market in the Common Stock. Making a market in securities involves
maintaining bid and ask quotations and being able, as principal to effect
transactions in reasonable quantities at those quoted prices, subject to various
securities laws and other regulatory requirements. The development of a public
trading market depends upon the existence of willing buyers and sellers, the
presence of which is not within the control of the Company. There can be no
assurance that a regular trading market for the Common Stock will develop after
this Offering or that, if developed, it will be sustained. Therefore, purchasers
of the Shares should have a long-term investment intent and should recognize
that it may be difficult to sell their Shares, notwithstanding the fact that
they are not restricted securities.
DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF MARKET PRICE OF
COMMON STOCK. The offering price of the Shares was determined by the Company and
does not bear any direct relationship to the value of the physical assets of the
Company, the book value of the Company, or any other generally accepted criteria
of valuation. The price and other terms were based on a number of factors
including, without limitation, the estimates of the business potential and
earnings prospects of the Company and the consideration of such potential
earnings in relation to market valuations of comparable companies. The offering
price is not necessarily an indication of the actual value of such securities at
the time of this Offering. Additionally, the market price for the Company's
securities following this Offering may be highly volatile as has been the case
with the securities of other companies in emerging businesses. Factors such as
the Company's financial results and introduction of new products and services by
the Company or its competitors, and various factors affecting the Internet
industry generally, may have a significant impact on the market price of the
Company's securities. Additionally, in recent years, the stock market has
experienced a high level of price and volume volatility and market prices for
the securities of many companies, particularly of small and emerging growth
companies, the common stock of which trade in the over-the-counter market, have
experienced wide price fluctuations which have not necessarily been related to
the operating performance of these companies. See "Plan of Distribution."
DIVIDEND POLICY. The Company has not paid any dividends to its
stockholders to date. The Company intends to retain earnings, if any, to
finance the operation and expansion of its business and, therefore, does not
expect to pay cash dividends in the foreseeable future. See "Description of
Securities - Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this Offering
(assuming the sale of all 400,000 Shares), the Company will have 3,441,680
shares of Common Stock outstanding. Of these shares of Common Stock, all of the
Shares sold in this Offering will be freely transferable without restriction or
limitation under the Securities Act, except for any Shares purchased or owned by
affiliates of the Company, as such term is defined in Rule 144 promulgated under
the Securities Act. The remaining 3,041,680 shares constitute "restricted
securities" within the meaning of Rule 144 and may be sold without registration
pursuant to such rule, at various times commencing on June 1, 1998. No
prediction can be made as to the effect, if any, that sales of shares of Common
Stock or even, the availability of such shares for sale will have on the market
prices prevailing from time to time. The possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect the
prevailing market price for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities. See
"Description of Securities" and "Shares Eligible for Future Sale."
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<PAGE>
AUTHORIZATION OF PREFERRED STOCK. The Company's Certificate of
Incorporation authorizes the issuance of up to 1,000,000 shares of preferred
stock with designations, rights and preferences determined from time to time by
its Board of Directors. Accordingly, the Company's Board of Directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights which could adversely affect
the voting power or other rights of the holders of the Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its authorized preferred stock, there can be no assurance that the
Company will not do so in the future. See "Description of Securities - Preferred
Stock."
RISK OF LOW-PRICED STOCK. Since the Shares will initially be traded in
the over-the-counter market on the Bulletin Board or in the Pink Sheets, if the
market price of the Company's Common Stock decreases to less than $5.00 per
share, trading would become subject to the requirements of certain rules
promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). These rules
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith,
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally institutions). For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Disclosure is also required to be made about commissions payable to both the
broker-dealer and the registered representative and current bid and offer
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
The additional burdens imposed on broker-dealers by these
requirements may discourage them from effecting transactions in the Common
Stock, which could severely limit the liquidity of the Common Stock and the
ability of purchasers in this Offering to sell their Shares in the secondary
market. These requirements also may reduce the likelihood that a bank or
financial institution will accept the Company's Common Stock as collateral.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of all 400,000 Shares
offered by the Company hereby at an offering price of $5.00 per share are
estimated to be approximately $1,600,000, after deducting discounts and
commissions payable to Selling Agents (assuming the payment of commissions in a
maximum amount of $200,000) and estimated offering expenses of $200,000 payable
by the Company. The Company expects to use the net proceeds of this Offering as
follows:
The following table sets forth the Company's estimated use of the net
proceeds of this Offering assuming aggregate proceeds from the sale of Shares of
$2,000,000, $1,500,000 and $1,000,000, respectively. In each case discounts and
commissions paid to Selling Agents is assumed to be 10% of the aggregate
proceeds raised and other offering expenses aggregate $200,000.
<TABLE>
<CAPTION>
$2 Million $1.5 Million $1 Million
---------- ------------ ----------
<S> <C> <C> <C>
Licensing Fees Payable to $500,000 $300,000 $300,000
Models(1)
Photographs and $165,000 $ 70,000 $ 70,000
Printing(2)
Repayment of $461,250 $461,250 $ 56,250
Indebtedness(3)
Web Site Design (4) $140,000 $ 75,000 $ 75,000
Public Relations and $175,000 $125,000 $105,000
Advertising (5)
Computer Equipment $ 50,000 --- ---
Working Capital (6) $108,750 $118,750 $ 93,750
</TABLE>
- -------------------
(1) The Niki Taylor License (as hereinafter defined) provides for advance
payments against future royalties, of which $100,000 remains
outstanding and payable by the Company. This amount will be paid from
the proceeds of this Offering. The Company also previously advanced an
aggregate of $134,000 to a company controlled by well-known model,
Tyra Banks, pursuant to a license agreement and an agreement for the
sale of calendars and electronic planners. Ms. Banks has claimed that
the Company breached these agreements and has refused to perform under
either agreement. Ms. Banks' company could bring an action against
the Company for additional amounts allegedly owed under these
agreements, in an approximate sum of $153,000. If the Company agrees
to settle any potential claims or is required to pay any additional
amounts to Ms. Banks' company, such funds will paid from the proceeds
of this Offering. If the Company raises gross proceeds of at least
$1,500,000, it may enter into licenses with additional models or
celebrities which would require the payment of additional licensing
fees. See "Business - Web Sites."
(2) These amounts include payment for photo sessions to take exclusive
shots of models for use in connection with the Company's web sites and
electronic planners, as well as for use in the Company's advertising
and marketing materials. See "Business - Web Sites," and " Sources of
Revenue -- Electronic Planners."
(3) Includes the Company's repayment of outstanding loans, in an aggregate
principal amount of $405,000, to Peter Klamka, the Company's Chairman,
President and Chief Executive Officer, upon the consummation of this
Offering. This indebtedness is not due until the earlier of (i) the
date that the Company has raised an aggregate of not less than
$1,500,000 in one or more public offerings of any of its securities or
(ii) May 2001. Also includes the Company's repayment of $56,250, plus
interest at the rate of 8% per annum, to four individuals pursuant to
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<PAGE>
promissory notes which were due and payable in July 1998. The Company
intends to pay the principal and interest on this outstanding
indebtedness from the proceeds of this Offering. There can be no
assurance that one or more of the individuals holding such promissory
notes will not declare the Company in default thereunder, and require
the Company to immediately pay the entire amount of principal and
interest outstanding. See "Certain Transactions."
(4) Reflects payments to a third party web designer. See "Business -
Design and Development of Web Sites."
(5) Includes amounts payable to a public relations firm, which the Company
has retained, and expenses relating to print and/or electronic
advertising. See "Business - Sources of Revenue -- Advertising" and " -
Marketing and Promotion -- Public Relations."
(6) The Company may use a portion of the proceeds allocated to working
capital to pay salaries of non-executive employees.
The foregoing represents the Company's current estimate of its allocation of the
net proceeds of the Offering. This estimate is based on certain assumptions,
including without limitation the growth in revenues derived from the "Fashion
House with Niki Taylor" web site, as to which there can be no assurance.
The amounts actually expended for each purpose set forth in "Use of Proceeds"
may vary significantly in the event any of these assumptions prove inaccurate.
The Company reserves the right to change its use of proceeds as unanticipated
events may cause the Company to redirect its priorities and reallocate the
proceeds accordingly. A portion of the proceeds may also be used to acquire or
invest in complementary businesses or products. Although the Company evaluates
potential acquisitions or businesses and products from time to time, there are
no present understandings, commitments or agreements with respect to any such
acquisitions.
Pending utilization, the net proceeds of the Offering will be invested in
short-term, interest-bearing investments.
Any additional proceeds received upon exercise of the 1997 Warrants, the 1998
Warrants or options granted pursuant to the Option Plan will be added to working
capital. There can be no assurance that the 1997 Warrants, the 1998 Warrants or
such options granted pursuant to the Option Plan will be exercised.
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<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization
of the Company: (i) as of June 30, 1998 and (ii) pro forma to give effect to
the receipt of loans from Peter Klamka, the Company's Chairman, President and
Chief Executive Officer, in July and August 1998, in the aggregate principal
sum of $135,000 and (iii) as adjusted for the sale of 400,000 shares of Common
Stock offered by the Company hereby and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with the Financial
Statements of the Company and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
<S> <C> <C> <C>
Short-term debt $ 646,021 $ 781,021 $ 66,771
--------- --------- ---------
Shareholders' equity:
Preferred stock, $.0l par value; 1,000,000
shares authorized, none issued or outstanding --- --- ---
Common stock, $.001 par value;
10,000,000 shares authorized; 3,041,680
issued and outstanding, actual and pro forma; 3,441,680,
shares issued and outstanding (as adjusted). 3,042 3,042 3,442
Additional paid-in capital 226,415 226,415 1,826,015
Accumulated deficit (813,796) (813,796) (813,796)
--------- --------- ----------
Total shareholders' equity (deficit) (584,339) (584,339) 1,015,661
--------- --------- ----------
Total capitalization $ 61,682 $ 196,682 $1,082,432
======== ========= ==========
</TABLE>
20
<PAGE>
DILUTION
The difference between the public offering price per share of the
Common Stock and the pro forma net tangible book value per share of the Common
Stock of the Company after this Offering constitutes the dilution to investors
in this Offering. The pro forma net tangible book value of the Company as of
June 30, 1998 was $(602,582) or $(.20) per share of Common Stock with a total of
3,041,680 shares outstanding. As a result of the sale of the maximum of 400,000
Shares offered by the Company hereby and the receipt of the net proceeds
therefrom, the pro forma net tangible book value of the Company as of June 30,
1998, would have been $1,015,661 and $.30 per share of Common Stock,
calculated on a total of 3,441,680 shares of Common Stock outstanding. This
represents an immediate increase in pro forma net tangible book value to
existing stockholders of $.50 per share and an immediate dilution to
purchasers in this Offering of 4.70 per share.
The following table illustrates the foregoing dilution to the investors
on a per share basis (1):
Common Stock Share Purchase Price $5.00
Pro forma net tangible book value per share of (.20)
Common Stock before Offering
Increase in pro forma net tangible book value .50
per share of Common Stock attributable to new
investors
Pro forma net tangible book value per share of .30
---
Common Stock after Offering
Dilution of pro forma net tangible book value $4.70
=====
per share of Common Stock to new investors
- --------------------------
(1) The above table assumes gross proceeds raised in this Offering of
$2,000,000. In the event that the Company raises gross proceeds of less
than $2,000,000 dilution to purchasers in this Offering will be less.
The following table sets forth, with respect to the initial
stockholders and the new stockholders, a comparison of the number and percentage
of their shares of Common Stock, the amount and percentage of consideration paid
and the average price per share paid to the Company for those shares.
<TABLE>
<CAPTION>
AVERAGE
AMOUNT PRICE
SHARES PERCENTAGE PAID PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
INITIAL STOCKHOLDERS 3,041,680 88.4% $229,457 10.3% $.08
NEW STOCKHOLDERS 400,000 11.6% 2,000,000 89.7% 5.00
---------- -------- ---------- ------
3,441,680 100% $2,229,457 100%
========== ======== ========== ======
</TABLE>
21
<PAGE>
MANAGEMENT'S PLAN OF OPERATIONS
OVERVIEW
Although, the Company entered into an agreement with a company
controlled by fashion model, Niki Taylor, in June 1997, for Ms. Taylor to host
"Fashion House with Niki Taylor", the Company's initial web site, this web site
was not launched until recently. The Company was not able to launch the web site
sooner, due to the period of time required to raise the funds necessary to
develop the site and commence operations, the approximate cost of which was
$150,000, not including the advance of $50,000 paid to Ms. Taylor's company.
Additionally, the Company has advanced $134,000 to a company controlled by
fashion model, Tyra Banks, pursuant to certain agreements between the Company
and Ms. Banks' company. The Company has also incurred expenses of approximately
$10,000, to date, in connection with the development of the intended web site
to have been hosted by Ms. Banks and in connection with the development of
calendars featuring her. The Company has generated extremely limited revenues
to date.
OPERATIONS FOR THE NEXT TWELVE MONTHS
For the next twelve months the Company will expand its content
offerings on the "Fashion House with Niki Taylor" web site, as well as continue
to add more advertising and other sources of revenue to its site. The Company's
license agreement with Niki Taylor's company contains an automatic renewal
provision for two additional twelve month terms, unless terminated by Ms.
Taylor's company or the Company. The first of these renewals will occur in
September 1998. The Company has no reason to believe that Ms. Taylor will not
allow the term of the license to continue during the renewal terms, although no
assurance can be given thereof. The Company also may launch at least one
additional web site, during the period, which is expected to focus on another
popular fashion model. There can be no assurance that the Company will be able
to launch any additional web sites.
In order to assist the Company in the expansion of its operations, the
Company has also engaged the services of a public relations firm to arrange for
creative and on-target promotions for the Company's web sites, services and
products in both traditional and electronic media.
CASH REQUIREMENTS
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations (including the substantial start-up costs
associated with its initial web site and up to $153,000 which may be payable to
a company controlled by Tyra Banks under the agreements entered into with her),
that the net proceeds of this Offering, assuming the sale of all 400,000 Shares
offered hereby, together with projected cash flow from operations and available
cash resources, will be sufficient to satisfy anticipated cash requirements for
at least 18 months following the consummation of this Offering. In the event
that the Company raises less than the estimated maximum amount of net proceeds
available pursuant to this Offering, or the Company's plans change, its
assumptions change or prove to be inaccurate or the net proceeds of this
Offering or cash flow prove to be insufficient to fund operations (due to
unanticipated expenses, delays, problems, difficulties or otherwise), the
Company would be required to seek additional financing sooner than anticipated
or curtail certain of its planned activities. In the event that any of the
outstanding 1997 Warrants or 1998 Warrants are exercised, the Company could
raise additional gross proceeds of up to
22
<PAGE>
$571,000, although there can be no assurance that any of the 1997 or 1998
Warrants will ever be exercised. The Company may determine, depending on the
opportunities available to it, to seek additional equity or debt financing to
fund the cost of its operations. If the Company raises only $1,500,000 in this
Offering, the Company's anticipated cash requirements would be satisfied for
approximately seven to eight months following the consummation of this Offering.
If the Company raises only $1,000,000 in this Offering, the Company's
anticipated cash requirements would be satisfied for approximately six months
following the consummation of this Offering, assuming the Company significantly
reduces the promotion of its current web site and does not attempt to develop
any new web sites. See "Risk Factors."
In April 1998, Peter Klamka, the Company's Chairman, President and
Chief Executive Officer, provided the Company with a revolving credit line with
a maximum of $500,000 available (the "Klamka Credit Line"). Loans drawn on the
Klamka Credit Line bear interest at a rate of 9% per annum from the date they
are made to the Company and are payable by May 2001, provided, however, that if
the Company raises gross proceeds in this Offering of at least $1,500,000, the
entire outstanding amount of the Klamka Credit Line and accrued interest will
be repaid from the proceeds of this Offering. To date, the Company has drawn
down a total of $405,000 under the Klamka Credit Line, with an additional
$95,000 still available. See "Certain Transactions."
EMPLOYEES
The Company presently employs two individuals, Peter Klamka, its
Chairman, President and Chief Executive Officer and one additional person. Upon
consummation of this Offering, the Company intends to hire several additional
employees. These employees will most likely be assisting the Company technically
or creatively.
23
<PAGE>
BUSINESS
COMPANY OVERVIEW
PTN is an interactive media content provider focusing on providing
leading branded content for well-defined target audiences using a combination of
new and traditional media. The Company's strategy is to create content that is
of great appeal to its targeted audience and attract advertisers desiring to
reach this audience. The Company currently provides this content on its
interactive web site known as "Fashion House with Niki Taylor," which utilizes
the name and likeness of well-known model Niki Taylor. The Company also plans to
provide similar content on additional web sites hosted by other well-known
models and celebrities, television, print and other forms of traditional media.
The Company's initial web sites will focus primarily on fashion, beauty, style,
fitness and related subjects. In addition, the Company plans to create, market
and sell calendars and electronic planners featuring photographs of models and
other celebrities.
The Company, through its predecessor, commenced operations in May 1997.
At that time it entered into a License Agreement with a company controlled by
Niki Taylor. That agreement provides for, among other things, the right to use
Ms. Taylor's name and likeness in connection with the Company's "Fashion House
with Niki Taylor" web site. Since commencement of operations, the Company has
entered into an agreement with a web site designer and direct marketing
agreements to sell flowers, videos and music compact disks on the Niki Taylor
web site. In addition, the Company is currently negotiating with other
well-known models to develop web sites which they will host. The Company also
has entered into agreements with certain advertisers whose banner advertisements
appear on its initial web site, and is negotiating with additional advertisers
to place banner advertisements on its current and/or future web sites. There can
be no assurance that any of these negotiations will be successful.
The Company's initial strategy is to capitalize on the opportunities
created by the growth of the rapidly developing Internet market, particularly by
creating web sites targeting young women, which the Company believes is the
fastest growing segment of the population using the Internet. The Company's plan
is to develop web sites featuring popular fashion models, many of whom, such as
Niki Taylor, are commonly referred to as "supermodels" in publications and
other media. The Company, in the future, also may create web sites featuring
other celebrities. These web sites are developed to appeal to women between the
ages of 18 and 30, although the Company believes that some of the content it
provides also appeals to men of similar ages. The Company's current web site
focuses primarily on fashion, beauty, style, fitness and related subjects, and
offers several features, such as monthly letters from Niki Taylor, daily updated
fashion editorials, photo scrapbooks featuring Niki Taylor, interactive chat
sessions with Niki Taylor, entertainment coverage (e.g. movie, television and
book reviews) and cooking and diet tips. The Company plans to operate additional
web sites in the future, which will offer similar features and services.
The Company, similar to other web site operators, has recognized the
growing commercial opportunities presented by the Internet and the World Wide
Web, which the Company believes is emerging as a global marketplace for the
transaction of business. The Company's strategy is to take advantage of many of
these commercial outlets, including the sale of banner advertisements and
sponsorships on its web sites to advertisers targeting consumers with similar
demographic characteristics as visitors to the Company's web sites, direct
response marketing of related products and services through arrangements with
third parties, sales of downloadable electronic and paper calendars featuring
host models, licensing of proprietary content and intellectual property rights
to third parties, and subscription and membership online chat services.
24
<PAGE>
The Company plans to advertise and promote its web sites through
various forms of media. It also plans to purchase banner advertisements on
search engines on the World Wide Web, on a limited basis, as well as enter into
advertising barter arrangements with other web sites. The Company further
intends to promote its web sites through (i) advertising and promotional spots
contained within Company-sponsored radio programs and (ii) by advertising in
selected publications. The Company also will arrange for the promotion of its
web sites by host models, to the extent that they are not prohibited from
participating in any such promotion as a result of other commitments, or such
promotion is limited by the terms of the Company's license with any model.
Finally, promotional advertising in connection with products offered by the
Company, including calendars and electronic planners, is another means by which
the Company intends to promote its web sites.
Although there are currently several web sites that focus on fashion
and/or models, including sites that are operated by well-known publications and
modeling agencies, the Company believes, although there can be no assurance,
that its web sites will have a competitive advantage over these other sites,
based on the popularity of its host models, among the audience that these sites
target. The Company also believes, although there can be no assurance, that it
will be able to enter into exclusive engagements with additional models and
celebrities having significant appeal to the same targeted users of the World
Wide Web. In addition, the Company plans to offer an online avenue for
interactive communication covering topics such as fashion and health, with the
primary focus on its web sites' models and celebrity hosts. The Company's goal
is to operate the exclusive online access to select models such as Niki Taylor,
and to provide visitors and members with information, photos and other content
unavailable elsewhere. In the event the Company's strategy is successful, of
which there can be no assurance, it believes that it will be one of few web site
operators that offers features relating to fashion and beauty with the quality
of content and celebrity appeal it intends to provide.
