<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1999
REGISTRATION NO. 333-74203
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DAG MEDIA, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 2741 11-3474831
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
125-10 QUEENS BLVD.
KEW GARDENS, NY 11415
(718) 263-8454
(Address, including zip code, and telephone number, including area code, of
registrant's executive offices)
------------------------------
ASSAF RAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DAG MEDIA, INC.
125-10 QUEENS BOULEVARD
KEW GARDENS, NY 11415
(718) 263-8454
(Name, address, including zip code, and telephone number, including area code of
agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN A. ZELNICK, ESQ. MARK A. VON BERGEN, ESQ.
MORSE, ZELNICK, ROSE & LANDER, LLP WEISS, JENSEN, ELLIS & HOWARD
450 PARK AVE. 2300 U.S. BANCORP TOWER
NEW YORK, NY 10022 111 S.W. FIFTH AVENUE
(212) 838-8040 PORTLAND, OR 97204
(212) 838-9190 (FACSIMILE) (503)243-2300
(503) 241-8014 (FACSIMILE)
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 pursuant to the Securities
Act of 1933, as amended, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) pursuant to 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)
pursuant to 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)
pursuant to the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
pursuant to the Securities Act, please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK TO OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
DATED MAY 6, 1999
1,325,000 COMMON SHARES
[LOGO]
DAG MEDIA, INC.
This is the initial public offering of DAG Media, Inc. We are offering
1,250,000 of our common shares and Assaf Ran, our founder and principal
shareholder, is offering 75,000 of our common shares. The initial public
offering price for each common share is $6.50.
There has been no prior market for our common shares. Our shares have been
approved for trading on the Nasdaq SmallCap Market under the symbol "DAGM."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR SOME OF THE FACTORS YOU SHOULD
CONSIDER BEFORE BUYING OUR COMMON SHARES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
DAG MEDIA SELLING SHAREHOLDER
--------------------------- -------------------------
PER SHARE TOTAL PER SHARE TOTAL
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Initial public offering price.............................. $ 6.50 $ 8,125,000 $ 6.50 $ 487,500
Underwriting discounts and commissions..................... $ 0.65 $ 812,500 $ 0.65 $ 48,750
Proceeds before expenses................................... $ 5.85 $ 7,312,500 $ 5.85 $ 438,750
</TABLE>
We have granted the underwriters a 45-day option to purchase up to an
additional 198,750 common shares from us to cover over-allotments.
The underwriters are offering the common shares on a firm commitment basis
and expect to deliver the common shares offered by this prospectus against
payment on or about , 1999.
PAULSON INVESTMENT COMPANY, INC. REDWINE & COMPANY, INC.
The date of this prospectus is , 1999
<PAGE>
The JEWISH ISRAELI YELLOW PAGES-Registered Trademark- and variants of the
mark, and THE JEWISH REFERRAL SERVICE-Registered Trademark- are our registered
trademarks or service marks. We also plan to seek federal trademark and service
mark protection for THE JEWISH MASTER GUIDE-TM- and for NEWYELLOW-TM-. All other
trademarks, service marks and trade names appearing in this prospectus are the
property of their respective holders.
<PAGE>
SUMMARY
UNLESS STATED TO THE CONTRARY, REFERENCES TO "WE," "US,"OR "OUR" REFER TO
DAG MEDIA AND, WHERE APPROPRIATE, OUR PREDECESSORS AND SUBSIDIARIES.
DAG MEDIA
We publish and distribute yellow page directories in print and on the world
wide web. Our largest directory, THE JEWISH ISRAELI YELLOW PAGES, has been
published, bilingually, in English and Hebrew, since February 1990 and covers
the New York metropolitan area. We also publish a smaller English-only yellow
page directory, THE JEWISH MASTER GUIDE, which is distributed to the Hasidic and
ultra-Orthodox Jewish communities in the New York metropolitan area. To give
added value to users of and advertisers in our directories, we also operate THE
JEWISH REFERRAL SERVICE and a "portal" web site on the Internet. The JEWISH
REFERRAL SERVICE directs potential customers and clients to businesses that
advertise in our directories. Our web site contains English-only versions of our
directories and has links to web sites maintained by advertisers in our
directories and other web sites, including those containing programs, events and
news of particular interest to the Jewish and Israeli communities.