Effective January 1, 1998, the Company had entered into a license
agreement with a company controlled by well-known model, Tyra Banks, similar to
the license agreement relating to Niki Taylor. In addition, the Company also
entered into an agreement with Ms. Banks' company in connection with its
creation, marketing and sale of calendars and electronic planners featuring
photographs of Ms. Banks. She has recently declared the Company in breach of
both of these agreements and has refused to perform under either of them. To
date, the Company has advanced funds to Ms. Banks' company in the aggregate
amount of $134,000. Although no litigation has been commenced against the
Company as of the date of this Prospectus, the Company could be required to pay
Ms. Banks' company up to an additional $153,000, in the event that an action is
commenced against the Company for additional amounts alleged to be owed to Ms.
Banks' company under the agreements, and such action is successful, or, in the
alternative, the Company may elect to settle any such claim, if instituted, for
a lesser amount. Any additional amounts which the Company would be required to
pay to Ms. Banks' company will be paid out of the proceeds of this Offering. The
Company also believes that it has certain claims under these agreements against
Ms. Banks and/or her company, but has not yet determined whether to pursue these
claims.
INDUSTRY BACKGROUND
The Internet and the Web
The Internet is a global network of computers that enable businesses,
educational institutions, government agencies and individuals to communicate,
share information and conduct business electronically. Historically, the
Internet was used primarily by educational institutions and government agencies
to exchange information. Recently, growth in the use of the Internet by
individuals has increased significantly, as a result of technological advances,
including increased microprocessing speed and transmission bandwidth and the
development of easy-to-use graphical user interfaces, combined with cultural and
business changes. These factors, combined with widespread access to the Internet
at a rapidly declining cost, have resulted in the emergence of the World Wide
Web, a system of hyper linked multimedia databases. The World Wide Web enables
non-technical users to exploit the resources of the Internet. This has created
great opportunities for businesses
25
<PAGE>
to advertise and promote their services and products in a targeted, interactive
and multimedia environment. According to International Data Corporation, an
industry source, the number of users of the World Wide Web has increased from an
estimated 16.1 million individuals at the end of 1995 to approximately 34.6
million users at the end of 1996, and this number is expected to increase to
approximately 200 million users by the end of the year 2000.
Advertising and Commerce
The Company believes that advertising on the World Wide Web has been
growing rapidly among the sellers of a variety of products and services.
Additionally, the Company believes that the costs of advertising on web sites
currently is within the range of $20 to $50 for each 1,000 times that a consumer
views an advertisement. Web advertisers are comprised of two groups: content
providers that seek to increase traffic to their web sites, and traditional
companies that see the World Wide Web as a new medium to reach consumers. The
Company believes that the Internet is a desirable vehicle for advertising
because the World Wide Web offers advertisers the ability to target messages to
specific, self-selected audiences and enables users to interact with respect to
the advertising information presented. These features allow advertisers to
target clearly defined markets and to measure the effectiveness of their
advertising more accurately. Currently, advertising is presented primarily in
the form of banner advertisements which provide consumers with access to more
detailed information upon the click of a computer mouse. The Company expects the
form and overall volume of advertising on the World Wide Web to increase
significantly as the technology of the Internet continues to improve, although
no assurance thereof can be given.
Web Sites; Content Providers
By accessing the World Wide Web through the Internet, users can reach a
multitude of web sites simply by typing domain names, normally beginning with
the letters "www" and ending with the letters "com," "gov," "org" or other
suffix depending on the type of entity. Recent improvements in web browsers and
search engines, which help users navigate the information and services offered
on the World Wide Web, have made locating these web sites much simpler. The
Company believes that as the number of providers of infrastructure, access and
browser services increases and access to and the usefulness of the Internet
improve, the quality of the content provided by web site operators also will
improve. This in turn will attract greater levels of commerce over the Internet.
Additionally, as a result of increased usage of the Internet, content
historically provided by means of traditional media, such as television, radio
or print, is now being offered on the Internet. Furthermore, because of the
advantages the Internet has over traditional forms of media, particularly its
interactive features, content can be provided by means unavailable through
traditional media. For example, content can be delivered to specifically
identified audiences who share strong similar interests. Advertisers seek out
only those web sites that attract audiences with the same demographic
characteristics as the desired purchasers of their goods or services.
STRATEGY
The Company seeks to capitalize on the opportunities created by the
popularity of fashion and style, particularly the so-called "supermodels"
associated therewith, along with the rapid growth of the Internet as a
commercial medium, by developing and operating fashion web sites hosted by
models and other celebrities. The Company seeks to offer comprehensive and
exclusive content, updated regularly, by utilizing the World Wide Web's
interactive and graphical capabilities. The Company's current web site, and
proposed future web sites, are targeted at users between the ages of 18 and 30
years old, particularly women. The Company's goal is to create a variety of web
sites each tied to a well-known model or celebrity, and each providing
compelling content which is of interest to the target audience. The Company's
current web site is, and all future web sites will be, designed to provide a
sense of access and intimacy with the fashion world, since contact with leading
models and other celebrities will be available. Although the Company believes
that its web sites will attract men, as well as women, the sites will not be
male oriented exploitation web sites, but sites offering compelling content
covering fashion, beauty, style, fitness and related subjects. The Company also
believes that as the Internet continues to grow, the importance of brand
recognition will increase due to the growing number of web sites and the
relatively low barriers
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to entry. The Company intends to establish and maintain brand recognition with
respect to its "Fashion House with Niki Taylor" web site, as well as any
additional web sites which it develops. Establishing and maintaining this brand
recognition will be highly dependent on the Company's ability to engage and
retain well-known models, such as Niki Taylor, its ability to develop original
and compelling content, and its success in creating an awareness for its brand
names in other media besides the Internet. There can be no assurance that the
Company will ever successfully achieve brand recognition for any of its web
sites, or that if it does, that this brand recognition will ever result in the
Company's being profitable.
WEB SITES
General
The Company currently has one web site that provides content over the
Internet. Although there are currently several fashion-related web sites on the
Internet, and the Company expects there to be several additions in the future,
the Company believes that the editorial content of its web sites will
distinguish the Company from other providers. The Company's web sites will offer
a variety of articles covering fashion, beauty, style and entertainment. Most of
these articles will be provided by freelance journalists who are experienced
writers in these fields.
"Fashion House with Niki Taylor"
The Company recently launched "Fashion House with Niki Taylor", its
first web site, located on the World Wide Web at www.fashionhouse.net, and also
at www.nikitaylor.net. Pursuant to a Web Site License Agreement dated as of June
1, 1997 with a company controlled by popular model Niki Taylor (the "Niki Taylor
License"), the Company has engaged the services of Ms. Taylor to host its
current web site. The Niki Taylor License provides for the Company's
non-transferable right to use Ms. Taylor's name and likeness in connection with
the web site, subject to her prior written approval for all "for profit" uses,
including all uses in print and electronic media. This use is subject to any
prior commitments made by Ms. Taylor with which the Company's use may conflict.
In addition, the Niki Taylor License provides the Company with exclusive use of
photographs taken at a photo shoot directed by the Company, as well as the right
to have Ms. Taylor make two publicity appearances to promote the web site. Ms.
Taylor has also agreed, at her sole option, to participate in exclusive
interviews and on-line chat sessions on the web site, at mutually agreed upon
times. All services to be provided by Ms. Taylor are subject to her
availability.
For her services, Ms. Taylor is entitled to a $150,000 advance against
future royalties, one-third of which was paid upon execution of the Niki Taylor
License, and the remainder of which is currently owed but will be paid upon
consummation of this Offering. Ms. Taylor has not requested the payment of any
amounts currently owed to her and has not taken any action to compel the Company
to pay any such amounts prior to the consummation of this Offering. Although the
Company believes that Ms. Taylor will not demand payment of any amounts owed,
prior to the consummation of this Offering, there can be no assurance that she
will not demand payment of the entire balance, or a portion thereof, prior to
such date, and/or declare the Company in breach of the Niki Taylor License.
Royalties to be paid to Ms. Taylor are based on a percentage of the gross
revenues generated by the Company from the "Fashion House with Niki Taylor" web
site, provided that Ms. Taylor is entitled to receive a substantially higher
percentage of gross revenues with respect to revenues generated from corporate
sponsors, strategic partners and licensees introduced to the Company by Ms.
Taylor. Ms. Taylor also is entitled to a percentage of the net revenues received
by the Company from the sale of merchandise on the web site.
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During the term of the Niki Taylor License, Ms. Taylor has agreed not
to (i) license her name and likeness to any other web site or home page devoted
to her or (ii) be employed by, provide consulting services to or otherwise
render services to other fashion-related on-line services. Notwithstanding these
limitations, Ms. Taylor is permitted to advertise on other sites, provide
services to sites operated by persons with whom she has corporate sponsorship
commitments and participate in online interviews and articles. The Niki Taylor
License expires on September 30, 1998, but will be automatically extended for up
to two additional twelve month periods, unless terminated by the Company or Ms.
Taylor prior to any such extension.
The Company's "Fashion House with Niki Taylor" web site offers, or
shortly will offer, the following content areas:
From Niki - This regular newsletter is an avenue for Ms. Taylor to
provide fashion tips or other information to her fans on a monthly basis.
Style - This area covers the latest in styles and trends. Fashion
editorial and images are updated daily. Content includes three to five feature
articles per month which are exclusive to Style. Style also includes interviews
with well-known designers and highlights beauty products and techniques.
Portfolio - Images of Ms. Taylor, many of which have never been seen
before, and for which the Company has the exclusive rights. Included in this
album are many of the photos that have put Ms. Taylor on the cover of over 250
magazines, including some of her famous swimsuit exposes.
NTV - This is the entertainment and interactive area. Visitors to this
area can submit questions for interviews with Ms. Taylor and can view interviews
with Ms. Taylor or her interviews of other well-known models and celebrities.
This area also includes chat rooms and a bulletin board for makeup and style.
NTV is also the host area for periodic conference calls with Ms. Taylor and
special guests. Visitors also can get tips on places to go; movies, shows and
other events to see; and music and book reviews, in addition to a variety of
other entertainment information. This area also features sound clips from Niki's
CD Player.
Travel - This area provides visitors with travel information and
includes Ms. Taylor on location around the world, as well as suggestions for
travel and vacations.
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Additional Web Sites and Content
The Company is currently negotiating licenses with other popular models
in connection with its development of additional fashion-related web sites to be
hosted by these models. These web sites will offer content areas similar to
those provided on the Company's current site with Niki Taylor, provided that the
content of each web site will be specifically tailored to the look and style of
its model host, as well as the interests of the targeted audience. The Company
also plans to provide daily television listings and astrological forecasts on
its web sites, which are expected to be obtained on a barter basis.
The Company believes that user interaction will be the main draw of the
Company's web sites. The Company plans to continuously add to and change the
content on its web sites to enhance user interest. This content may include
national and regional "behind the scenes" news from fashion shows, models,
clothing designers and other celebrities. In addition, the Company may enter
into arrangements for live broadcasts of fashion shows featuring models from the
Company's web sites.
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DESIGN AND DEVELOPMENT OF WEB SITES
The Company's current web site was designed and developed by a third
party web designer. Pursuant to the Company's agreement with this design firm,
it agreed to design and develop the Company's "Fashion House with Niki Taylor"
web site, as well as any additional web sites requested by the Company. This
engagement includes designs for aesthetic and functional characteristics of the
web sites, as well as computer files and code that implement the web sites.
The Company is the owner of all rights to the web sites when completed
except for properties licensed to the design firm by third parties and certain
materials created by the design firm. The Company paid the design firm a total
of $100,000 for the design and development of its "Fashion House with Niki
Taylor" web site . The agreement with the designer is terminable by either party
upon 15 days' prior written notice and the designer has limited its liability to
the Company to an amount equal to any fees paid by them to the Company during
the 12-month period immediately preceding the date that any cause of action
arises.
SOURCES OF REVENUE
Advertising
The Company believes that its current web site offers (and any future
additional web sites will offer) a desirable vehicle for advertisers seeking to
reach fashion-oriented consumers. The Company further believes that the subject
matter of its web sites will attract an audience that is well educated,
sophisticated and affluent, although there can be no assurance thereof. To be
successful, the Company must attract advertising placements from businesses that
provide the types of products and services that appeal to the target audience of
the Company's web sites.
Banner Advertising
The Company expects to derive substantially all of its initial revenues
from the sale of advertising banners on its initial web site. These banners
appear on a user's computer screen when accessing different areas of the
Company's web sites. The interactive nature of the Internet also allows users to
obtain extensive additional information about an advertiser's products or
services instantly, by clicking on a hypertext link to the advertiser's web
site. In some cases the advertiser's products can be purchased in a transaction
completed on the Internet. The Company has entered into agreements with certain
advertisers whose banner advertisements appear on its "Fashion House with Niki
Taylor" web site, and is negotiating with additional advertisers to place banner
advertisements on its current and/or future web sites. There can be no assurance
that any of these negotiations will be successful.
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These agreements are generally for periods of three months or less and
guarantee advertisers a minimum of 250,000 impressions (times that an
advertisement appears in page views downloaded by visitors to the Company's web
sites) per month. In the event that any advertisement does not achieve a minimum
of 250,000 impressions, during any month, for any reason, the Company may be
required to provide additional impressions after the contract term at no
additional cost. Advertisers pay between $2,500 and $15,000 per month depending
on where the banners are placed, and whether it is an exclusive or non-exclusive
advertiser of such products or services. The Company also offers a limited
number of twelve-month placements at a price of $30,000, which also includes one
product placement. To assist advertisers in monitoring the effectiveness of
their advertisements, the Company provides them with weekly reports showing
advertising impressions and the number of times users hyperlink to the
advertisers' web sites. The Company also assists its advertisers in developing
customized promotions for the target audience.
Content Area Sponsorships
The Company also will sell sponsorships for its content areas. Each
sponsor will have a special association with the content area chosen. For
example, a movie rental chain and/or sporting goods store may sponsor the NTV
area of the "Fashion House with Niki Taylor" web site. The sponsorships might be
one-time, annual or semi-annual depending on the arrangement. There can be no
assurance that the Company will be able to sell sponsorships.
Product Placements
The Company also may sell product placements as an additional source of
revenue. This would consist of the placement of brand products in different
environments on the Company's web sites. Some of these products could also be
placed in situations with Niki Taylor or other models or celebrities whom the
Company may engage, to the extent that he or she is able to endorse such
products. Although the Company has not yet entered into any arrangements for
product placements, it has had preliminary discussions with manufacturers of
audio equipment who have expressed their interest in having their products
pictured in "Niki's CD Player." There can be no assurance that the Company will
be able to obtain any of these product placements. In the event that the Company
is able to obtain any product placements, it believes that the terms and
conditions of each such placement, including the amount payable for such
placement, will be determined on a case-by-case basis.
Local Advertising
The Company also plans to provide opportunities for regional
advertising on its web sites. One method of providing this advertising will be
through the development of regional bulletin boards. Advertisers and sponsors
will be able to more easily target local consumers for their products and
services. This will be of particular interest to local businesses that have no
reason to pay higher prices to advertise their products and services nationally
into markets where such products and services are not available. In addition,
regional advertising will provide all businesses with the option to reduce their
advertising expenses by focusing on specific targeted markets.
Direct Response Marketing
The Company has entered into two agreements pursuant to which it
provides hyperlinks to other sites from its "Fashion House with Niki Taylor" web
site for the purchase of flowers (PC Flowers and Gifts, Inc. ("PC Flowers")) and
the purchase of music compact disks, videos and apparel products (CDnow, Inc.
("CDnow")). Pursuant to its agreement with PC Flowers, the Company is providing
an advertising banner and hyperlink to PC Flowers on the Company's web site. In
exchange, the Company will receive a percentage of revenues derived from sales
to those accessing the PC Flowers web site through the Company's web site.
Customers interested in purchasing flowers from the Company's site will be
hyperlinked to PC Flowers' web site to place their orders. Visitors to the
Company's site who visit "Fashion House Flowers and Gifts" also will be provided
with a toll-free number to call in orders. This number will be exclusive to the
Company's site. PC
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Flowers has agreed to pay the Company a sales commission ranging from 8% to 10%
of net sales with respect to all flowers, balloons, gourmet foods, gift baskets
and greeting cards sold through the Company's web site. This agreement may be
terminated by either party upon 90 days prior written notice. The Company
expects direct marketing sales with PC Flowers to begin on its "Fashion House
with Niki Taylor" web site by August 30, 1998, although no assurance can be
given thereof.
Pursuant to the Company's agreement with CDnow, the Company has also
developed a hyperlink to CDnow's site for the purchase of music compact disks,
videos and apparel. The Company receives commissions for products ordered
through hyperlinks from its site, ranging from 3% to 5% of net sales of music
compact disks, 4% to 6% of net sales of videos and 8% to 10% of net sales of
apparel products. The initial term of this agreement expires in September 1998,
but renews automatically for subsequent one year terms unless either party
terminates within 30 days of the end of the then current term. The Company
recently commenced direct marketing sales with CDnow on its "Fashion House with
Niki Taylor" web site. The Company believes that there are a number of other
direct response relationships which can be developed including, without
limitation, sales of cosmetics and fragrances, tickets to concerts and movies,
travel services and housewares. The Company presently has not established any
relationships with respect to the direct response marketing of any of those
products or services, and there can be no assurance that it will ever enter into
any such relationship. The Company also believes that annual revenue generated
from direct response marketing could ultimately surpass annual revenue generated
from banner advertising, although there can be no assurance thereof.
Subscription Revenues
Persons that visit specific web sites on the Internet often have
similar interests in a particular subject area. Many of them have a more intense
interest in the subject matter and desire more than the standard content offered
on the site. To satisfy these consumers, the Company may offer exclusive chat
sessions on its web sites with access provided on a subscription basis. The
Company could charge subscription fees ranging from $1.00 to $5.00 per session.
If successful, the Company also may create club memberships, whereby members
would pay an annual membership fee entitling them to access to special areas on
the Company's web sites, as well as discounts and/or free offers from selected
advertisers. The Company has not developed any subscription or club membership
arrangements to date.
Licensing and Product Sales
In connection with the operation of its web sites, the Company prepares
exclusive editorial content for its target audiences. The Company believes that
other companies which serve, or wish to serve, these audiences will wish to
license the Company's editorial content, trademarks and images for their use.
Potential customers for these services include telephone companies offering high
capacity Internet service, online services and other web site operators. In
addition, the Company also may enter into joint ventures in which editorial
content is jointly created by the Company with other web site operators. In
these cases, revenue likely would be shared by the Company and the other joint
venturers. The Company also intends to develop a variety of merchandise relating
to its web sites, such as limited edition collectibles, license apparel and
other fashion merchandise. These items can be sold on the Company's web sites or
in retail stores. The Company has not yet entered into any licensing
arrangements or sold any products.
Electronic Planners
The Company has engaged the services of a third party designer to
design and develop electronic planners featuring models on the Company's web
sites. The Company plans to offer two versions of the planners, one of which
will be a fashion edition targeted at women, and the other of which will be a
swimsuit edition targeted at men. These planners, which will be downloadable
from the Company's web sites to most personal computers and laptops, will
provide purchasers with
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personal information management software that allows them control over
scheduling, business and personal contacts, financial and travel planning and
personal record keeping. The planners will also provide links to the Internet.
The Company plans to sell the planners for $19.95 each.
Syndicated Radio Show
The Company has had preliminary discussions with a national syndicator
of radio programming, in connection with the development and airing of a daily
90-second radio show devoted to the same subject matter as the Company's web
sites. The show, which is tentatively called "The Fashion House Minute" could be
a source of additional revenue for the Company through the sale of up to 30
seconds of advertising time on each show. There can be no assurance that the
Company will be able to enter into an agreement with the syndicator or develop
or make profitable the radio show.
Additional Sources of Revenue
The Company's success will be highly dependent on its ability to
generate revenues from a variety of sources. To the extent that any of the
Company's proposed sources of revenue prove to be unprofitable, the Company
likely will find it necessary to abandon the activities associated therewith and
replace them with services or products that have the potential to generate
profits. Therefore, the list of sources of revenue set forth in this Prospectus
should not be considered exhaustive, since the Company must and will continue to
try to identify new sources of revenue in order to achieve its goals. There can
be no assurance that the Company will be able to identify any new sources of
revenue or that even if the Company does identify additional sources, that the
services or products relating thereto will generate revenues sufficient enough
to cause the Company's operations to be profitable.
MARKETING AND PROMOTION
The Company continually evaluates numerous ways to promote its brand
names such as "Fashion House with Niki Taylor," believing that brand recognition
will assume increasing importance as the volume of activity on the Internet
increases. The Company intends to promote its web sites, products and other
services through several of the following methods.
Public Relations
The Company has engaged the services of The Angellotti Company, a
public relations firm, to assist in the launch of its web sites. The Company has
agreed to pay $3,500 per month for these services for a period of eight months
commencing in May 1998. The agreement is automatically renewable at the end of
the term, unless the Company gives 30 days' prior written notice of its desire
to terminate such services. It will be the public relations firm's
responsibility to arrange for creative and on-target promotions in both
traditional and electronic media.
Barter Arrangements
The Company has had preliminary discussions with representatives of
approximately 20 other web sites whereby the Company would be provided with
advertising space on other web sites in exchange for providing those other web
sites with advertising space of equal value on the Company's web sites. Similar
arrangements also may be considered with advertisers who use the same models in
print ads. For example, a cosmetic company could include the domain name of the
"Fashion House with Niki Taylor" web site in a magazine advertisement in which
Ms. Taylor appears, in exchange for an advertisement for the cosmetic company's
products on the Company's web sites.
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Syndicated Radio Show; Advertising on Search Engines; Product Promotions;
Print Advertising
In addition to the Company's use of "The Fashion House Minute"
syndicated radio show to generate advertising revenue, the Company also plans to
utilize the radio show to promote its web sites. The Company, on a limited
basis, also plans to purchase banner advertisements on search engines. Many of
the products sold by the Company, such as the electronic planners and calendars,
will also be used to promote the Company's web sites. These products will most
likely contain advertising which may include, among other things, the domain
addresses of the Company's web sites. The Company also plans to purchase
advertising in selected publications, on a limited basis and/or in conjunction
with additional promotions.
WEB HOST; OPERATIONS, SECURITY AND TECHNOLOGY
The Company's web sites are made available to users through its web
host, Digex. The Company provides pages of code, graphics and video to Digex,
which uploads this information to its dedicated servers. Digex is responsible
for all traffic, security and management of the technological aspects of the
Company's web sites. The Company is responsible to update the content on the web
sites and to apprise Digex of the Company's changing technological needs and
offering Digex the opportunity to provide for these needs. The Company
compensates Digex with a combination of cash and promotional consideration. The
Company believes it would have no difficulty replacing Digex with another web
host if its relationship with Digex were to be terminated for any reason,
although there can be no assurance of this.
A key element of the Company's success is to generate a high volume of
use of its sites. Accordingly, high levels of performance are critical. Any
system failure that causes interruption or an increase in response time could
result in less traffic to the Company's web sites and, if sustained or repeated,
could reduce the attractiveness of the Company's web sites to advertisers.
Further, any substantial increase in the number of visits to the Company's web
sites could strain the capacity of the software or hardware deployed by the
Company or its web hosts and would require the Company to expand and adapt its
network infrastructure. The Company's inability to add software or hardware to
accommodate substantial increases in traffic could lead to slower response time
or system failures. There can be no assurance that the Company would be able to
expand its network infrastructure on a timely basis to meet any increased
demand.
The Company's operations also are dependent, in part, upon the ability
of its web hosts to protect their operating systems against physical damage form
fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events. The Company does not currently have redundant, multiple site
capacity in the event of any such occurrence. Notwithstanding the implementation
of security measures by the Company, such as limiting physical and network
access to its routers, the Company's infrastructure is vulnerable to computer
viruses, break-ins and similar disruptive acts by Internet users. These factors
could lead to interruption, delays or cessation in service of the Company's web
sites. Furthermore, the inappropriate use of the Internet could jeopardize the
security of confidential information stored in the computer systems of the
Company's customers and other users of the Internet, which could deter potential
customers from accessing the Company's web sites and give rise to uncertain
liability to users whose security and privacy has been infringed. A security
breach could result in loss of customers, damage to the Company's reputation,
damage to the Company's web sites, costs of repair and detection and other
expenses. The security and privacy concerns of existing and potential customers
may inhibit the growth of the Internet, in general, and the Company's revenues
in particular.
COMPETITION
Competition among content providers on the Internet is intense and is
expected to increase significantly. The Internet is currently characterized by
minimal barriers to entry, since new web sites can be developed and launched at
relatively low cost. The Company faces competition from a number of sources that
provide content through one or more media, such as print, broadcast, cable
television and the Internet. In order to compete successfully, the Company must
establish and maintain awareness, among the public, of the Company and its brand
names, effectively market its services and products, and
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successfully differentiate its web sites. This will be highly dependent on the
Company's ability to provide compelling and popular content to attract Internet
users and support advertising and sales of products and services that are
intended to reach such users.
The Company competes with a significant number of web content
providers, several of which offer competitive services and/or products, and
address certain of the Company's target markets, including, among others,
Women's Wire, Elle Magazine, Ford Models, Inc. and Pataxi Entertainment Network,
Inc. (operator of supermodel.com). In addition, the Company competes against
large service providers, including web directories, search engines, commercial
online services and sites maintained by Internet service providers, many of
which offer content similar to that provided on the Company's web sites and
attract advertisers targeting the same audience as the Company. Some of these
companies include Microsoft Corporation, America Online, Inc., Netscape
Communications, Yahoo! Inc. and Prodigy Services Co. Many of these competitors
have significantly greater financial, technical and marketing resources than the
Company, and include companies that are larger and better capitalized than the
Company. These competitors also may have expertise and established brand
recognition in the Internet market.
In addition, the Company competes for the time and attention of
Internet users with thousands of non-profit Internet sites operated by
educational institutions, governments and individuals. Existing and potential
competitors also include other forms of media, such as television, radio and
print media, many of which provide services and products that are similar to
those which the Company currently provides and also intends to provide through
its web sites. Although traditional media outlets do not offer many of the
interactive features available through the Internet (such as online chat rooms,
E-mail, etc.), there are numerous publications, as well as television and radio
programs, which provide editorial content similar to that which the Company
provides on its web site, as well as articles and features on fashion, beauty,
health and celebrities. There can be no assurance that the Company's competitors
will not develop services and products that are superior to those of the Company
or that achieve greater market acceptance.
The Company believes that the principal competitive factors in the
Internet market are brand recognition, ease of use, content depth, content
quality, content presentation, speed and quality of service execution,
competitive pricing, successful marketing and the availability of targeted
content and focused value added services and products. To be competitive, the
Company believes that it must distinguish its editorial content from its
competitors and customize this content to appeal to its target audiences. There
can be no assurance that the Company will be able to achieve either of these
goals.
Since many of the Company's competitors have greater resources than the
Company, these competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and devote substantially more
resources to developing their content and services. In addition, as a strategic
response to changes in the competitive environment, the Company may make certain
pricing, service or marketing decisions or enter into acquisitions of new
entities that could have a material adverse effect on the Company's business,
results of operations and financial condition. Although the Company believes
that its web sites will compete favorably with those of its competitors, there
can be no assurance that the Company will be able to compete successfully
against current and future sources of competition.
TECHNOLOGY; TRADEMARKS AND PROPRIETARY RIGHTS
The Company's success is highly dependent on its trademarks and other
intellectual property rights. The Company relies upon trademark and copyright
law, trade secret protection and, where appropriate, confidentiality and /or
license agreements with its employees, independent contractors and consultants
to protect its proprietary rights. To date, none of the Company's trademarks has
been registered, nor does the Company currently contemplate registering any of
its trademarks. The Company also relies on copyright laws to protect the
original content included on its web sites. A substantial amount of uncertainty
exists concerning the application of copyright laws to the Internet, and there
can be no assurance that existing laws will provide the Company with adequate
protection.
Effective trademark, copyright and trade secret protection may not be
available in every country in which the Company's services and products are
distributed or appear via the Internet. As part of its business strategy, the
Company
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may license its content, trademarks and images to third parties. Without
adequate protection in foreign markets, there can be no assurance that these
licensees will not take actions that might materially or adversely affect the
value of the Company's proprietary rights. In addition, despite the Company's
efforts to protect its proprietary rights, the rapid pace of technological
innovation on the Internet makes it possible for third parties to copy or
otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. Policing
unauthorized use of the Company's technology and intellectual property will be
difficult. There can be no assurance that the precautions taken by the Company
will prevent misappropriation or infringement of its technology or intellectual
property. Furthermore, notwithstanding the Company's best efforts to obtain
confidentiality agreements from all employees and independent contractors
providing services in connection with the development and design of the
Company's web sites, no assurance can be given that others will not gain access
to the Company's trade secrets, that such agreements will be honored by
employees and independent contractors, or enforced by the courts, or that the
Company will be able to effectively protect its rights to its proprietary
technology and intellectual property.
GOVERNMENT REGULATIONS
The Company's proposed business is not currently subject to direct
regulation by any government agency, other than regulations applicable to
businesses generally, and there are currently few laws or regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted with respect to the Internet, covering
issues such as user privacy, pricing, characteristics and quality of products
and services. The Telecommunications Reform Act of 1996 imposes criminal
penalties on anyone who distributes obscene, indecent or patently offensive
communications on the Internet (although certain provisions of that law have
recently been held to be unconstitutional). The manner in which this law, or any
similar law which may be adopted in the future, will be interpreted and enforced
and its effects on the Company's proposed operations cannot yet be fully
determined. The adoption of any additional laws or regulations may decrease the
growth of the Internet, which could in turn decrease the demand for the
Company's services and products and increase the Company's cost of doing
business. Furthermore, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, libel and
personal privacy is uncertain.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
EMPLOYEES
The Company presently employs two individuals, Peter Klamka, its
Chairman, President and Chief Executive Officer and one additional person. Upon
consummation of this Offering, the Company intends to hire several additional
employees. These employees will most likely be assisting the Company technically
or creatively. None of the Company's employees are represented by a labor union.
FACILITIES
The Company currently maintains its executive offices, consisting of
700 square feet of space, at 313 North First St., Suite 8B, Ann Arbor, Michigan,
pursuant to a month-to-month lease at a monthly rental of $690.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Peter Klamka 29 Chairman, President, Chief Executive Officer and
Secretary
Deborah M. Schneider 37 Director
Lila Lazarus 34 Director
</TABLE>
Peter Klamka has been Chairman, President, Chief Executive Officer and
Secretary of the Company since the inception of the Company's predecessor in May
1997. From 1990 to 1991, Mr. Klamka was employed as an analyst with Credit
Lyonnais. From 1991 to 1993, he was employed by DMA Holdings, a private
investment concern that invested in and acquired automotive parts suppliers. His
duties included the evaluation of acquisition candidates. From 1993 to 1994, Mr.
Klamka was the owner and sole stockholder of General Display, a company that
manufactured scoreboards and timing equipment for sports facilities. He sold
this company in 1994. In 1994, Mr. Klamka founded Wilshire Fragrance, a company
that developed and marketed men's fragrance products. Mr. Klamka was the chief
executive officer of Wilshire Fragrance from 1994 through 1996. In connection
with his fragrance business, in 1996, Mr. Klamka developed, what he believes to
have been one of the first authorized celebrity web sites, featuring Anna Nicole
Smith promoting fragrances for Wilshire Fragrance. Mr. Klamka continued working
on this web site until early 1997. Mr. Klamka received his Bachelor of Arts
degree from the University of Michigan. Mr. Klamka also serves on the Board of
Directors of American Sports History Inc., a public company, and is deemed to be
a founder of the Company.
Deborah M. Schneider has been a director of the Company since
February 1998. Ms. Schneider is a practicing attorney with and a shareholder of
Adkison, Need, Green, Allen & Schneider, P.L.L.C. ("Adkison Need") in Bloomfield
Hills, Michigan. She received an A.B. degree in Human Biology and Economics from
Stanford University and received her J.D. degree from Wayne State University Law
School. She is a member of the Oakland County Bar Association, the State Bar of
Michigan and the American Bar Association. She serves on the membership services
committees of the Oakland County Bar Association and the State Bar of Michigan.
She also is a member of the Section on Intellectual Property and Forum on
Entertainment and Sports Industries of the American Bar Association. Ms.
Schneider is past president of the Oakland Bar-Adams Pratt Foundation. She also
is a member of Promotion Marketing Association of America and serves on its
Legal Services Committee. Ms. Schneider practices in the areas of intellectual
property, promotion, entertainment and computer law. Adkison Need has provided
legal services to the Company. Prior to her present affiliation, Ms. Schneider
was a partner with the law firm of Howard & Howard.
Lila Lazarus has been a director of the Company since February 1998.
Ms. Lazarus has been a health reporter and a weekend anchor on television
station WDIV in Detroit, Michigan, since September 1996. Prior to that, Ms.
Lazarus was an anchor at television station NECN in Boston, Massachusetts, from
August 1994 to August 1996, and a reporter at television station WBAL in
Baltimore, Maryland, from December 1992 to August 1994. She received a Masters
in Journalism from the University of Michigan and a Masters in Political Science
from the University of Massachusetts. Ms.
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Lazarus is a Fulbright Scholar and has been honored by the Detroit News Club,
the Detroit Press Club and the Associated Press. Ms. Lazarus also is a past
recipient of the Hanns-Seidel fellowship for study in West Germany.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors currently
receive no cash compensation for serving on the Board other than reimbursement
of reasonable expenses incurred in attending meetings. Directors who are not
employees of the Company are entitled to receive options to purchase shares of
Common Stock upon their election as a director and annually while they serve as
directors. See "1998 Stock Option Plan." Officers are expected to be elected
annually by the Board and serve at the discretion of the Board.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has no standing Audit Committee, Compensation Committee,
Nominating Committee or other committee. The Board performs the functions of all
such committees itself.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law permits a corporation, through its Certificate of
Incorporation, to exonerate its directors from certain personal liability to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, other than (a) for any breach of the director's duty of
loyalty to the Company or its stockholders; (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (c) in connection with payment of any illegal dividend or an illegal stock
repurchase or redemption; or (d) for any transaction from which the director
derived an improper personal benefit. This provision does not apply to equitable
remedies such as injunctive relief. The Company's Certificate of Incorporation
includes a provision exonerating its directors to the fullest extent permitted
by Delaware law.
Prior to, or immediately after the consummation of this Offering, the
Company will obtain directors' and officers' liability insurance covering
certain liabilities that may be incurred by any director or officer in
connection with the performance of his or her duties and certain liabilities
that may be incurred by the Company, including the indemnification paid to any
director or officer. The Company plans to obtain a policy that provides for a
maximum aggregate coverage of not less than $2,000,000, including defense costs.
The entire premium for this insurance will be paid by the Company.
The Company's Certificate of Incorporation authorizes the Company to
indemnify its directors for certain breaches of fiduciary duty to the Company
and its stockholders, and other liabilities, subject to certain limitations.
This indemnification does not apply to acts or omissions which are knowingly
fraudulent, deliberately dishonest or arise out of willful misconduct.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
the Company's initial fiscal year from inception of its predecessor (May 1997)
through December 31, 1997 to its Chief Executive Officer. The Company had no
other officers during this period.
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SUMMARY COMPENSATION TABLE
Annual Compensation
---------------------------
Name and Principal Position Salary Bonus Other
- ---------------------------- ------ ----- -----
Peter Klamka, Chairman, President and
Chief Executive Officer(1) $50,000 $0 $0
- ---------------
(1) Mr. Klamka is entitled to receive an annual base salary of $100,000
from the Company. Mr. Klamka was employed by the Company, during 1997,
from its inception on May 27, 1997 to December 31, 1997. In March 1998,
the Company issued to Mr. Klamka 16,666 shares of Common Stock at a
value of $3.00 per share in respect of the payment of his annual salary
for 1997. Mr. Klamka has waived any additional salary payable to him
for services provided during the year ended December 31, 1997, and has
stated to the Company that he expects to waive any further salary
payable to him for the foreseeable future, although no assurance
thereof can be given.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has no employment or other written agreement with Peter
Klamka, its Chairman, President and Chief Executive Officer. Mr. Klamka has an
oral agreement with the Company to receive a base salary of $100,000 per year
and such other compensation as the Board of Directors shall designate. Except
for the issuance of 16,666 shares of Common Stock to Mr. Klamka as compensation
for services provided in 1997, Mr. Klamka has waived this base salary through
the date hereof, and the Company believes he will waive the base salary for the
foreseeable future, although no assurance thereof can be given.
Mr. Klamka is involved in other business ventures, including the
ownership of over 500,000 shares of American Sports History Inc. a Nasdaq
Bulletin Board company, but he intends to devote substantially all his business
time and effort on behalf of the Company for the foreseeable future. Mr. Klamka
has orally committed that, for so long as the Company shall be in existence, he
shall conduct no business relating to models or fashion personalities other than
through the Company.
1998 STOCK OPTION PLAN
The Option Plan was adopted and approved by the stockholders and
directors in March 1998. The Option Plan provides for the grant of options to
purchase up to 500,000 shares of the Company's Common Stock. These options are
intended to qualify either as incentive stock options ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or as options that are not intended to meet the requirements
of such section ("Nonstatutory Stock Options"). Under the Option Plan, Incentive
Stock Options may be granted to employees (including officers) of the Company,
and Nonstatutory Stock Options may be granted to employees (including officers),
non-employee directors, consultants or advisors of the Company.
The Option Plan is administered by the full Board of Directors. The
Board has discretionary authority to select the persons to whom, the number of
shares for which, the times at which and the exercise price for which options
will be granted.
Stock options granted to an employee expire immediately upon the
termination of employment voluntarily by such employee or for cause by the
Company. Employee stock options may be exercised up to one year after the
termination of employment due to death or disability. Employee stock options may
be exercised up to three months after termination for any other reason. Stock
options granted to a non-employee director expire upon the termination of the
director's services for
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cause. Non-employee director stock options may be exercised up to one year after
such person is no longer serving as a director for any other reason.
Incentive Stock Options must have an exercise price greater than or
equal to the fair market value of the shares underlying the option on the date
of grant. Incentive Stock Options granted to the holder of 10% or more of the
Company's Common Stock must have an exercise price of 110% of the underlying
shares' fair market value on the date of grant. The maximum exercise period of
Incentive Stock Options is ten years from the date of grant (five years in the
case of an individual owning more than 10% of the Company's Common Stock). The
aggregate fair market value (determined at the date the option is granted) of
shares with respect to which Incentive Stock Options are exercisable for the
first time by the holder of the option during any calendar year may not exceed
$100,000. If such amount exceeds $100,000, the Board may designate those shares
that will be treated as Nonstatutory Stock Options.
The Option Plan provides for certain grants to non-employee directors.
Non-employee directors serving on the Board when the Option Plan was adopted
each received options to purchase an aggregate of 3,000 shares of Common Stock
at the fair market value of the Common Stock on such date. One of the Company's
non-employee directors was also granted an option to purchase an additional
47,000 shares of Common Stock on such date, as an incentive to serve on the
Company's Board of Directors.
As of the date of this Prospectus, the Company has granted options to
purchase an aggregate of 106,000 shares of Common Stock under the Option Plan to
its employees and non-employee directors. All of these options were granted in
March 1998 at an exercise price of $3.00 per share, and expire in March 2008.
Options to purchase 3,000 shares of Common Stock are currently exercisable and
the remaining options vest over a period of three years, in equal amounts,
commencing in January through March 1999. The Company intends to file a
registration statement covering shares issuable upon exercise of stock options
granted under the Option Plan.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of August 12, 1998, with
respect to the beneficial ownership of the Company's Common Stock by (i) each
current director of the Company, (ii) each executive officer of the Company
named in the Summary Compensation Table set forth under the caption "Executive
Compensation" below, (iii) all directors and executive officers of the Company
as a group and (iv) each person known by the Company to own beneficially more
than five percent (5%) of the outstanding shares of Common Stock of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT OF CLASS PERCENT OF CLASS
BENEFICIAL OWNER BENEFICIALLY OWNED PRIOR TO OFFERING (1) AFTER OFFERING(1)(2)(3)
- ---------------- ------------------ --------------------- -----------------------
<S> <C> <C> <C>
Peter Klamka(4) 2,100,341 69.05% 61.03%
Deborah M. Schneider(5) --- --- ---
Lila Lazarus(6) --- --- ---
Chris H. Giordano(7) 540,340 17.76% 15.70%
Michael Giordano(8) 300,000 9.86% 8.72%
All executive officers and directors 2,100,341 69.05% 61.03%
as a group (three persons)
</TABLE>
- -----------------------
(1) Includes the conversion of certain outstanding indebtedness of the
Company, in March 1998, into 54,166 shares of the Company's
Common Stock. Excludes the shares underlying certain warrants
issued by the Company. See "Description of Securities."
(2) Assumes the sale of all 400,000 Shares in this Offering.
(3) In the event that the Company is unable to sell all of the Shares in this
Offering, each holder's ownership percentage of the Company's common stock
after this Offering will be higher than that set forth.
(4) Mr. Klamka's address is the same as that of the Company.
(5) Ms. Schneider's address is 1533 North Woodward, Bloomfield Hills, Michigan
48304. Does not include an option granted to Ms. Schneider pursuant to the
Option Plan, in March 1998, to purchase up to 50,000 shares of Common
Stock, which option becomes first exercisable in March 1999. See
"Management - 1998 Stock Option Plan."