GROWTH STRATEGY
We plan to expand our operations by introducing an English-only, general
interest yellow page directory, NEWYELLOW, in the New York metropolitan area
that will compete directly with the Bell Atlantic Yellow Pages. We plan to
introduce the first NEWYELLOW directory in Manhattan by June 2000. We have never
published a general interest yellow page directory. In addition, Bell Atlantic
has significantly greater resources than we do. Accordingly, we cannot assure
you that we will publish NEWYELLOW or if we do publish NEWYELLOW, that we can do
so profitably. We may also consider offering versions of the JEWISH ISRAELI
YELLOW PAGES, the MASTER GUIDE and the JEWISH REFERRAL SERVICE in other cities
with large Jewish and Israeli populations like Miami, Florida and Los Angeles,
California.
EXECUTIVE OFFICES AND WEB SITES
Our executive offices are located at 125-10 Queens Boulevard, Kew Gardens,
New York 11415, and our telephone number is (718) 263-8454. Our addresses on the
world wide web are HTTP://WWW.PORTY.COM, HTTP://WWW.JEWISHYELLOW.COM,
HTTP://WWW.DAPEY-ASSAF.COM AND HTTP://WWW.NEWYELLOW.COM.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common shares being offered.............. 1,250,000 by us and 75,000 by our
principal shareholder
Offering price........................... $6.50 per common share
Common shares outstanding:
Before the offering.................... 1,726,190
After the offering..................... 2,976,190
Use of proceeds.......................... Printing, publishing and distribution
costs for NEWYELLOW; sales commission
advances for NEWYELLOW; marketing and
promotional expenses for NEWYELLOW and
our web site; and general corporate
purposes, including working capital.
Proposed Nasdaq SmallCap Market symbol
for our common shares.................. DAGM
</TABLE>
All of our common shares outstanding before this offering will be issued
immediately before the date of this prospectus.
Common shares outstanding excludes 124,000 common shares reserved for
issuance under our stock option plan.
Common shares outstanding after the offering assumes that the underwriters
will not exercise their option to purchase additional common shares to cover
over-allotments.
4
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data contained in this section of the prospectus
should be read together with our audited consolidated financial statements, the
audited financial statements of Dapey Assaf-Hamadrikh Leassakim Israelim Be New
York and our unaudited pro forma condensed consolidated financial statements,
including the notes accompanying these statements, and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of this prospectus.
- Our historical financial data include the accounts of Dapey Assaf-Dapey
Zahav and 50% of the net income of Dapey Assaf-Hamadrikh.
- Pro forma statement of operations data assume that Dapey Assaf-Hamadrikh
became our wholly owned subsidiary on January 1, 1998 and pro forma
balance sheet data assume that it became our wholly owned subsidiary on
December 31, 1998.