(6) Ms. Lazarus' address is 1533 North Woodward, Bloomfield Hills, Michigan
48304. Does not include an option granted to Ms. Lazarus pursuant to the
Option Plan, in March 1998, to purchase up to 3,000 shares of Common
Stock, which option becomes first exercisable in March 1999. See
"Management - 1998 Stock Option Plan."
(7) Chris Giordano's address is 4 Dogwood Court, West Patterson, NJ 07424.
Chris Giordano is Michael Giordano's brother, but disclaims any beneficial
ownership of shares owned by Michael Giordano.
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<PAGE>
(8) Michael Giordano's address is 7591 N.W. 29th Street, Margate, Florida
33063. Michael Giordano is Chris Giordano's brother, but disclaims any
beneficial ownership of shares owned by Chris Giordano.
CERTAIN TRANSACTIONS
In June 1997, Peter Klamka purchased 2,117,008 shares of Common Stock of
the Company's predecessor for an aggregate purchase price, paid by delivery of a
promissory note, of $2,117.01. In June 1997 Chris Giordano purchased 540,340
shares of Common Stock of the Company's predecessor for an aggregate purchase
price, paid by delivery of a promissory note, of $540.34. In June 1997 Michael
Giordano purchased 300,000 shares of Common Stock of the Company's predecessor
for an aggregate purchase price, paid by delivery of a promissory note, of
$300.00. All three notes have been paid to the Company, in full. Messrs.
Klamka, Chris Giordano and Michael Giordano are each deemed to be founders
and promoters of the Company.
Jean Renard, manager for Ms. Taylor owns 10,000 shares of Common Stock.
In April 1998, Peter Klamka, the Company's Chairman, President and Chief
Executive Officer, provided the Company with a revolving credit line with a
maximum of $500,000 available (the "Klamka Credit Line"). Loans drawn on the
Klamka Credit Line bear interest at a rate of 9% per annum from the date they
are made to the Company and the entire outstanding amount is payable in full,
inclusive of accrued interest, on the earlier of (i) the date that the Company
has raised an aggregate of not less than $1,500,000 in one or more public
offerings of any of its securities or (ii) May 2001. To date, the Company has
drawn down a total of $405,000 under the Klamka Credit Line, with an additional
$95,000 still available. Additional amounts may be drawn down under the Klamka
Credit Line until the earlier of the two dates set forth in clauses (i) and
(ii) immediately preceding.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.01
per share (the "Preferred Stock"). As of the date of this Prospectus, 3,041,680
shares of Common Stock are outstanding which the Company believes are
beneficially owned by approximately 25 persons, and no shares of Preferred Stock
are outstanding. After an additional 400,000 shares of Common Stock are issued
by the Company in this Offering, assuming all 400,000 shares of Common Stock
offered hereby are sold, 3,441,680 shares will be outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share on all
matters voted on by stockholders, including the election of directors.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election if they choose to do so. The Certificate of Incorporation does not
provide for cumulative voting of directors. Holders of Common Stock will be
entitled to receive dividends ratably, if any, as may be declared from time to
time by the Board out of funds legally available therefor. Holders of Common
Stock will be entitled to receive, pro rata, all assets of the Company available
for distribution to them upon liquidation. In addition, holders of Common Stock
have no preemptive, subscription or redemption rights. All outstanding shares of
Common Stock are, and the Common Stock offered hereby, upon issuance and sale,
will be, fully paid and nonassessable.
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<PAGE>
PREFERRED STOCK
The Company's Certificate of Incorporation provides that the Company is
authorized to issue up to 1,000,000 shares of "blank check" Preferred Stock,
which may be issued from time to time in one or more series upon authorization
by the Board. The Board, without further approval of the stockholders, is
authorized to fix any dividend rights, conversion rights, voting rights,
redemption rights and terms, liquidation preferences and any other rights,
preferences, privileges and restrictions applicable to each series of Preferred
Stock. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of the Common
Stock. Under certain circumstances, the issuance of Preferred Stock could also
make it more difficult for a third party to gain control of the Company,
discourage bids for the Company's Common Stock at a premium or otherwise
adversely affect the market price of the Common Stock.
1997 WARRANTS
In connection with the Company's issuance of certain promissory notes to the
lenders of an aggregate of $56,250 to the Company in July 1997, the Company
issued to such lenders warrants (the " 1997 Warrants") to purchase a total of
45,000 shares of Common Stock. The 1997 Warrants are exercisable for the first
time, upon the offering of the shares of Common Stock hereunder, at a price of
$3.00 per share, and expire in July 2001. The Company has the right to
repurchase the 1997 Warrants from the 1997 Warrant holders for $.05 per share of
Common Stock purchasable thereby at any time after July 1998, provided that the
shares of Common Stock have been trading in the public market at $6.00 per share
or more on each of the most recent 20 consecutive trading days prior to the
Company's notice to repurchase the 1997 Warrants, and provided further, that no
underwriter has placed any restrictions on such repurchase by the Company.
1998 WARRANTS
In March 1998, the Company converted outstanding promissory notes held by
certain individuals, in an aggregate principal amount of $162,500 into 162,500
shares of Common Stock at a value of $1.00 per share. In connection with the
review of this Offering by the Securities and Exchange Commission, the Company
has agreed to increase the valuation of its shares of Common Stock issued in
March 1998. Such accommodation made it necessary for the Company to request the
return of 108,334 shares of the Common Stock issued to stockholders in the March
conversion. All of such stockholders have agreed to return to the Company 2/3 of
the shares of Common Stock issued to them prior to the effective date of this
Registration Statement. In exchange for these returned shares of Common Stock,
the Company, in August 1998, granted to these stockholders warrants (the "1998
Warrants") to purchase an aggregate of 108,334 shares of Common Stock. The 1998
Warrants are exercisable for the first time, upon the effective date of the
Registration Statement, at a price of $4.00 per share, and expire in August
2003. The Company has the right to repurchase the 1998 Warrants from the 1998
Warrant holders for $.05 per share of Common Stock purchasable thereby at any
time after the date which is six months after the effective date of this
Registration Statement, provided that the shares of Common Stock have been
trading in the public market at $8.00 per share or more on each of the most
recent 20 consecutive trading days prior to the Company's notice to repurchase
the 1998 Warrants, and provided further, that no underwriter has placed any
restrictions on such repurchase by the Company.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future,
but intends to retain future earnings for reinvestment in its business. Future
cash dividends, if any, will be at the discretion of the Company's Board of
Directors and will be dependent upon, among other things, the Company's
financial condition, capital requirements and such other factors as the Board of
Directors deems relevant.
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<PAGE>
LIMITATION OF LIABILITY OF DIRECTORS
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable for monetary damages to the Company or its
stockholders for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit.
This provision is intended to afford directors additional protection and
limit their potential liability from suits alleging a breach of duty of care by
a director. As a result of the inclusion of this provision, stockholders may be
unable to recover monetary damages against directors for actions taken by them
that constitute negligence or gross negligence or that are otherwise in
violation of their fiduciary duty of care, although it may be possible to obtain
injunctive relief or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to stockholders in any
particular situation, stockholders may not have an effective remedy against a
director in connection with this conduct.
STATUTORY PROVISIONS AFFECTING STOCKHOLDERS
In the event that any of the Company's Common Stock becomes listed on a
national securities exchange or the Nasdaq Stock Market or is held of record by
more than 2,000 stockholders, the Company would become subject to Section 203 of
the Delaware General Corporation Law ("Section 203") which contains certain
provisions that may make more difficult the acquisition of control of the
Company by means of a tender offer, open market purchases, proxy fight or
otherwise. These provisions are designed to encourage persons seeking to acquire
control of the Company to negotiate with the Board of Directors. However, these
provisions could have the effect of discouraging a prospective acquiror from
making a tender offer or otherwise attempting to obtain control of the Company.
To the extent that these provisions discourage takeover attempts, they could
deprive stockholders of opportunities to realize takeover premiums for their
shares or could depress the market price of the Common Stock.
Section 203 prohibits certain "business combination" transactions between a
publicly held Delaware corporation and any "interested stockholder" for a period
of three years after the date on which such stockholder became an interested
stockholder, unless (i) the Board of Directors approves, prior to such date,
either the proposed business combination or the proposed acquisition of stock
which resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction in which the stockholder becoming an interested
stockholder, the interested stockholder acquires at least 85% of those shares of
voting stock of the corporation which are not held by the directors, officers or
certain employee stock plans or (iii) on or subsequent to the consummation date,
the business combination with the interested stockholder is approved by the
Board of Directors and also approved at a stockholders' meeting by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of the corporation's voting stock other than shares held by the interested
stockholder. For purposes of Section 203, a "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. A corporation may, at its option,
exclude itself from the coverage of Section 203 by amending its charter or
by-laws by action of its stockholders to exempt itself from coverage, provided
that this by-law or charter amendment would not become effective until 12 months
after the date it is adopted. The Company has not elected to opt out of Section
203 pursuant to its terms.
TRANSFER AGENT
The transfer agent for the Common Stock is Corporate Stock Transfer, Denver,
Colorado.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering (assuming sale of all 400,000 Shares
hereby), the Company will have 3,441,680 shares of Common Stock outstanding. Of
such shares of Common Stock, 400,000 shares (the Shares sold in this Offering)
will be freely tradeable without restriction or further registration under the
Securities Act. The remaining 3,041,680 shares of Common Stock are "restricted
securities," as the term is defined under Rule 144 of the Act. These shares may
only be sold pursuant to a registration statement under the Securities Act, in
compliance with the exemption provisions of Rule 144, or pursuant to another
exemption under the Securities Act.
In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares are aggregated) who has beneficially owned
restricted shares (as that term is defined in Rule 144) for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then outstanding shares of the issuer's
common stock (approximately 34,420 shares immediately after this Offering) or
the average weekly trading volume during the four calendar weeks preceding the
sale. Sales pursuant to Rule 144 also are subject to certain other requirements
relating to the manner and notice of sale and availability of current public
information about the Company. Affiliates may publicly sell shares not
constituting restricted securities under Rule 144 in accordance with the
foregoing volume limitations and other restrictions, but without regard to the
one-year holding period. Under Rule 144(k), a person who is not deemed to have
been an affiliate of the Company at any time during the 90 days immediately
preceding a sale by such person, and who has beneficially owned restricted
shares for at least two years, is entitled to sell such shares under Rule 144
without regard to the volume limitations and other conditions described above.
An additional 259,334 shares of Common Stock are issuable upon exercise of
outstanding warrants and options, all of which will be eligible, under Rule 144,
for sale into the public securities markets one year after the warrant or option
is exercised, or sooner if registered by the Company.
The Company makes no prediction as to the effect, if any, that future sales
of shares or the availability of shares for future sale will have on the
prevailing market price of the Common Stock. Sales of substantial amounts of the
Common Stock in the public market or the perception that such sales could occur
could have an adverse effect on the prevailing market price of the Common Stock.
PLAN OF DISTRIBUTION
The Shares will be offered by the Company through its officers and directors
on a best efforts basis up to a maximum of 400,000 Shares. The Company may also
enter into an agency agreement (the "Agency Agreement") with one or more
registered broker-dealers ("Selling Agents"), pursuant to which these Selling
Agents will assist the Company, on a best efforts basis, in selling the Shares.
The Agency Agreement will provide that the obligations of the Selling Agents are
subject to approval of certain legal matters by counsel and to various other
conditions. The Selling Agents will not make any commitment to, nor will they
have any obligation to purchase or pay for any of the Shares, but will act
solely as selling agents on behalf of the Company. Each Selling Agent, if any,
will be a broker-dealer registered with the National Association of Securities
Dealers, Inc. ("NASD") and also will be duly registered in each state, where
required, unless an applicable exemption from registration applies.
There are currently no plans, proposals, arrangements or understandings with
any potential Selling Agent with respect to participating in the distribution of
the Shares. In the event that the Company, in the future, enters into an
arrangement with any Selling Agents with respect to the distribution of the
Shares, this Prospectus will be amended to identify such Selling Agents.
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<PAGE>
The Company and the Selling Agents, if any, will use their best efforts to
find purchasers for the Shares within a period of 30 days from the date of this
Prospectus, subject to extension for an additional period of 30 days thereafter
(the "Expiration Date") at the Company's sole discretion. All proceeds from the
sale of the Shares will be deposited promptly into a non-interest bearing escrow
account at University Bank, Ann Arbor, Michigan (the "Bank") pursuant to an
escrow agreement between the Company and the Bank. The Company is not required
to sell any minimum number of Shares to consummate this Offering and may
therefore hold any number of closings of this Offering from the date the first
subscription is received until the Expiration Date. The minimum subscription is
200 Shares ($1,000), but the Company, in its discretion, may accept
subscriptions for less than $1,000. All subscriptions are irrevocable upon
receipt by the Company. None of the Company's officers, directors or
stockholders owning five percent or more of the Company's securities will
participate in this Offering.
Each Selling Agent participating in this Offering, if any, will be paid a
commission of not greater than 10% of the gross proceeds received by the Company
from the sale of Shares by the Company through that Selling Agent. Neither the
Company nor any of its directors or officers will receive any commissions in
connection with their offer and sale of the Shares. Shares sold by the Company
directly, or with the assistance of a Selling Agent, will be offered to the
public at the offering price set forth on the cover page of this Prospectus and
to certain dealers at that price less a concession not in excess of $.50 per
share.
The Company will indemnify the Selling Agents, if any, against certain
liabilities, including liabilities under the Securities Act. The Company also
has agreed to pay all expenses in connection with qualifying the Shares for sale
under the laws of such states, as may be required, and the costs and
disbursements with respect to the registration of this Offering with the NASD,
if required. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to any Selling Agent, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Purchases of Shares will be accepted only upon an investor's delivery to the
Bank of a properly executed and completed Stock Subscription Agreement prior to
the Expiration Date together with full payment of the purchase price for all
Shares for which subscription is being made. Stock Subscription Agreements (i)
incomplete or defective or (ii) not accompanied by full payment for the Shares
subscribed for, will be returned by the Company for correction and resubmission,
unless the Company, in its sole discretion, agrees to accept such subscriptions
as submitted. Stock Subscription Agreements received after the Expiration Date
will be returned. The Company reserves the right, in its sole discretion, to
reject any subscription, in whole or in part, for any reason, in which case the
portion of the subscriber's funds not accepted will be returned, without
interest and without deduction. The purchase price shall be payable either (i)
by check made payable to "University Bank, as escrow agent for PTN Media, Inc"
or (ii) wire transfer pursuant to wire instructions to be provided by the
Company.
Certificates representing Common Stock issued in this Offering will be
mailed to the persons entitled thereto at the addresses provided in the Stock
Subscription Agreements, as soon as practicable following each closing of this
Offering, with respect to the Shares sold at each such closing. Until
certificates for the Common Stock are available and delivered to subscribers,
subscribers may not be able to sell the Shares they purchased.
The Company expressly reserves the right to amend the terms and conditions
of this Offering, whether the terms and conditions are more or less favorable to
potential subscribers. In the event of a material change to the terms of this
Offering, the Company will file a pre-effective or post-effective amendment to
its Registration Statement, of which this Prospectus
46
<PAGE>
is a part, and recirculate the amended Prospectus, to the extent required by the
Commission. The Company expressly reserves the right, at any time, prior to an
initial closing of this Offering, to terminate this Offering, if prohibited by
law or regulation, or the Board of Directors concludes, in its judgment, that it
is not in the best interests of the Company to continue the Offering. Upon any
such termination, all funds received will be returned to subscribers, without
interest and without deduction.
Prior to this Offering there has been no public market for any of the
Company's securities. Accordingly, the offering price of the Shares has been
arbitrarily determined by the Company and does not bear any direct relationship
to the value of the physical assets of the Company, the book value of the
Company, or any other generally accepted criteria of valuation. The price and
other terms were based on a number of factors including, without limitation, the
estimates of the business potential and earnings prospects of the Company and
the consideration of such potential earnings in relation to market valuations of
comparable companies. The offering price is not necessarily an indication of the
actual value of such securities at the time of this Offering.
LEGAL MATTERS
The legality of the Common Stock offered hereby has been passed upon for the
Company by The Law Offices of David N. Feldman ("LODNF"). David Feldman, sole
proprietor of LODNF, and one other attorney of LODNF beneficially own an
aggregate of 13,500 shares of Common Stock. These shares were issued to LODNF in
consideration for legal services provided by LODNF in connection with
securities, mergers and acquisitions, and general corporate matters.
EXPERTS
The financial statements of the Company as of December 31, 1997 and for the
period from inception, May 27, 1997 through December 31, 1997 included in this
Prospectus have been audited by Lazar Levine & Felix LLP, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
At the date of this Prospectus (the "Effective Date"), the Company will
become subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and, in accordance therewith, will be
required to file reports, proxy information statements and other information
with the Securities and Exchange Commission (the "Commission"). Accordingly,
such reports, proxy statements and other information can be inspected and copied
at the Commission's principal office, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549; the Northeast Regional Office of the
Commission at 7 World Trade Center, Suite 1300, New York, New York 10048; and
the Midwest Regional Office of the Commission, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, where copies may be obtained upon
payment of the fees prescribed by the Commission. Such documents may also be
obtained through the web site maintained by the Commission at
http://www.sec.gov.
47
<PAGE>
The Company has filed with the Commission a Registration Statement on Form
SB-2, including all schedules and exhibits thereto, under the Securities Act
with respect to the Common Stock offered by this Prospectus. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and this
Offering, reference is made to such Registration Statement, including the
exhibits filed therewith, which may be inspected without charge at the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the Registration Statement may be obtained from the Commission at its
principal office upon payment of prescribed fees. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete and, where the contract or other document has been filed as
an exhibit to the Registration Statement, each such statement is qualified in
all respects by reference to the contract or other document so filed with the
Commission.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Independent Auditors' Report F - 2
Financial Statements:
Balance Sheet as of December 31, 1997 and June 30, 1998 (Unaudited) F - 3
Statements of Operations for the Period from May 27, 1997 (Inception) to
December 31, 1997 and the Six Months Ended June 30, 1998 (Unaudited)
and the Cumulative Period During the Development Stage from May 27, 1997
(Inception) to June 30, 1998 (Unaudited) F - 4
Statement of Changes in Shareholders' Deficit for the Period from May
27, 1997 (Inception) to December 31, 1997 and the Six Months Ended June
30, 1998 (Unaudited) F - 5
Statements of Cash Flows for the Period from May 27, 1997 (Inception)
to December 31, 1997 and the Six Months Ended June 30, 1998 (Unaudited)
and the Cumulative Period During the Development Stage from May 27,
1997 (Inception) to June 30, 1998 F - 6
Notes to Financial Statements F - 7
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
PTN Media, Inc.
We have audited the accompanying balance sheet of PTN Media, Inc. (a development
stage company) as of December 31, 1997, and the related statements of
operations, shareholders' equity (deficit), and cash flows for the period from
May 27, 1997 (inception) to December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PTN Media, Inc. as of December
31, 1997, and the results of its operations and its cash flows for the period
from May 27, 1997 (inception), to December 31, 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company is
in the development stage, has incurred net losses since its inception and has
experienced severe liquidity problems. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
LAZAR LEVINE & FELIX LLP
New York, New York
March 26, 1998
F - 2
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 20,134 $ 39,296
Due from shareholders (Note 7) 2,957 -
---------- ----------
TOTAL CURRENT ASSETS 23,091 39,296
---------- ----------
FIXED ASSETS - NET (Notes 2b and 3) 1,984 3,453
---------- ----------
OTHER ASSETS:
Deferred offering costs (Note 11) - 18,243
Security deposits - 690
---------- ----------
- 18,933
---------- ----------
$ 25,075 $ 61,682
========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accrued expenses (Note 4) $ 61,135 $ 119,771
License fees payable (Notes 2g and 4) 100,000 200,000
Short-term loans payable (Note 5) 121,250 56,250
Loans payable - officer (Note 6) - 270,000
---------- ----------
TOTAL CURRENT LIABILITIES 282,385 646,021
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 8, 10 and 11)
SHAREHOLDERS' EQUITY (DEFICIT) (Notes 7 and 8):
Preferred stock, par value $.01; 1,000,000 shares authorized
none issued or outstanding - -
Common stock, par value $.001; 10,000,000 shares authorized,
2,967,348 and 3,041,680 shares issued and outstanding for
1997 and 1998, respectively 2,967 3,042
Additional paid-in capital 990 226,415
Deficit accumulated during the development stage (261,267) (813,796)
---------- ----------
(257,310) (584,339)
---------- ----------
$ 25,075 $ 61,682
========== ==========
</TABLE>
See accompanying notes.
F - 3
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
During the
For the Period Development
May 27, 1997 For the Six Stage
(Inception) Months Ended (May 27, 1997
December 31, 1997 June 30, 1998 To June 30, 1998)
----------------- ------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES (Note 2c) $ - $ - $ -
--------- --------- ---------
EXPENSES:
Cost of revenue (Note 2g) 150,000 200,000 350,000
Product development 29,630 204,715 234,345
General and administrative 79,387 135,261 214,648
--------- --------- ---------
259,017 539,976 798,993
--------- --------- ---------
LOSS FROM OPERATIONS (259,017) (539,976) (798,993)
--------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (2,250) (12,730) (14,980)
Interest income - 177 177
--------- --------- ---------
(2,250) (12,553) (14,803)
--------- --------- ---------
NET LOSS (Note 9) $(261,267) $(552,529) $(813,796)
========= ========= =========
BASIC LOSS PER COMMON SHARE (Note 2e) $(.09) $(.18) $(.27)
===== ===== =====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 2e) 3,041,680 3,041,680 3,041,680
========= ========= =========
</TABLE>
See accompanying notes.
F - 4
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Total
---------------------- Paid-in Development Shareholders'
Shares Amount Capital Stage Deficit
--------- ------ -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Shares issued at inception for promissory notes
(Note 7) 2,957,348 $2,957 $ - $ - $ 2,957
Shares issued in payment of legal fees (Note 7) 10,000 10 990 - 1,000
Net loss for the period from inception May 27,
1997 to December 31, 1997 - - - (261,267) (261,267)
--------- ------ -------- --------- ---------
Balance at December 31, 1997 2,967,348 2,967 990 (261,267) (257,310)
Compensatory shares (Note 7) 16,666 17 49,983 - 50,000
Conversion of notes payable (Notes 5 and 7) 54,166 54 162,446 - 162,500
Shares issued in payment of legal fees (Note 7) 3,500 4 12,996 - 13,000
Net loss for the six months ended June 30, 1998 - - - (552,529) (552,529)
--------- ------ -------- --------- ---------
BALANCE AT JUNE 30, 1998 (Unaudited) 3,041,680 $3,042 $226,415 $(813,796) $(584,339)
========= ====== ======== ========= =========
</TABLE>
See accompanying notes.
F - 5
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
During the
For the Period Development
May 27, 1997 For the Six Stage
(Inception) Months Ended (May 27, 1997
December 31, 1997 June 30, 1998 To June 30, 1998)
----------------- ------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(261,267) $(552,529) $(813,796)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation of fixed assets 210 490 700
Shares issued for legal fees 1,000 13,000 14,000
Changes in operating assets and liabilities:
Increase in accrued expenses 61,135 108,636 169,771
Increase in license fees payable 100,000 100,000 200,000
--------- --------- ---------
NET CASH (USED) IN OPERATING ACTIVITIES (98,922) (330,403) (429,325)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (2,194) (1,959) (4,153)
Security deposits paid - (690) (690)
--------- --------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (2,194) (2,649) (4,843)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans received from officer - 270,000 270,000
Proceeds from short-term loans 121,250 97,500 218,750
Payment from shareholders - 2,957 2,957
Expenses of initial public offering - (18,243) (18,243)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 121,250 352,214 473,464
--------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 20,134 19,162 39,296
Cash and cash equivalents, at beginning of period - 20,134 -
--------- --------- ---------
CASH AND CASH EQUIVALENTS, AT END OF
PERIOD $ 20,134 $ 39,296 $ 39,296
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
(a) Interest paid $ - $ - $ -
Taxes paid - - -
(b) In May 1997, the Company issued (i) 2,957,348 shares of common stock in
exchange for notes receivable of $2,957 and (ii) 10,000 shares of common
stock in lieu of payment for legal fees aggregating $1,000.
(c) During 1998 holders of notes aggregating $162,500 converted such notes
into 54,166 shares of common stock at a value of $3.00 per share.
(d) During 1998, the Company issued (i) 16,666 shares of common stock in lieu
of payment of $50,000 of compensation accrued as of December 31, 1997 and
(ii) 3,500 shares of common stock in payment of legal fees aggregating
$13,000.
</TABLE>
See accompanying notes.
F - 6
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
NOTE 1 - DESCRIPTION OF COMPANY AND GOING CONCERN UNCERTAINTY:
PTN Media, Inc., the Company, was incorporated in Delaware on
January 13, 1998 and is the successor to Interactive
Entertainment Studio, Inc. (IES). IES was incorporated in the
State of Nevada on May 27, 1997 and was merged into the Company
in March 1998, for the sole purpose of changing the domicile of
the Company to Delaware. This merger has been retroactively
reflected in the December 31, 1997 financial statements. The
Company has been in the development stage in accordance with
Statement of Financial Accounting Standards No. 7, since its
inception.
The Company is an interactive content provider focusing on
providing leading branded content for well-defined target
audiences using a combination of new and traditional media. The
Company provides this content on its interactive web sites in
the form of articles and photographs pertaining to fashion,
beauty, style and entertainment. These web sites, utilizing
celebrity models as hosts, will provide an avenue for users to
share general tips and advice relating to the subjects covered.
The Company, since its inception, has incurred net losses of
$813,796 and at June 30, 1998 current liabilities exceeded
current assets by $606,725. The Company has relied on certain
bridge financing (see Note 5) to fund its activities. The
Company is currently attempting to sell common stock through an
initial public offering (see Note 11) to provide working
capital for its continuing development stage activities and
eventual commencement of its operations. Unless the Company
successfully completes its proposed public offering or arranges
additional financing, the Company may be unable to continue in
existence. The financial statements do not include any
adjustments relating to the recoverability of assets that might
be necessary in the event the Company cannot continue in
existence.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounting principles. Outlined below are
those policies which are considered particularly significant.
(A) USE OF ESTIMATES:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results
could differ from those estimates, management does not expect
such variances, if any, to have a material effect on the
financial statements.
F - 7
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(B) FIXED ASSETS:
Fixed assets are recorded at cost. Depreciation of fixed assets
is provided on a straight-line basis as follows:
Computer equipment 3 years
Furniture and fixtures 5 years
Maintenance and repairs are expensed as incurred. Depreciation
expense for the periods ended December 31, 1997 and June 30,
1998 aggregated $210 and $490, respectively.
(C) REVENUE RECOGNITION:
The Company anticipates generating revenues from the sale of
advertising banners on its web sites which appear on a user's
computer screen when accessing different areas of the Company's
web sites. Advertising revenue will be recognized in the period
the advertisement is displayed, provided that no significant
Company obligations remain. Company obligations typically
include guarantees of a minimum number of "impressions" or
times that an advertisement is viewed by users of the Company's
web sites.
(D) INCOME TAXES:
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, and to
net operating loss and tax credit carry forwards, measured by
enacted tax rates for years in which taxes are expected to be
paid or recovered.
Deferred taxes are provided for temporary differences between
financial and tax accounting, principally for differences in
the basis of fixed assets and other nondeductible expenses, as
well as for net operating loss carry forwards.
(E) EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share has been computed on the basis of the
weighted average number of common shares outstanding during
each period presented according to the standards of SFAS No.
128 "Earnings Per Share" ("SFAS 128"). In accordance with the
rules of the Securities and Exchange Commission for initial
public offerings, all shares issued within one year of filing
are being treated as outstanding for all periods presented.
F - 8
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(F) STATEMENTS OF CASH FLOWS:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash
equivalents.
(G) ROYALTIES/LICENSE FEES:
Royalties/license fees paid under the terms of license
agreements entered into are charged to expense in accordance
with the terms of the agreements. Any guaranteed minimum
payments will be amortized over the period of the license
agreement.
During its development stage, the Company has expensed the
guaranteed minimum royalties upon execution of the license
agreements since there is no assurance that the Company will be
able to derive any revenues during the initial term of the
agreement.
NOTE 3 - FIXED ASSETS:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Computer equipment $2,194 $3,003
Furniture and fixtures - 1,150
------ ------
2,194 4,153
Less: accumulated depreciation 210 700
------ ------
$1,984 $3,453
====== ======
</TABLE>
NOTE 4 - LICENSE FEES PAYABLE:
On June 1, 1997, the Company entered into a License Agreement
(the "Agreement") with Niki, Inc. ("Niki"). This agreement
provides for, among other things, the right to use Ms. Niki
Taylor's name and likeness in connection with the Company's
"Fashion House with Niki Taylor" web site. In consideration for
such rights, the Company will pay royalties of 15% of any gross
revenues received in connection with this web site (except for
sponsors introduced by Niki whereby the royalties will be
calculated at 50%) and 35% of net revenues from product sales.
This agreement expires on the earlier of the first anniversary
of the launch of this web site or September 30, 1998, and may
be automatically extended for two separate 12-month periods.
This agreement can be terminated by either party at the end of
the then current term.
F - 9
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
NOTE 4 - LICENSE FEES PAYABLE (Continued):
The Company has guaranteed the payment of minimum royalties in
the amount of $150,000. $50,000 of this amount was paid at the
time of execution of this agreement and the balance is payable
upon the earlier of (i) final approval of or (ii) the use of
the "Niki Taylor Home Page".
In January 1998, the Company entered into a License Agreement
(the "Agreement") with an entity controlled by model Tyra Banks
pursuant to which Ms. Banks will host the Company's next web
site under terms similar to that negotiated with Ms. Taylor.
This agreement expires on the earlier of the first anniversary
of the launch of this web site or March 31, 1999, and may be
automatically extended for up to two additional 12-month
periods, unless terminated by either party prior to such
extension. The Company has guaranteed the payment of minimum
royalties in the amount of $100,000. $50,000 of this amount was
payable at the time of execution of this agreement and the
balance is payable upon the consummation of the Company's
proposed IPO.
Also in January 1998, the Company entered into a separate
agreement with this entity for the rights to utilize the name
and likeness of Ms. Banks in connection with the "Tyra Banks
Calendar." These rights are applicable for the calendar for the
16-month period ending December 31, 1999. The Company has
agreed to pay this entity up to $87,000 for production expenses
incurred in connection with the creation of this calendar and
has guaranteed minimum royalties in the amount of $100,000.
A summary of the guaranteed minimum payments as of June 30,
1998, is as follows:
<TABLE>
<CAPTION>
Guaranteed Less Balance
Minimum Amounts Owed as of
Royalties Paid June 30, 1998
---------- -------- -------------
<S> <C> <C> <C>
Niki Taylor Web Site $150,000 $(50,000) $100,000
Tyra Banks Web Site 100,000 (50,000) 50,000
Tyra Banks Calendar 100,000 (50,000) 50,000
-------- -------- --------
$350,000 $150,000 $200,000
======== ======== ========
</TABLE>
As of June 30, 1998, the Company has paid $34,000 toward the
production expenses of the Tyra Banks calendar. The remaining
unpaid balance of $53,000 is included in accrued expenses.
NOTE 5 - SHORT-TERM LOANS PAYABLE:
In July and August 1997, the Company received $56,250 through
the issuance of 8% promissory notes and common stock purchase
warrants to acquire Company stock. The 45,000 warrants issued,
which expire in July 2001, entitle the holders to purchase
45,000 shares of common stock at an exercise price of $3.00 per
share, the deemed fair value of the warrants at the time of
issuance. The notes and accrued interest are payable one year
from the date of issuance or the closing of an equity funding
of the Company of a minimum of $500,000, whichever is sooner.
These notes continue to be outstanding notwithstanding the fact
that payments owed by the Company thereunder are now past due.
F - 10
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
NOTE 5 - SHORT-TERM LOANS PAYABLE (Continued):
In December 1997, the Company issued unsecured 8% promissory
notes aggregating $65,000 originally due six months from date
of issuance. In 1998, the Company issued additional 8%
unsecured promissory notes aggregating $97,500. In March 1998,
these note holders agreed to convert these notes
(aggregating $162,500) into 162,500 shares of the Company's
common stock. In August 1998, the Company determined that the
fair value of its shares in March 1998 was $3.00. Accordingly,
the Company requested, and these stockholders agreed to, the
return of 108,334 shares of common stock in exchange for
warrants to purchase an aggregate of 108,334 shares of common
stock at a price of $4.00 per share, the deemed fair value in
August 1998. This entire transaction, the conversion of
$162,500 of notes payable into 54,166 shares of common stock
and warrants to purchase 108,334 shares of common stock at
$4.00 per share, has been retroactively reflected as of June
30, 1998.
NOTE 6 - LOANS PAYABLE - OFFICER:
In April 1998, the Company entered into a 9% unsecured credit
agreement with its President and Chief Executive Officer which
provides for up to $500,000 of borrowings. This credit
agreement terminates upon the closing of one or a series of
equity offerings for gross proceeds of $1,500,000. The
outstanding principal and accrued interest is repayable on the
earlier of (i) the date the Company has raised an aggregate of
not less than $1,500,000 in one or more public offerings of its
securities or (ii) May 2001. As of June 30, 1998, borrowings
under this credit agreement aggregated $270,000. In July and
August 1998, the Company borrowed an additional $135,000 under
this credit agreement.
NOTE 7 - SHAREHOLDERS' EQUITY:
The Company's authorized share capital consists of 1,000,000
shares of preferred stock, $.01 par value and 10,000,000 shares
of common stock, $.001 par value. None of the preferred shares
have been issued as of the date of this report.
In June 1997, the Company issued 2,957,348 shares of common
stock in exchange for one year promissory notes aggregating
$2,957, bearing interest at an annual rate of 6%. These notes
(and accrued interest) were repaid in June 1998.
In addition, in June 1997, the Company also issued 10,000
shares of common stock in exchange for legal services rendered
aggregating $1,000.
In March 1998, the Company issued (i) 54,166 shares of common
stock in connection with the conversion of $162,500 of notes
payable into common stock (see Note 5) (ii) issued 16,666
shares of common stock in lieu of payment of $50,000 of
compensation accrued to an officer as of December 31, 1997 and
(iii) 1,000 shares of common stock in lieu of payment of legal
fees aggregating $3,000. These shares were deemed to have a
fair value of $3.00 per share at the time of issuance. In July
1998, the Company issued 2,500 shares of common stock in lieu
of payment of legal fees of $10,000. This transaction has been
retroactively recorded as of June 30, 1998.
F - 11
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
NOTE 8 - STOCK OPTIONS:
In March 1998, the Company adopted the 1998 Stock Option Plan
(the Plan), which provides for the grant of options to purchase
up to 500,000 shares of the Company's common stock. Under this
Plan incentive stock options may be granted to employees and
non-statutory stock options may be granted to employees and
non-employees.
In March 1998, the Company granted options to purchase 106,000
shares of common stock under this Plan. These options are
exercisable at $3.00 per share and expire ten years from the
date of grant. Options to purchase 3,000 shares of common stock
are currently exercisable and the remaining options vest
equally over three years.
NOTE 9 - INCOME TAXES:
No provision for Federal and state income taxes has been
recorded since the Company has incurred losses for the period
from inception through June 30, 1998. Deferred tax assets at
December 31, 1997 consist primarily of the tax effect of a net
operating loss carry forward which amounts to approximately
$85,000 ($275,000 as of June 30, 1998). The Company has
provided a full, 100% valuation allowance on the deferred tax
assets at December 31, 1997 and June 30, 1998 to reduce such
asset to zero, as it is management's belief that realization of
such amounts do not meet the criteria required by generally
accepted accounting principles. Management will review this
valuation allowance requirement periodically and make
adjustments as warranted.
NOTE 10 - COMMITMENTS:
(A) OPERATING LEASES:
During 1997, the Company utilized office space provided by its
majority shareholder pursuant to a month-to-month lease at a
monthly rental of $400. In 1998, the Company began renting new
space under a month-to-month lease at a monthly rental of $690.
(B) CONSULTING AGREEMENTS:
In March 1998, the Company entered into a consulting agreement
with its editorial director which expires on June 30, 1999 and
is subject to automatic annual renewals. The Company has (i)
agreed to pay this individual a monthly fee of $4,166 and (ii)
granted options to purchase up to 50,000 shares of the
Company's common stock at an exercise price of $3.00 per share
(see Note 6).
The Company has agreed to pay a monthly fee of $3,500 to a
public relations firm to assist in the launch of its web sites.
This agreement is for an eight-month period effective May 1,
1998. This firm will be responsible for arranging creative and
on-target promotions in both the traditional and electronic
media.
F - 12
<PAGE>
PTN MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
NOTE 11 - PROPOSED INITIAL PUBLIC OFFERING:
The Company is preparing to undertake, on a "best efforts"
basis, an initial public offering ("IPO") of 400,000 shares of
its common stock at a price of $5.00 per share, which will
yield approximately $1,600,000 of net proceeds. The net
proceeds from this offering will be used for repayment of
indebtedness, marketing, sales and consulting services, payment
of license fees, design and development of additional web
sites, etc. In connection with this offering, the Company has
incurred various professional costs aggregating $18,243, as of
June 30, 1998. Such costs, which have been classified as
"deferred offering costs" in the accompanying balance sheet,
shall be charged to additional paid-in capital in the event the
offering is successful, or expensed if the offering is
unsuccessful.
F - 13
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the Common Stock offered by this
Prospectus, or an offer to sell or a solicitation of an offer to buy any
security, by any person in any jurisdiction in which such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, imply that the information
in this Prospectus is correct as of any time subsequent to the date of this
Prospectus.
-----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................... 3
Disclosure Regarding Forward-Looking Statements.......... 7
Risk Factors............................................. 8
Use of Proceeds.......................................... 18
Capitalization........................................... 20
Dilution................................................. 21
Management's Plan of Operations.......................... 22
Business................................................. 24
Management............................................... 37
Principal Stockholders................................... 41
Certain Transactions..................................... 42
Description of Securities................................ 42
Shares Eligible for Future Sale.......................... 45
Plan of Distribution..................................... 45
Legal Matters............................................ 47
Additional Information................................... 47
Index to Financial Statements............................ F-1
=========================================================================
400,000 Shares
PTN MEDIA, INC.
Common Stock
-----
PROSPECTUS
-----
_____________ , 1998
=========================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 145 of the General Corporation Law of Delaware (the
"Delaware Corporation Law"), Article 9 of the Registrant's Certificate of
Incorporation, a copy of which is filed as Exhibit 3.1 to this Registration
Statement, provides that the Registrant shall indemnify, to the fullest extent
permitted by Section 145 of the Delaware Corporation Law, as amended from time
to time, each person that such section grants the Corporation the power to
indemnify. Section 145 of the Delaware Corporation Law permits the registrant to
indemnify any person in connection with the defense or settlement of any
threatened, pending or completed legal proceeding (other than a legal proceeding
by or in the right of the Registrant) by reason of the fact that he is or was a
director or officer of the Registrant or is or was a director or officer of the
Registrant serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership or other enterprise
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with the defense or
settlement of such legal proceeding if he acted in good faith and in a manner
that he reasonably believes to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, if he had no
reasonable cause to believe that his conduct was unlawful. If the legal
proceeding, however, is by or in the right of the Registrant, the director or
officer may be indemnified by the Registrant against expense (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such legal proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Registrant and except that he may not be indemnified in respect of any claim,
issue or matter as to which he shall have been adjudged to be liable to the
Registrant unless a court determines otherwise.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article
8 of the Certificate of Incorporation of the Registrant, a copy of which is
filed as Exhibit 3.1 to this Registration Statement, provides that no director
of the Registrant shall be personally liable to the Registrant or its
stockholders for monetary damages for any breach of his fiduciary duty as a
director; provided, however, that such clause shall not apply to any liability
of a director (i) for breach of his duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions that are not in good faith or involve
intentional misconduct or a knowing violation of the law, (iii) under Section
174 of the Delaware Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. The aforesaid provision also
eliminates the liability of any stockholder for managerial acts or omissions,
pursuant to Section 350 of the Delaware Corporation Law or any other provision
of Delaware law, to the same extent that such liability is limited for a
director.
The Company intends to enter into Indemnification Agreements with its
officers and directors prior to or shortly after the completion of the Offering.
Each such Indemnification Agreement will provide that the Company will indemnify
the indemnitee against expenses, including reasonable attorney's fees,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of the performance of his duties as an
officer, director, employee or agent of the Company. Indemnification is
available if the acts of the indemnitee were in good faith, if the indemnitee
acted in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with
II-1
<PAGE>
respect to any criminal proceeding, the indemnitee had no reasonable cause to
believe his conduct was unlawful.
The Company intends to acquire directors and officers liability
insurance prior to the completion of the Offering. The amount and scope of
coverage will depend upon the Company's analysis of the cost and appropriateness
thereof.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all estimated costs and expenses in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts. All such expenses will be paid by
the Company; none will be paid by the Company's stockholders. As underwriting
compensation in connection with the issuance and distribution of the securities
being registered, the Company will pay the Underwriters' legal fees and
expenses.
SEC Registration fee.............................................. $ 590
NASD filing fee................................................... $ 700
*Blue sky fees and expenses (including legal fees)................. $ 12,000
*Printing and engraving expenses.................................. $105,000
*Legal fees and expenses........................................... $ 50,000
*Accounting fees and expenses...................................... $ 20,000
*Transfer Agent Fees .............................................. $ 6,000
*Miscellaneous..................................................... $ 5,000
*TOTAL................................................... $200,000
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
(a) In June 1997, the Company sold an aggregate of 2,957,348 shares of
Common Stock at a price of $.001 per share. These shares were issued in exchange
for promissory notes at $.001 per share. These transactions were exempt from
registration pursuant to Section 4(2) of the Securities Act since the shares
were offered and sold only to the three founders of the Company, Peter Klamka,
Chris H. Giordano and Michael Giordano, each of whom was an accredited investor.
(b) In June 1997, the Company issued to David Feldman, in consideration
for legal services provided to the Company, 10,000 shares of Common Stock. This
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act since the shares were issued in a private transaction to one
individual in consideration for services provided to the Company. Mr. Feldman
was an accredited investor.
(c) In July 1997, the Company issued promissory notes in an aggregate
principal amount of
II-2
<PAGE>
$56,250, with interest thereon at a rate of 8% per annum. In connection with the
issuance of such promissory notes, the Company also issued warrants (the " 1997
Warrants") to purchase an aggregate of 45,000 shares of Common Stock at a
purchase price of $3.00 per share. The 1997 Warrants first become exercisable on
the date that the Company offers Common Stock in an initial public offering
intended to raise gross proceeds of not less than $500,000 and expire in July
2001. The Company has the right to repurchase the 1997 Warrants for $.05 per
share of Common Stock purchasable thereby at any time after July 1998, provided
that the shares of Common Stock have been trading in the public market at $6.00
per share or more on each of the most recent 20 consecutive trading days prior
to the Company's notice to repurchase the 1997 Warrants, and provided further,
that no underwriter has placed any restrictions on such repurchase by the
Company. This transaction was exempt from registration pursuant to Section 4(2)
of the Securities Act since it was offered only to four individuals . All four
individuals were sophisticated investors. These investors made representations
to the Company that they were purchasing the securities for investment only and
not with a view to resell them, and each of these investors was provided with
access to information on the Company necessary to make an informed investment
decision, and acknowledged such right.
(d) In December 1997 and January 1998, a limited number of individuals
provided loans to the Company in an aggregate amount of $162,500. These loans
were evidenced by a series of promissory notes issued to these lenders. This
transaction was exempt pursuant to Section 4(2) of the Securities Act. In March
1998, the Company converted the entire indebtedness into a total of 162,500
shares of Common Stock. This transaction was exempt pursuant to Section 3(a)(9)
of the Securities Act since the shares were issued to existing securityholders
for the promissory notes. Each of these investors has represented to the Company
that he/she/it satisfies the requirements of an accredited investor.
(e) In connection with the review of this Offering by the Securities
and Exchange Commission, the Company has agreed to increase the valuation of its
shares of Common Stock issued in March 1998. Such accommodation made it
necessary for the Company to request the return of 108,334 shares of the Common
Stock issued to stockholders in the March 1998 conversion. All of these
stockholders have agreed to return to the Company 2/3 of the shares of Common
Stock issued to them prior to the effective date of this Registration Statement.
In exchange for these returned shares of Common Stock, the Company, in August
1998, granted to these stockholders warrants (the "1998 Warrants") to purchase
an aggregate of 108,334 shares of Common Stock. The 1998 Warrants are
exercisable for the first time, upon the effective date of the Registration
Statement, at a price of $4.00 per share, and expire in August 2003. The Company
has the right to repurchase the 1998 Warrants from the 1998 Warrant holders for
$.05 per share of Common Stock purchasable thereby at any time after the date
which is six months after the effective date of this Registration Statement,
provided that the shares of Common Stock have been trading in the public market
at $8.00 per share or more on each of the most recent 20 consecutive trading
days prior to the Company's notice to repurchase the 1998 Warrants, and provided
further, that no underwriter has placed any restrictions on such repurchase by
the Company. This transaction was exempt pursuant to Section 3(a)(9) of the
Securities Act since the 1998 Warrants were issued to existing securityholders
in exchange for shares of the Company's Common Stock previously issued to them.
Each of these securityholders has represented to the Company that he/she/it
satisfies the requirements of an accredited investor.
II-3
<PAGE>
(f) In March 1998, the Company issued to Mr. Klamka 16,666 shares of
Common Stock as and for payment for services provided by Mr. Klamka to the
Company in 1997. The market value of the shares of Common Stock on the date
issued was $3.00 per share. This transaction was exempt pursuant to Section 4(2)
of the Securities Act since the shares were offered and issued only to the
President of the Company, who was an accredited investor.
(g) In April 1998, Peter Klamka, the Company's Chairman, President and
Chief Executive Officer, provided the Company with a revolving credit line with
a maximum of $500,000 available (the "Klamka Credit Line"). Loans drawn on the
Klamka Credit Line bear interest at a rate of 9% per annum from the date they
are made to the Company and the entire outstanding amount is payable in full,
inclusive of accrued interest, on the earlier of (i) the date that the Company
has raised an aggregate of not less than $1,500,000 in one or more public
offerings of any of its securities or (ii) May 2001. To date, the Company has
drawn down a total of $405,000 under the Klamka Credit Line, with an additional
$95,000 still available. Additional amounts may be drawn down under the Klamka
Credit Line until the earlier of the two dates set forth in clauses (i) and
(ii) immediately preceding. To the extent that the revolving note issued in
connection with the Klamka credit line is deemed to be a security, this
transaction was exempt pursuant to Section 4(2) of the Securities Act since it
was offered and issued only to the President of the Company, who was an
accredited investor.
II-4
<PAGE>
Item 27. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1.1 Form of Placement Agent Agreement
2.1* Plan of Merger between PTN Media, Inc. and
Interactive Entertainment Studio, Inc., dated as of
February 25, 1998.
3.1* Certificate of Incorporation of PTN Media, Inc. dated as of January 13, 1998.
3.2* By-Laws of PTN Media, Inc.
4.1** Specimen Common Stock Certificate
4.2 * Specimen 1997 Warrant Certificate
4.3 Specimen 1998 Warrant Certificate
5.1** Opinion of the Law Offices of David Feldman
10.1* Web Site License Agreement between Niki, Inc. and Interactive Entertainment Studio,
Inc. dated as of June 1, 1997
10.2* Website License Agreement between Ty Girl, Inc. and Interactive Entertainment Studio,
Inc. dated as of January 1, 1998
10.3* License Agreement between Ty Girl, Inc. and Interactive Entertainment Studio, Inc.
dated as of January 1, 1998
10.4* Lease Agreement dated as of February 27, 1998, between First Miller Limited
Partnership and PTN Media, Inc.
10.5* Website Design Services Agreement between zoecom, Inc. and Interactive
Entertainment Studio, Inc. dated as of December 20, 1996
10.6* Letter of Intent between Cdnow, Inc. and Interactive Entertainment Studio, Inc. dated as
of September 8, 1997
10.7* Agreement for Fashion House Flowers & Gifts Service between PC Flowers and Gifts,
Inc. and Interactive Entertainment Studio, Inc. dated as of September 9, 1997
10.8* Standard Publicists Guild Agency - Client Agreement between The Angellotti Company
and PTN Media, Inc. dated as of April 15, 1998
10.9* PTN Media, Inc. 1998 Stock Option Plan
10.10 Form of Subscription Agreement for Shares in this Offering
10.11** Revolving Promissory Note issued by PTN Media, Inc. to Peter
Klamka dated April 1, 1998, in the maximum principal sum of $500,000
10.12 Form of Escrow Agreement between University Bank and PTN Media.
11.1 Computation of per share earnings
23.1 Consent of Lazar Levine & Felix LLP
23.2 Consent of the Law Offices of David Feldman (included in Exhibit 5.1)
24.1 Power of Attorney (included in Part II of the Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed.
** To be filed by amendment
II-5
<PAGE>
ITEM 28. UNDERTAKINGS
1. The Registrant hereby undertakes:
a) The Registrant will:
i. for determining any liability under the Securities Act of
1933, as amended (the "Securities Act"), treat the information
omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act as part of this registration statement as of
the time the Commission declared it effective;
ii. for determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of
the securities at that time as the initial bona fide offering
of those securities.
2. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 29. FINANCIAL STATEMENTS. NOT APPLICABLE.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Ann
Arbor, State of Michigan on August 11, 1998.
PTN MEDIA, INC.
By:
/s/ Peter Klamka
Peter Klamka
Chairman, President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ------ ----
<S> <C> <C>
/s/ Peter Klamka Chairman, President, Chief August 11, 1998
Peter Klamka Executive Officer and
Secretary (Principal
Executive Officer and
Principal Financial and
Accounting Officer)
/s/ Deborah M. Schneider* Director August 11, 1998
Deborah M. Schneider
</TABLE>
II-7
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Lila Lazarus* Director August 11, 1998
Lila Lazarus
*By Peter Klamka, as
attorney-in-fact pursuant to
power of attorney granted
May 1,1998
</TABLE>
II-8
<PAGE>
Item 27. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1.1 Form of Placement Agent Agreement
2.1* Plan of Merger between PTN Media, Inc. and
Interactive Entertainment Studio, Inc., dated as of
February 25, 1998.
3.1* Certificate of Incorporation of PTN Media, Inc. dated as of January 13, 1998.
3.2* By-Laws of PTN Media, Inc.
4.1** Specimen Common Stock Certificate
4.2 * Specimen 1997 Warrant Certificate
4.3 Specimen 1998 Warrant Certificate
5.1** Opinion of the Law Offices of David Feldman
10.1* Web Site License Agreement between Niki, Inc. and Interactive Entertainment Studio,
Inc. dated as of June 1, 1997
10.2* Website License Agreement between Ty Girl, Inc. and Interactive Entertainment Studio,
Inc. dated as of January 1, 1998
10.3* License Agreement between Ty Girl, Inc. and Interactive Entertainment Studio, Inc.
dated as of January 1, 1998
10.4* Lease Agreement dated as of February 27, 1998, between First Miller Limited
Partnership and PTN Media, Inc.
10.5* Website Design Services Agreement between zoecom, Inc. and Interactive
Entertainment Studio, Inc. dated as of December 20, 1996
10.6* Letter of Intent between Cdnow, Inc. and Interactive Entertainment Studio, Inc. dated as
of September 8, 1997
10.7* Agreement for Fashion House Flowers & Gifts Service between PC Flowers and Gifts,
Inc. and Interactive Entertainment Studio, Inc. dated as of September 9, 1997
10.8* Standard Publicists Guild Agency - Client Agreement between The Angellotti Company
and PTN Media, Inc. dated as of April 15, 1998
10.9* PTN Media, Inc. 1998 Stock Option Plan
10.10 Form of Subscription Agreement for Shares in this Offering
10.11 Revolving Promissory Note issued by PTN Media, Inc. to Peter Klamka dated April 1, 1998, in
the maximum principal sum of $500,000
10.12 Form of Escrow Agreement between University Bank and PTN Media.
11.1 Computation of per share earnings
23.1 Consent of Lazar Levine & Felix LLP
23.2 Consent of the Law Offices of David Feldman (included in Exhibit 5.1)
24.1 Power of Attorney (included in Part II of the Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed.
** To be filed by amendment
II-9
PTN MEDIA, INC.
-----------
PLACEMENT AGENT AGREEMENT
Dated: August , 1998
Placement Agent
Street
Suite
Ann Arbor, MI 48104
Gentlemen:
The undersigned, PTN Media, Inc. ("PTN" or the "Company"), proposes to
issue and sell to the public up to 400,000 shares ("Shares") of its Common
Stock, par value $.001 per share ("Common Stock").
This is to confirm the arrangements with you (the "Placement Agent"),
with respect to the sale of the Notes by the Placement Agent as non-exclusive
agent for PTN.
SECTION 1. Description of Shares. The Shares shall conform in all
material respects to the description thereof contained in the Registration
Statement of the Company with respect to the offering of the Shares, as filed
with the Securities and Exchange Commission (the "Registration Statement").
SECTION 2. Representations, Warranties and Covenants of PTN. PTN hereby
represents and warrants to and covenants and agrees with the Placement Agent as
follows:
(a) The Shares will conform to all statements with regard thereto
contained in the Registration Statement; the Shares at Closing shall have been
duly and validly authorized by proper corporate authority; and the Shares when
issued will be duly authorized, validly issued, fully paid and non-assessable.
(b) The execution and delivery by PTN of this Placement Agent Agreement
has been duly authorized by all necessary corporate action and this Placement
Agent Agreement is a valid, binding and legally enforceable obligation of PTN in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights now or hereafter in effect and to
general equitable principles and except that enforceability of the Placement
Agent's rights to indemnification or contribution as set forth herein may be
limited by applicable laws.
(c) The execution and delivery by PTN of this Placement Agent
Agreement, the consummation and performance of the transactions herein
contemplated, and compliance with the terms of this Placement Agent Agreement by
PTN will not conflict with, result in a breach of or constitute a material
default under any indenture, mortgage, deed of trust or other agreement or
instrument to which PTN is now a party or by which it or any of its assets or
properties is bound or the Certificate of Incorporation, as amended, or the
bylaws of PTN, in each case as amended, or any law, order, rule or regulation,
writ, injunction, judgment or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over PTN, or
any of its respective business or properties, to the extent that such conflict,
breach or default might have a material adverse effect on PTN, its business,
properties or condition (financial or otherwise) on a consolidated basis.
(d) All of the aforesaid representations, agreements and warranties
shall survive delivery of and payment for all or any part of the Shares.
<PAGE>
SECTION 3. Issuance, Sale and Delivery of the Shares.
(a) PTN hereby appoints the Placement Agent as its non-exclusive agent,
until October 31, 1998 (which period may be extended for up to an additional 30
days upon the mutual consent of PTN and the Placement Agent), to sell the
Shares, and the Placement Agent, on the basis of the representations and
warranties herein contained but subject to the terms and conditions herein set
forth, accepts such appointment and agrees to use its best efforts to find
purchasers for the Shares. The price at which the Placement Agent shall sell the
Shares as agent for the Company, shall be at $5.00 per Share, in increments of
200 Shares, provided, that the Placement Agent and PTN may agree to accept
partial investment units.
(b) All checks for the purchase of Shares shall be made payable to
University Bank, and shall be accompanied by a duly executed signature page to
the Subscription Agreement in the form included as an exhibit to the
Registration Statement. Each such check and Subscription Agreement signature
page, when received by the Placement Agent, shall be immediately delivered to
such escrow agent, and in no event later than 12:00 noon of the business day
following receipt by the Placement Agent. Upon receipt thereof or on such
scheduled closing date as PTN may determine, PTN shall issue individual stock
certificates representing the Shares purchased and shall deliver the same to
each purchaser of Shares in exchange for a release of such purchaser's funds
from the escrow agent.
(c) As its entire compensation, the Placement Agent shall be entitled
to receive a Placement Agent's commission in an amount equal to ten percent
(10.0%) of the gross proceeds of the offering, such sum to be paid upon the
scheduled closing.
(d) The parties hereto represent that at the Issuance Date, the
representations and warranties herein contained, and the statements contained in
all certificates theretofore or simultaneously delivered by any party to another
pursuant to this Placement Agent Agreement, shall in all respects be true and
correct.
SECTION 4. Covenants of PTN. PTN covenants and agrees with the
Placement Agent that:
(a) PTN, at its own expense, will give and continue to give such
financial statements and other information to and as may be required by the
proper public bodies of the jurisdictions in which the Shares may be qualified.
(b) PTN will pay all fees, taxes (excluding any taxes on the income or
revenue of the holders of the Shares) and expenses incident to the original
issuance of the Shares and the fees and expenses of counsel and accountants for
PTN. PTN also shall pay promptly will pay all expenses relative to the
qualification of the Shares under the Blue Sky Laws of the jurisdictions in
which the Shares are offered. In addition, PTN agrees to pay all expenses
relating to preparing and printing the Registration Statement and related
documents.
SECTION 5. Indemnification. (a) PTN hereby agrees to indemnify and hold
harmless the Placement Agent and each person who controls the Placement Agent
within the meaning of Section 15 of the 1933 Act (collectively, the "Agent
Indemnified Parties") against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under such Act or any other statute or at common law and to reimburse such Agent
Indemnified Parties for any legal or other expense (including the cost of any
investigation and preparation) incurred by them in connection with any
litigation, whether or not resulting in any liability, but only insofar as such
losses, claims, liabilities and litigation arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact required to
be stated in the Registration Statement or necessary to make the statement
therein not misleading, or omission to state therein a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they are made, not misleading, or
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<PAGE>
(ii) any breach by PTN of any representation, warranty or covenant contained
herein, provided however, that the indemnity provisions contained in this
subsection (a) shall not apply to (x) amounts paid in settlement of any such
litigation if such settlement is effected without the consent of PTN or (y) the
Placement Agent or any other Agent Indemnified Parties in respect of any such
losses, claims, damages, liabilities or actions (A) arising out of, or based
upon any such untrue statement or alleged untrue statement, or any such omission
or alleged omission, if such statement or omission was made in reliance upon
information furnished in writing to PTN by the Placement Agent or such Agent
Indemnified Parties or any other placement agent engaged by PTN specifically for
use in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto or (B) arising primarily and directly
from the willful misconduct or gross negligence of Placement Agent or any other
Agent Indemnified Party or any other placement agent engaged by PTN.
The Placement Agent agrees, within twenty (20) days after the receipt
by it of written notice of the commencement of any action against it or against
any other Agent Indemnified parties, in respect of which indemnity may be sought
from PTN on account of the indemnity provisions contained in this subsection
(a), to notify PTN in writing of the commencement thereof. The omission of the
Placement Agent to so notify PTN of any such action shall relieve PTN from any
liability which it may have to the Placement Agent or any other Agent
Indemnified Parties on account of the indemnity provisions contained in this
subsection (a), but shall not relieve PTN from any other liability which it may
have to the Placement Agent or other Agent Indemnified Parties. In case any such
action shall be brought against the Placement Agent or any other Agent
Indemnified Parties and the Placement Agent shall notify PTN of the commencement
thereof, PTN shall be entitled to participate in (and, to the extent that it
shall wish, to direct) the defense thereof at its own expense, but such defense
shall be conducted by counsel reasonably satisfactory to the Placement Agent or
such other Agent Indemnified Parties. PTN agrees to notify the Placement Agent
promptly of the commencement of any litigation or proceeding against it or in
connection with the issue and sale of any of its securities and to furnish to
the Placement Agent, at its request, copies of all pleadings therein and permit
the Placement Agent to be an observer therein and apprise the Placement Agent of
all developments therein, all at PTN's expense. References to PTN in this
Section shall include any successor to PTN by merger or otherwise.
(b) The Placement Agent agrees, in the same manner and to the same
extent as set forth in subsection (a)(i) above, to indemnify and hold harmless
PTN, its directors, officers and each person, if any, who controls PTN within
the meaning of Section 15 of the Shares (collectively, the "PTN Indemnified
Parties"), with respect to any statement in or omission from the Registration
Statement (as amended or as supplemented, if amended or supplemented as
aforesaid), if such statement or omission was made in reliance upon information
furnished in writing to PTN by the Placement Agent on its behalf, specifically
for use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto. The Placement Agent shall not be
liable for amounts paid in settlement of any such litigation if such settlement
was effected without its consent. In case of commencement of any action in
respect of which indemnity may be sought from the Placement Agent on account of
the indemnity provisions contained in this subsection (b), each of the PTN
Indemnified Parties shall have the same obligation to notify the Placement Agent
as the Placement Agent has toward PTN in subsection (a) above, subject to the
same loss of indemnity in the event such notice is not given, and the Placement
Agent shall have the same right to participate in (and, to the extent that it
shall wish, to direct) the defense of such action at its own expense, but such
defense shall be conducted by counsel reasonably satisfactory to PTN. The
Placement Agent agrees to notify PTN promptly of the commencement of any
litigation or proceeding against it or against any such other PTN Indemnified
Parties, or of which it may be advised, in connection with the issue and sale of
the Shares and to furnish to PTN, at its request, copies of all pleadings
therein and permit PTN to be an observer therein and apprise it of all
developments therein, all at the Placement Agent's expense.
(c) The respective indemnity provisions between the Placement Agent and
PTN contained in subsections (a) and (b) above, and the representations and
warranties of PTN and the Placement Agent
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set forth in this Placement Agent Agreement, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of the
Placement Agent or by or on behalf of any of the Agent Indemnified Parties or
PTN Indemnified Parties and shall survive the delivery of the Shares to be sold
in the offering contemplated hereby, and any successor of PTN, the Placement
Agent or any other Agent Indemnified Parties or PTN Indemnified Parties, as the
case may be, shall be entitled to the benefit of the respective indemnity
provisions.
(d) In order to provide for just and equitable contribution under the
1933 Act in any case in which (i) any person entitled to indemnification under
this Section 5 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 5 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 5, then and in each such case, PTN and the Placement Agent shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after any contribution from others) in such proportion so that
the Placement Agent is responsible for an aggregate of seven and one-half
percent (7.5%) of the gross proceeds received by PTN on account of the sale of
Shares (being the amount of the Placement Agent's commission), and PTN is
responsible for the remaining portion; provided however, that in any such case,
no person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
Within ten (10) days after receipt by any party to this Placement Agent
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party (the "contributing party"), notify
the contributing party in writing of the commencement thereof, but the omission
so to notify the contributing party will not relieve it from any liability which
it may have to any other party other than for contribution hereunder. In case
any such action, suit or proceeding is brought against any party and such party
so notifies a contributing party or his or its representative of the
commencement thereof within the aforesaid ten (10) days, the contributing party
will be entitled to participate therein, with the notifying party and any other
contributing party similarly notified. Any such contributing party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the written consent of such contributing party. The contribution provisions
contained in this Section 5 are in addition to any other rights or remedies
which either party hereto may have with respect to the other or hereunder.
SECTION 6. Effectiveness of Agreement. This Placement Agent Agreement
shall become effective as of the date hereof.
SECTION 7. Condition of the Placement Agent's Obligations. The
Placement Agent's obligation to act as the agent of PTN hereunder and the
Placement Agent's obligation to use its best efforts to find purchasers for the
Shares shall be subject to the accuracy, as of the Issuance Date, of the
representations and warranties on the part of PTN herein contained, to the
performance by PTN of all its agreements herein contained, and to the
fulfillment of or compliance by PTN with all covenants and conditions hereof.
SECTION 8. Termination.
(a) This Placement Agent Agreement may be terminated by PTN by notice
to the Placement Agent at any time before the effective date of the Registration
Statement.
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(b) This Placement Agent Agreement may be terminated by PTN by notice
to the Placement Agent in the event that Placement Agent shall have failed or
been unable to comply in any material respect with any of the terms, conditions
or provisions of this Placement Agent Agreement on its part to be performed,
complied with or fulfilled within the respective times herein provided for,
unless compliance therewith or performance or satisfaction thereof shall have
been expressed waived by PTN in writing.
(c) Any termination of this Placement Agent Agreement pursuant to this
Section shall be without liability of any character (including, but not limited
to, loss of anticipated profits or consequential damages) on the part of any
party hereto, except that PTN on the one hand and the Placement Agent on the
other, shall be obligated to pay, respectively, all losses, claims, damages or
liabilities, joint or several, under Section 5(a) in the case of PTN and Section
5(b) in the case of the Placement Agent.
SECTION 9. No Finders. PTN and the Placement Agent mutually represent
that they know of no person who rendered any service in connection with the
introduction of PTN to the Placement Agent and who is making a claim by anyone
for a "finder's fee" or similar type of fee in connection with the offering
which is the subject of this Placement Agent Agreement. Each party hereby
indemnifies the other against any such claims by any person known to it and not
known to the other party hereto, who shall claim to have rendered services in
connection with the introduction of PTN to the Placement Agent or to have such a
claim and who shall make a claim for a fee in connection therewith.
SECTION 10. Placement Agent's Representations and Warranties. The
Placement Agent represents and warrants to and agrees with PTN that:
(a) The Placement Agent is registered as a broker-dealer with the
Securities and Exchange Commission and the State of Delaware and is a member in
good standing of the National Association of Securities Dealers, Inc.
(b) The Placement Agent will not effect sales of the Shares in any
jurisdiction, unless it or its representative is duly licensed to effect sales
in such jurisdiction and the offer and sale of the Shares are registered or
exempt from registration in such jurisdiction, nor shall it make any statements
or representations inconsistent with the Registration Statement.
(c) There are no NASD disciplinary matters or investigations pending
against Placement Agent or any of its principals, directors, officers, members,
managers, partners or control persons.
SECTION 11. Notice. Except as otherwise expressly provided in this
Placement Agent Agreement, (a) whenever notice is required by the provisions of
this Placement Agent Agreement to be given to PTN, such notice shall be given in
writing, addressed to PTN at the address set forth in the Registration
Statement, with a copy to Law Offices of David N. Feldman, 36 West 44th Street,
Suite 1201, New York, NY 10036, attention: David N. Feldman, Esq., and (b)
whenever notice is required by the provisions of this Placement Agent Agreement
to be given to the Placement Agent, such notice shall be in writing addressed to
the Placement Agent at the address set forth above.
SECTION 12. Miscellaneous. This Placement Agent Agreement is made
solely for the benefit of the Placement Agent, PTN and any controlling person
referred to in Section 15 of the 1933 Act, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Placement Agent Agreement. The term "successor" or the term "successors
and assigns" as used in this Placement Agent Agreement shall not include any
purchaser, as such, of any of the Shares.
The validity, interpretation and construction of this Placement Agent
Agreement and of each part hereof will be governed by the local laws of the
State of Delaware.
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<PAGE>
The headings in this Placement Agent Agreement are for reference only
and shall not limit or otherwise affect any of the terms or provisions hereof.
This Placement Agent Agreement represents the entire agreement between
the parties hereto and supersedes any and all prior writings or oral
communications, all of which are merged into this Placement Agent Agreement.
The provisions of this Placement Agent Agreement shall be deemed
severable, so that if any provision hereof shall be declared unlawful or
unenforceable, the remaining provisions hereof shall not be affected thereby and
shall remain in full force and effect.
This Placement Agent Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which together will constitute one
and the same instrument.
Please confirm that the foregoing correctly sets forth the Placement
Agent Agreement between the Placement Agent and PTN Media, Inc.
Dated: August , 1998
PTN MEDIA, INC.
By: ________________________________
Peter Klamka, President
We hereby confirm as of the date hereof that the above letter sets
forth the agreement between PTN MEDIA, INC. and the undersigned.
Dated: August , 1998
[PLACEMENT AGENT]
By: ________________________________
Name:
Title:
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
August 7, 1998
REDEEMABLE WARRANT TO PURCHASE SHARES OF COMMON
STOCK OF INTERACTIVE ENTERTAINMENT STUDIO, INC.
This certifies that ______________________ (the "Initial Holder" or the
"Holder") or any subsequent holder of this Warrant (the "Holder"), for value
received, is entitled, subject to the adjustment and to the other terms set
forth below, to purchase from PTN Media, Inc., a Delaware corporation (the
"Company"), _______ fully paid and nonassessable shares of the Company's common
stock, par value $.001 per share (the "Common Stock") at a price of $4.00 per
share (the "Stock Purchase Price"). This Warrant shall be exercisable at any
time on or after the earlier of (i) the effective date (the "Effective Date") of
a registration statement including the Company's securities, in connection with
a public offering at a price of not less than $5.00 per share or (ii) January 1,
1999. The date that this Warrant first becomes exercisable is hereafter referred
to as the "First Exercise Date." This Warrant shall not be exercisable later
than 5:00 p.m. (New York Time) on the Expiration Date (as defined below). This
Warrant shall be exercisable by the Holder's surrendering to the Company at its
principal office at 313 North First Street, Ann Arbor, Michigan 48104,
Attention: President (or at such other location as the Company may advise Holder
in writing) this Warrant properly endorsed with the form of Warrant Exercise
attached hereto duly filled in and signed, and payment in cash, certified check,
or cashier's check of the aggregate Stock Purchase Price for the number of
shares for which this Warrant is being exercised determined in accordance with
the provisions hereof. The Stock Purchase Price and, in some cases, the number
of shares purchasable hereunder are subject to adjustment as provided in Section
4 of this Warrant. This Warrant and all rights hereunder, to the extent not
exercised in the manner set forth herein shall terminate and become null and
void on the Expiration Date. "Expiration Date" means 5:00 pm (New York time) on
the fifth anniversary of the issue date of this Warrant, as first noted above.
In the event that the Holder does not exercise this Warrant pursuant to the
terms of this Warrant, then this Warrant shall expire, be canceled, and be null
and void.
<PAGE>
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares.
This Warrant is exercisable at the option of the Holder at any time or
from time to time but not earlier than on the First Exercise Date or later than
5:00 p.m. (New York Time) on the Expiration Date for all or a portion of the
shares of Common Stock which may be purchased hereunder. The Company agrees that
the shares of Common Stock purchased under this Warrant shall be and are deemed
to be issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for such shares. Subject to the provisions of Section 2,
certificates for the shares of Common Stock so purchased, together with any
other securities or property to which the Holder is entitled upon such exercise,
shall be delivered to the Holder by the Company or its transfer agent at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been exercised. Each stock certificate so delivered shall be in
such denominations of Common Stock as may be requested by the Holder and shall
be registered in the name of the Holder or such other name as shall be
designated by the Holder. If, upon exercise of this Warrant, fewer than all of
the shares of Common Stock evidenced by this Warrant are purchased prior to the
Expiration Date of this Warrant, one or more new warrants substantially in the
form of, and on the same terms as in, this Warrant will be issued for the
remaining number of shares of Common Stock not purchased upon exercise of this
Warrant.
2. Shares to be Fully Paid; Reservation of Shares.
The Company covenants and agrees that all shares of Common Stock which
may be issued upon the exercise of this Warrant (the "Warrant Shares") shall,
upon issuance, be duly authorized, validly issued, fully paid and nonassessable
and free from all preemptive rights of any stockholder and free of all taxes,
liens and charges with respect to the issue thereof. The Company covenants that
it will reserve and keep available a sufficient number of shares of its
authorized but unissued Common Stock for such exercise. The Company will take
all such reasonable action as may be necessary to assure that the Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange or
automated quotation system upon which the Common Stock may be listed.
3. Redemption.
3.1 Conditions for Redemption. By resolution of the Company's board of
directors, the Company may redeem this Warrant at a price of $.05 per share of
Common Stock exercisable hereunder (the "Redemption Price"), at any time after
six months from the Effective Date, provided that the shares of Common Stock
have been trading in the public market at $8.00 per share or more on each of
the most recent twenty (20) consecutive trading days prior to the Company's
notice to redeem this Warrant, and provided further that no underwriter has
placed any restrictions on such redemption by the Company.
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<PAGE>
3.2 Redemption Notice. The Company shall give notice of its election
to redeem this Warrant by sending notice to the Holder at his or her address
appearing on the books of the Company, pursuant to the requirements provided
for notices in Section 9 hereafter, not less than thirty (30) days prior to the
date designated as the date for such redemption (the "Redemption Date"). In
order for any redemption to be effective hereunder, the Company shall be
required to transmit the notice required herein within fifteen (15) days
after any twenty (20) day period during which the conditions contained in
subsection 3.1 hereof have been satisfied. The Company's failure to send such
notice within fifteen (15) days after any such twenty (20) day period shall
result in the loss of the Company's right of redemption with respect to that
twenty (20) day period only.
3.3 Warrant Exercise. The Holder may elect to exercise this Warrant for
any number of shares exercisable hereunder, at any time prior to the Redemption
Date pursuant to the terms and conditions contained in this Warrant.
3.4 Surrender and Cancellation of Warrant. On and after the Redemption
Date, the Holder shall be entitled to receive the Redemption Price, with respect
to all shares which remain unexercised hereunder, upon presentation and
surrender of this Warrant at the Company's offices, together with the transfer
form attached thereto. From and after the Redemption Date (unless the Company
defaults in providing payment of the Redemption Price), all rights of the Holder
with respect to this Warrant shall cease, except for the right to receive the
full Redemption Price, without interest, and this Warrant shall no longer be
deemed to be outstanding.
4. Adjustment of Stock Purchase Price and Number of Shares.
The Stock Purchase Price and, in some cases, the number of shares
purchasable upon the exercise of this Warrant shall be subject to adjustment
from time to time upon the occurrence of certain events described in this
Section 4.
4.1 Split or Combination of Stock and Stock Dividend. In case the
Company shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares or declare a dividend upon its Common Stock
payable solely in shares of Common Stock, the Stock Purchase Price in effect
immediately prior to such subdivision or declaration shall be proportionately
reduced, and the number of shares issuable upon exercise of this Warrant shall
be proportionately increased. Conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller number of shares,
the Stock Purchase Price in effect immediately prior to such combination shall
be proportionately increased, and the number of shares issuable upon exercise of
this Warrant shall be proportionately reduced.
4.2 Notice of Adjustment. Promptly after adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the registered
Holder of this Warrant at the address of such Holder as shown on the books of
the Company. The notice shall be signed by the Company's President and shall
state the effective date of the adjustment and the Stock Purchase Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
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<PAGE>
4.3 Notices. If at any time:
(a) the Company shall declare any cash dividend upon its
Common Stock;
(b) the Company shall declare any dividend upon its Common
Stock payable in capital stock (other than a dividend payable solely in
shares of Common Stock) or make any special dividend or other
distribution to the holders of its Common Stock;
(c) there shall be any consolidation or merger of the Company
with another corporation, or a sale of all or substantially all of the
Company's assets to another corporation; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
registered Holder of this Warrant at the address of such Holder as shown on the
books of the Company, (i) at least thirty (30) days' prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect of any such dissolution, liquidation or winding-up; (ii) at
least ten (10) days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger or
sale, and (iii) in the case of any such reorganization, reclassification,
consolidation; merger, sale, dissolution, liquidation or winding-up, at least
thirty (30) days' written notice of the date when the same shall take place. Any
notice given in accordance with clause (i) above shall also specify, in the case
of any such dividend, distribution or option rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
accordance with clause (iii) above shall also specify the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, as the case may be. If the registered Holder of this Warrant does
not exercise this Warrant prior to the occurrence of an event described above,
except as provided in Sections 4.1 and 4.4, the Holder shall not be entitled to
receive the benefits accruing to existing holders of the Common Stock in such
event.
4.4 Changes in Stock. In case at any time following the date of
issuance of this Warrant, the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all or
substantially all of the Company's assets or recapitalization of the Common
Stock) in which the previously outstanding Common Stock shall be changed into or
exchanged for different securities of the Company or common stock or other
securities of another corporation or interests in a noncorporate entity or other
property (including cash) or any combination of any of the foregoing (each such
transaction being herein called the "Transaction" and the date of consummation
of the Transaction being herein called the "Consummation Date"), then, as a
condition of the consummation of the Transaction, lawful and adequate provisions
shall be made so that each Holder, upon the exercise hereof at any time on or
after the Consummation
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<PAGE>
Date, shall be entitled to receive, and this Warrant shall thereafter
represent the right to receive, in lieu of the Common Stock issuable upon such
exercise prior to the Consummation Date, the highest amount of securities or
other property to which such Holder would actually have been entitled as a
stockholder upon the consummation of the Transaction if such Holder had
exercised this Warrant immediately prior thereto. The provisions of this Section
4.4 shall similarly apply to successive Transactions.
5. Issue Tax.
The issuance of certificates for shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder of this
Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Holder of the Warrant being exercised.
6. No Voting or Dividend Rights; Limitation of Liability.
Nothing contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of meetings of stockholders for the election of directors
of the Company or any other matters or any rights whatsoever as a stockholder of
the Company. Except for the adjustment to the Stock Purchase Price pursuant to
Section 4.1 in the event of a dividend on the Common Stock payable in shares of
Common Stock, no dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a stockholder of the Company
whether such liability is asserted by the Company or by its creditors.
7. Restrictions on Transferability of Securities; Compliance With
Securities Act.
7.1 Restrictions on Transferability. This Warrant and the Warrant
Shares shall not be transferable in the absence of registration under the
Securities Act of 1933, as amended (the "Act") or an exemption therefrom under
said Act.
7.2 Restrictive Legend. Each certificate representing the Warrant
Shares or any other securities issued in respect of the Warrant Shares upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required under applicable state
securities laws):
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF
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<PAGE>
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH
LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN
THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE."
8. Modification and Waiver.
This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the same is sought.
9. Notices.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to be effective only if delivered by hand, or
overnight courier, or mailed by prepaid registered or certified mail, return
receipt requested, to the parties at their addresses set forth herein, or to
such other address as each party may specify by written notice to the other from
time to time in accordance with the terms of this Section 9. Such notices,
requests, demands and other communications hereunder shall be deemed to have
been duly given upon such personal delivery, on the next business day after
being sent by overnight courier, or on the date three (3) business days after
the date postmarked by the United States Post Office, as the case may be.
10. Descriptive Headings and Governing Law.
The descriptive headings of the several sections and paragraphs of this
Warrant are inserted for convenience only and do not constitute a part of this
Warrant. This Warrant shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the State of New
York without giving effect to conflict of laws. The parties hereby submit to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the federal courts located in the Southern District of New York,
with respect to any action or legal proceeding commenced by either party with
respect to this Agreement. Each party irrevocably waives any objection it now
has or hereafter may have respecting the venue of any such action or proceeding
or the inconvenience of such forum, and each party consents to the service of
process in any such action or proceeding in the manner set forth for the
delivery of notices herein.
11. Lost Warrants or Stock Certificate.
The Company represents and warrants to Holder that upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Warrant or stock certificate and, in the case of any such
loss, theft or destruction, and if requested, upon receipt of an indemnity bond
reasonably satisfactory to the Company, or in the case of any such mutilation,
upon surrender and cancellation of such Warrant or stock certificate, the
Company at its expense will make and deliver a new Warrant or stock certificate,
of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
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12. Fractional Shares.
No fractional shares shall be issued upon exercise of this Warrant. The
Company shall, in lieu of issuing any fractional share pay the Holder entitled
to such fraction a sum in cash equal to the fair market value of any such
fractional interest as it shall appear on the public market, or if there is no
public market for such shares, then as shall be reasonably determined by the
Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer, thereunto duly authorized as of this 7th day of August, 1998.
PTN MEDIA, INC.
By:
Peter Klamka
President
7
<PAGE>
FORM OF WARRANT EXERCISE
(To be signed and delivered
upon exercise of Warrant)
[DATE]
PTN Media, Inc.
313 North First Street
Ann Arbor, Michigan 48104
Attention: President
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _______________ shares of Common Stock, par value $.001 per
share (the "Common Stock") of PTN Media, Inc. and subject to the following
paragraph, herewith makes payment of __________ Dollars ($_______) therefor and
requests that the certificates for such shares be issued in the name of, and
delivered to, _________________ whose address is _____________________________.
If the exercise of this Warrant is not covered by a registration
statement effective under the Securities Act of 1933, as amended (the
"Securities Act"), the undersigned represents that:
(a) the undersigned is acquiring such Common Stock for
investment for his or her own account, not as nominee or agent, and not
with a view to the distribution thereof and the undersigned has not
signed or otherwise arranged for the selling, granting any
participation in, or otherwise distributing the same;
(b) the undersigned has such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of the undersigned's investment in the Common Stock;
(c) the undersigned has received all of the information the
undersigned has requested from the Company and considers necessary or
appropriate for deciding whether to purchase the shares of Common
Stock;
(d) the undersigned has the ability to bear the economic risks
of his or her prospective investment;
(e) the undersigned is able, without materially impairing his
or her financial condition, to hold the shares of Common Stock for an
indefinite period of time and to suffer complete loss on his
investment,
(f) the undersigned understands and agrees that (i) he or she
may be unable to readily liquidate his investment in the shares of
Common Stock and that the shares must be held indefinitely unless a
subsequent disposition thereof is registered or qualified under the
<PAGE>
Securities Act and applicable state securities or Blue Sky laws or is
exempt from such registration or qualification, and that the Company is
not required to register the same or to take any action or make such an
exemption available except to the extent provided in the within Warrant
and (ii) the exemption from registration under the Securities Act
afforded by Rule 144 promulgated by the Securities and Exchange
Commission ("Rule 144") depends upon the satisfaction of various
conditions by the undersigned and the Company and that, if applicable,
Rule 144 affords the basis for sales under certain circumstances in
limited amounts, and that if such exemption is utilized by the
undersigned, such conditions must be fully complied with by the
undersigned and the Company, as required by Rule 144;
(g) the undersigned either (i) is familiar with the definition
of and the undersigned is an "accredited investor" within the meaning
of such term under Rule 501 of Regulation D promulgated under the
Securities Act, or (ii) is providing representations and warranties
reasonably satisfactory to the Company and its counsel, to the effect
that the sale and issuance of Stock upon exercise of such Warrant may
be made without registration under the Securities Act or any applicable
state securities and Blue Sky laws; and
(h) the address set forth below is the true and correct
address of the undersigned's residence.
DATED:
------------------------------
Signature
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)
- --------------------------------
Print Name
- --------------------------------
Address
2
SUBSCRIPTION INSTRUCTIONS
PTN Media, Inc. (the "Company") is offering 400,000 shares of its
Common Stock, par value $.001 per share. The subscription price is $5.00 per
share. The offering period (the period of time during which subscriptions for
shares will be considered for acceptance) ends [October 31, 1998]. You are
encouraged to subscribe for as many shares as you desire to purchase.
Subscriptions will be accepted on a priority determined solely at the discretion
of the Company.
Interested parties should complete the Subscription Agreement, attached
herewith, for the number of shares desired. The Company requests that
subscriptions be in increments of one hundred (100) shares. Return the executed
agreement to PTN Media, Inc., 313 North First St., Suite 8B, Ann Arbor,
Michigan, 48104, Attention: Corporate Secretary, or to the broker-dealer who
solicited your purchase. Please also remit full payment for the shares. The
Company reserves the right to accept or reject any subscription in whole or in
part. Payment must be by check payable to "University Bank, as escrow agent for
PTN Media, Inc." If your subscription is accepted, you will receive certificates
representing such accepted shares. If your subscription is not accepted, all
funds will be returned to you within ten days after [October 31, 1998].
<PAGE>
SUBSCRIPTION AGREEMENT
August , 1998
PTN Media, Inc.
313 North First Street
Suite 8B
Ann Arbor, MI 48104
Ladies and Gentlemen:
My name is ________________________. I hereby apply to PTN Media Inc.,
a Delaware corporation (the "Corporation") to purchase ____________ shares (the
"Shares") of the Corporation's common stock, par value $.001 per share (the
"Common Stock") at a purchase price of $5.00 per share, or an aggregate purchase
price of $__________, such purchase price and Shares to be delivered upon the
execution and delivery hereof.
1. Representations and Warranties of the Undersigned. The undersigned
hereby represents and warrants to the Corporation as follows:
A. The undersigned has received and read and understands
this Subscription Agreement as well as the Corporation's Prospectus dated
_____________ (the "Prospectus"). The undersigned's domicile is in the State of
_______________, and the undersigned or its signatory is over 18 years of age.
B. No representations or warranties have been made to
the undersigned by the Corporation or any agent of the Corporation, other
than as set forth herein or in the Prospectus.
C. The undersigned has full power and authority to
make the representations referred to in this Subscription Agreement, to execute
and deliver this Agreement and to purchase the Shares.
E. The undersigned's authorization, execution, delivery, and
performance of this Agreement do not conflict with any other agreement or
arrangement to which the undersigned is a party or by which she is bound.
F. The undersigned is aware of the Corporation's business
affairs and financial condition, including the fact that the Corporation has
only a limited financial and operating history and a substantial working capital
deficit, and she has acquired sufficient information about the Corporation to
reach an informed and knowledgeable decision to acquire an interest the
Corporation.
G. The undersigned acknowledges that this Subscription
Agreement may be accepted or rejected, in whole or in part, by the Corporation
in its sole discretion, and that subscription proceeds will be returned to the
undersigned upon any such rejection.
<PAGE>
The undersigned hereby agrees to indemnify and hold harmless the
Corporation and each director, officer or employee thereof from and against any
and all loss, damage or liability due to or arising out of a breach of any of
the foregoing representations and warranties of the undersigned.
2. Survival of Agreements, Representations and Warranties, Etc. All
agreements, representations and warranties contained herein or made in writing
by or on behalf of the Corporation in connection with the transactions
contemplated by this Subscription Agreement shall survive the execution and
delivery of this Subscription Agreement, any investigation at any time made by
the undersigned or on the undersigned's behalf, and the sale and purchase of the
Shares and payment therefor.
3. Miscellaneous. This Subscription Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
taken together shall constitute one agreement. Neither this Subscription
Agreement nor any term hereof may be changed, waived, discharged or terminated
orally, but only with the written consent of the undersigned and the
Corporation. This Subscription Agreement shall be governed by and construed
under the laws of the State of Delaware as applied to agreements among Delaware
residents entered into and to be performed entirely within Delaware. This
Subscription Agreement sets forth the entire agreement of the parties with
respect to the subject matter hereof.
2
<PAGE>
THE INDIVIDUAL INVESTOR SIGNATURE PAGE
FOR PTN MEDIA, INC. SUBSCRIPTION AGREEMENT
Individual Subscribers Date:_________________, 1998
Number of Shares Subscribed for: _________________________
Amount of Subscription: $________________________________
..................... ..............................
Social Security No. Print Name of Investor No. 1
..............................
Signature of Investor No. 1
..............................
Street Address
..............................
City, State, Zip Code
..................... ..............................
Social Security No. Print Name of Investor No. 2
..............................
Signature of Investor No. 2
..............................
Street Address
..............................
City, State, Zip Code
Manner in which Shares are to be held (check one):
_______________ Individual Ownership
_______________ Tenants-in-Common
_______________ Joint Tenant with Right of Survivorship
_______________ Community Property
_______________ Separate Property
_______________ Other (please specify) __________________________
__________________________
ACCEPTED BY THE COMPANY:
PTN MEDIA, INC.
By:
Peter Klamka, President
Date:
3
<PAGE>
THE ENTITY SIGNATURE PAGE
FOR PTN MEDIA, INC. SUBSCRIPTION AGREEMENT
Corporate or other Entity Date:_______________, 1998
Number of Shares Subscribed for: _________________________
Amount of Subscription: $________________________________
...................... ..............................
Federal ID No. Print Name of Entity
By:___________________________
Name:
Title:
..............................
Street Address
..............................
City, State, Zip Code
Manner in which Shares are to be held (check one):
_______________ Partnership
_______________ Corporation
_______________ Trust
_______________ Limited Liability Company
_______________ Limited Liability Partnership
_______________ Other (please specify) __________________________
__________________________
ACCEPTED BY THE COMPANY:
PTN MEDIA, INC.
By:
Peter Klamka, President
Date:
4
<PAGE>
EXHIBIT 10.13
ESCROW AGREEMENT
AGREEMENT made as of the day of August, 1998 by and between PTN Media,
Inc., a Delaware corporation with its principal office at 313 North First
Street, Suite 8B, Ann Arbor, MI 48104 (the "Corporation"), and University Bank
of Ann Arbor, Michigan, with offices at (the "Escrow Agent").
W I T N E S S E T H
WHEREAS, the Escrow Agent has been advised that the Corporation is
organized under the laws of the State of Delaware, and
WHEREAS, the Escrow Agent has been advised that the Corporation has
been authorized to issue shares of Common Stock of the Corporation with an
aggregate purchase price not in excess of $2,000,000, and
WHEREAS, the Escrow Agent has been advised that the Corporation
proposes to offer the Shares to the public on a "best efforts" basis, and
WHEREAS, the Escrow Agent is willing to establish an escrow account on
the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein, contained, the parties hereby agree as follows:
1. Establishment of Escrow Account. Prior to the time at which the
offering of the Shares commences (the "Commencement Date"), the parties hereto
shall establish, and by execution of this Agreement hereby agree to establish,
with the Escrow Agent an interest-bearing escrow account with a designated
branch of the Escrow Agent, which escrow account shall be entitled, "For the
Benefit of PTN Media, Inc." (the "Escrow Account"). The Corporation shall notify
the Escrow Agent in writing of the Commencement Date.
2. Deposits Into the Escrow Account. All subscribers' checks will be
made payable to the Escrow Agent, as escrow agent for PTN Media, Inc., and all
broker/dealers which may be acting as agents in connection with the offering
("Placement Agents") will transmit such checks directly to the Escrow Agent by
noon of the next business day after receipt. The checks received from
prospective purchasers of the Shares may be delivered to an Account
Representative at the branch designated in writing by the Escrow Agent for
deposit into the Escrow Account. Simultaneously with each such deposit, the
Corporation shall inform the Escrow Agent, by copy of the signature page,
subscription agreement, confirmation slip or other writing, of the name and
address of each prospective purchaser and of the aggregate purchase price for
the Shares subscribed for by such purchaser. In this regard, the Escrow Agent
shall have the right to rely fully on the writings so furnished to it by the
Placement Agent. The Escrow Agent is not obligated to, but may refuse to accept
deposits not accompanied by an appropriate writing.
3. Disbursements from the Escrow Account.
(a) In the event that the Corporation determines to terminate
the offering prior to October 31, 1998 in a writing signed by the Corporation,
the Escrow Agent shall refund to each prospective purchaser the amount actually
received from such purchaser, with simple interest at a fixed rate thereon and
without deduction therefrom, and the Escrow Agent shall notify the
<PAGE>
Corporation of its distribution of such funds. In no event shall the Escrow
Agent refund any amount to any prospective purchaser until such amount is, to
the Escrow Agent's satisfaction, available in cleared funds. In addition, in no
event shall the Escrow Agent refund any part of the interest earned on a
prospective purchaser's subscription deposit until such time as the Escrow Agent
has received an appropriate W-9 Form from such prospective purchaser.
(b) The Escrow Agent shall notify the Corporation of the total
amount of cleared funds upon request by the Corporation provided in writing. The
Escrow Agent shall hold such monies in escrow, until given instructions in
writing by the Corporation as to the disposition of the excess funds.
Thereafter, the Escrow Agent shall refund to the persons named by the
Corporation the excess funds, with simple interest at a fixed rate actually
earned thereon and without deduction therefrom, and the Escrow Agent shall
notify the Corporation of its distribution of the excess funds. In no event
shall the Escrow Agent refund any amount to any prospective purchaser until such
amount is, to the Escrow Agent's satisfaction, available in cleared funds. In
addition, in no event shall the Escrow Agent refund any part of the interest
earned on a prospective purchaser's subscription deposit until such time as the
Escrow Agent has received an appropriate W-9 Form from such prospective
purchaser.
(c) Upon the disbursement of the funds in the Escrow Account
(the "Fund") pursuant to this Agreement, the Escrow Agent will be under no
further responsibility with respect to this Agreement. In this regard it
expressly is agreed and understood that in no event shall the aggregate amount
of payments made by the Escrow Agent exceed the amount of the funds in the
Escrow Account.
4. Rights, Duties and Responsibilities of Escrow Agent. It is
understood and agreed that the duties of the Escrow Agent are purely ministerial
in nature. It is further agreed that:
(a) The Escrow Agent shall not be required to enforce any of
the terms or conditions of the Placement Agent Agreement or any other agreement
between any Placement Agent and the Corporation, nor shall the Escrow Agent be
responsible for the performance by any Placement Agent or the Corporation of
their respective obligations under this Agreement.
(b) The Escrow Agent shall not be required to accept from the
Corporation any signature pages, subscription agreements or other writings
issued to prospective purchasers hereunder unless the same are accompanied by
cash, checks, drafts or other instruments for the payment of money, nor shall
the Escrow Agent be required to keep records of any information on checks,
drafts or other instruments received or collected by the Escrow Agent from the
Corporation except as to the amount of same; however, the Escrow Agent shall
notify the Corporation within reasonable time, by wire or otherwise, of any
discrepancy between the amount set forth on any such confirmation slip or other
writing and the sum or sums delivered to the Escrow Agent by the Corporation
therewith. The Escrow Agent may at its own discretion refuse to accept any
deposits lacking required documentation or containing discrepancies.
(c) The Escrow Agent shall be under no duty or responsibility
to enforce collection of any check, draft or other instrument for the payment of
money delivered to it hereunder, but the Escrow Agent, within a reasonable time,
shall return to the Corporation any check, draft or other instrument received
from the Corporation which is dishonored, together with the signature page,
subscription agreement or writing, if any, which accompanied such check, draft
or other instrument.
(d) The Escrow Agent shall have the right to act in reliance
upon any document, instrument or signature believed by it to be genuine and to
assume that any person purporting to give any notice or instructions in
accordance with this Agreement has been duly authorized to do
2
<PAGE>
so. The Escrow Agent shall not be obligated to make any inquiry as to the
authority, capacity, existence or identity of any person purporting to give any
such notice or instructions. The individuals who sign below personally
acknowledge that they are authorized to sign on behalf of their respective
entities, that they have submitted to the Escrow Agent a confirmation of their
signature duly guaranteed and the Escrow Agent need only recognize those
signatures on notices or demands.
(e) In the event the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions with respect to the
Fund which, in its sole opinion, are in conflict with either other instructions
received by it or any provisions of this Agreement, it shall be entitled to hold
the Fund, or a portion thereof, in the Escrow Account pending the resolution of
such uncertainty to the Escrow Agent's sole satisfaction, by final judgment of a
court or courts of competent jurisdiction or otherwise; or the Escrow Agent, at
its option, may deposit the Fund in the registry of a court of competent
jurisdiction in a proceeding to which all parties in interest are joined.
(f) The Escrow Agent shall not be liable for any action taken
or omitted hereunder except in the case of its willful misconduct, nor shall it
be liable for the default or misconduct of an employee, agent or attorney
appointed by it. The Escrow Agent shall be entitled to consult with counsel of
its own choosing and shall not be liable for any action taken, suffered or
omitted by it in accordance with the advice of such counsel.
(g) The Escrow Agent shall have no responsibility at any time
to ascertain whether or not any security interest exists in the Fund or any part
thereof or to file any financing statement under the Uniform Commercial Code
with respect to the Fund or any part thereof.
5. Amendment or Resignation. This Agreement and/or the terms of the
Offering, to the extent described herein, may be altered or amended only with
the written consent of the Corporation and the Escrow Agent. Should the
Corporation attempt to change the Agreement and/or the terms of the Offering in
a manner which, in the Escrow Agent's sole opinion, is undesirable, the Escrow
Agent may resign as Escrow Agent upon 10 days' written notice to the
Corporation; otherwise, it may resign as Escrow Agent at any time upon 30 days'
written notice to the Corporation. In the case of the Escrow Agent's
resignation, its only duty shall be to hold and dispose of the Fund in
accordance with the original provisions of this Agreement until a successor
Escrow Agent shall be appointed and written notice of the name and address of
such successor Escrow Agent shall be given to the Escrow Agent by the
Corporation, whereupon the Escrow Agent's only duty shall be to pay over to the
successor Escrow Agent the Fund, less any portion thereof previously paid out in
accordance with this Agreement.
6. Warranties. The Corporation warrants to and agrees with the Escrow
Agent that, unless otherwise expressly set forth in this Agreement:
(a) No party other than the parties hereto have, or shall
have, any lien, claim or security interest in the Fund or any part thereof.
(b) No financing statement under the Uniform Commercial Code
is on file in any jurisdiction claiming a security interest in or describing
(whether specially or generally) the Fund or any part thereof.
7. Fees and Expenses. The Escrow Agent shall be entitled to its
customary fees, which shall be due and payable upon execution and delivery of
this Agreement and such additional fees as are outlined on the attached Exhibit
I, which exhibit is incorporated by reference herein.
3
<PAGE>
8. Indemnification and Contribution.
(a) The Corporation (referred to as the "Indemnitor") agrees
to indemnify the Escrow Agent and its officers, agents, directors and
stockholders (the "Indemnitees") against, and hold them harmless of and from,
any and all loss, liability, cost, damage and expense, including, without
limitation, reasonable counsel fees, which the Indemnitees may suffer or incur
by reason of any action, claim or proceeding brought against the Indemnitees,
arising out of or relating in any way to this Agreement or any transaction to
which this Agreement relates, whether or not any such action, claim or
proceeding is the result of the negligence of the Indemnitees. If any person
shall assert any claim (whether or not by the institution of any action, suit or
other proceeding) against any of the Indemnitees arising out of this Agreement
or any transaction to which this Agreement relates, whether or not such claim
ultimately is established, the Indemnitor shall pay all costs and expenses of
the defense of such claim including, without limitation, reasonable counsel
fees. There shall be included in the loss, liability, cost, damage and expense
against which the Indemnitees are indemnified hereunder all sums which any of
the Indemnitees may pay in settlement of any such claim.
(b) If the indemnification provided for in this Section 8 is
applicable, but for any reason is held to be unavailable, the Indemnitor shall
contribute such amounts as are just and equitable to pay (or to reimburse the
Indemnitees for) the aggregate of any all losses, liabilities, costs, damages
and expenses, including counsel fees, actually incurred by the Indemnitees as a
result of, or in connection with, any amount paid in settlement of any action,
claim or proceeding arising out of, or relating in any way, to any acts or
omissions of the Indemnitor.
(c) Any Indemnitee which proposes to assert the right to be
indemnified under this Section 8, promptly after receipt of notice of
commencement of any action, suit or proceeding against such Indemnitee in
respect of which a claim is to be made against the Indemnitor under this Section
8, will notify the Indemnitor of the commencement of such action, suit or
proceeding, enclosing a copy of all papers served, but the omission so to notify
the Indemnitor of any such action, suit or proceeding shall not relieve the
Indemnitor from any liability which it may have to any Indemnitee otherwise than
under this Section 8. In case any such action, suit or proceeding shall be
brought against an Indemnitee and it shall notify the Indemnitor of the
commencement thereof, the Indemnitor shall be entitled to participate in and, to
the extent that it shall wish, to assume the defense thereof, with counsel
satisfactory to such Indemnitee. After notice from the Indemnitor to such
Indemnitee of their election to assume the defense thereof, the Indemnitor shall
not be liable to such Indemnitee for any legal or other expenses, other than
reasonable costs of investigation subsequently incurred by such Indemnitee in
connection with the defense thereof. The Indemnitee shall have the right to
employ its counsel in any such action, but the fees and expenses of such counsel
shall be at the expense of such Indemnitee unless (i) the employment of counsel
by such Indemnitee has been authorized by the Indemnitor, (ii) the Indemnitee
shall have concluded reasonably that there may be a conflict of interest between
the Indemnitor and the Indemnitee in the conduct of the defense of such action
(in which case the Indemnitor shall not have the right to direct the defense of
such action on behalf of the Indemnitee) or (iii) the Indemnitor in fact shall
not have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of counsel shall be borne by the Indemnitor]
9. Governing Law and Assignment. This Agreement shall be construed in
accordance with and governed by the laws of the State of Michigan and shall be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that any assignment or transfer by any party of its rights
under this Agreement with respect to the Fund shall be void unless:
4
<PAGE>
(a) written notice thereof shall be given to the
Corporation; and
(b) the Corporation shall have consented in writing to such
assignment or transfer.
10. Notices. All notices required to be given in connection with this
Agreement shall be sent by personal delivery against receipt therefor, or
registered or certified mail, return receipt requested, and addressed to the
parties at their addresses first set forth above or such other address as any
such party shall deliver to the other parties hereto in like manner.
11. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement or the application of
such provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
12. Counterparts. This Agreement may be executed in several
counterparts or by separate instruments, and all of such counterparts and
instruments shall constitute one agreement, binding on all of the parties
hereto.
13. Pronouns. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the context
may require.
14. Captions. All captions are for convenience only and shall not limit
or define the text hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection herewith.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day first above written.
PTN Media, Inc.
(The Corporation)
By:__________________________
Peter Klamka, President
UNIVERSITY BANK
(The Escrow Agent)
By:__________________________
Name:
Title:
5
<PAGE>
EXHIBIT I
CORPORATE TRUST ESCROW SERVICE FEES
(Initial Public Offerings)
6
PTN MEDIA, INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Cumulative
During the
For the Period Development
May 27, 1997 For the Six Stage
(Inception) Months Ended (May 27, 1997
December 31, 1997 June 30, 1998 To June 30, 1998)
----------------- ------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
NET (LOSS) $(261,267) $(552,529) $(813,796)
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES 3,041,680 3,041,680 3,041,680
========= ========= =========
BASIC (LOSS) PER COMMON SHARE $(.09) $(.18) $(.27)
===== ===== =====
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
PTN Media, Inc.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated March 26, 1998, relating to the financial statements of PTN Media,
Inc., and to the reference to our firm under the caption "Experts" in this
registration statement.
LAZAR LEVINE & FELIX LLP
New York, New York
August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the period May 27, 1997 (inception) to
December 31, 1997 and the six months ended June 30, 1998 and is qualified in its
entirety by reference to such statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 7-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> MAY-27-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 20134 39296
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 23091 39296
<PP&E> 2194 4153
<DEPRECIATION> 210 700
<TOTAL-ASSETS> 25075 61682
<CURRENT-LIABILITIES> 282385 646021
<BONDS> 0 0
0 0
0 0
<COMMON> 2967 3042
<OTHER-SE> (260277) (587381)
<TOTAL-LIABILITY-AND-EQUITY> 25075 61682
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 150000 200000
<TOTAL-COSTS> 150000 200000
<OTHER-EXPENSES> 109017 339976
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2250 12730
<INCOME-PRETAX> (261267) (552529)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (261267) (552529)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (261267) (552529)
<EPS-PRIMARY> (.09) (0.18)
<EPS-DILUTED> (.09) (0.18)
</TABLE>