- Pro forma, as adjusted balance sheet data assume that Dapey
Assaf-Hamadrikh became our wholly owned subsidiary on January 1, 1998 and
pro forma
balance sheet data assume that it became our wholly owned subsidiary on
December 31, 1998 and give effect to the sale of the common shares offered
by us in this prospectus, after deducting $1,512,500, our share of the
underwriting discounts and commissions and other estimated offering
expenses.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1998
1997 1998 (PRO FORMA)
------------- ------------- -------------
Net advertising revenues............................................ $ 2,501,754 $ 2,759,092 $ 2,835,917
Publishing costs.................................................... 441,535 377,983 377,983
------------- ------------- -------------
Gross profit........................................................ 2,060,219 2,381,109 2,457,934
Operating costs and expenses:
Selling expenses.................................................. 922,124 946,315 957,227
Administrative and general expenses............................... 658,956 765,233 893,116
------------- ------------- -------------
Total operating costs and expenses................................ 1,581,080 1,711,548 1,850,343
------------- ------------- -------------
Earnings from operations before provision for income taxes and
equity income..................................................... 479,139 669,561 607,591
Provision for income taxes.......................................... 240,000 329,000 312,000
Equity in earnings of affiliate..................................... 16,012 17,035 --
------------- ------------- -------------
Net income.......................................................... $ 255,151 $ 357,596 $ 295,591
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted net income per common share outstanding........... $ 0.20 $ 0.29 $ 0.17
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted weighted average number of common shares
outstanding....................................................... 1,250,000 1,250,000 1,726,190
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Pro forma administrative and general expenses assumes that the compensation
paid to Assaf Ran was $75,000, the amount payable under his employment agreement
that takes effect on the effective date of this offering, rather than the
$25,000 that was actually paid to him.
5
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------------- -------------- ---------------
<S> <C> <C> <C>
Cash........................................................... $ 310,185 $ 385,325 $ 7,293,088
Working capital................................................ 162,041 162,561 7,070,323
Total assets................................................... 2,970,190 4,363,046 10,975,546
Total liabilities.............................................. 2,445,451 2,445,451 2,445,451
Total shareholders' equity..................................... 524,739 1,917,595 8,530,095
</TABLE>
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS DESCRIBED BELOW, AS WELL AS
THE OTHER INFORMATION APPEARING IN THIS PROSPECTUS, BEFORE PURCHASING ANY OF OUR
COMMON SHARES.
BELL ATLANTIC AND OTHER EXISTING OR POTENTIAL COMPETITORS HAVE SIGNIFICANT
COMPETITIVE ADVANTAGES.
Our principal competitor in the New York metropolitan market is Bell
Atlantic. In addition, since there are no significant barriers to entry, any
company with access to a reasonable amount of capital, such as regional and
local telephone companies and publishing companies, can publish yellow page
directories in print and on the Internet that will compete with our existing
directories and directories that we may publish in the future.
Many of our competitors, particularly Bell Atlantic, have significant
operating and financial advantages. These advantages include:
- greater financial, personnel, technical and marketing resources,
- superior systems,
- stronger relationships with advertisers,
- greater production capacity,
- better-developed distribution channels, and
- greater name recognition.
WE ARE PLANNING TO INTRODUCE A NEW PRODUCT, THE SUCCESS OF WHICH DEPENDS ON MANY
FACTORS.
We have never published a general interest yellow page directory. Thus, we
have no relevant operating history upon which you can evaluate whether we will
be successful. Therefore, you should consider our prospects in light of the
risks and uncertainties encountered by companies trying to introduce a new
product, particularly companies proposing to enter markets dominated by large
and well-known companies. In addition, our ability to publish NEWYELLOW will
also depend on factors outside of our control, including the development of
similar or superior products by competitors, general economic conditions and
economic conditions specific to publishers of yellow page directories.
7
<PAGE>
BECAUSE WE CONTRACT WITH INDEPENDENT SALES AGENCIES, WE COULD LOSE HALF OUR
SALES FORCE ON 30 DAYS NOTICE.
Approximately half of our sales force is provided to us under agreements
with independent sales agencies, which are terminable upon 30 days notice by
either party. Accordingly, on 30 days notice we could lose half of our sales
force. In addition, due to the demands of the job, many sales representatives
leave within one year of their hire. Replenishing our sales force involves
significant time and expense for recruiting and training.
OUR EXPANSION STRATEGY REQUIRES US TO EXPAND OUR SALES FORCE SIGNIFICANTLY.
To meet our goal of publishing NEWYELLOW by June 2000, we will have to
quickly hire and train many new sales representatives. We have not yet hired any
new sales representatives for NEWYELLOW. We cannot assure you that we will be
able to hire and retain qualified personnel to keep pace with our expansion
strategy. Some of the factors that will affect our ability to hire and retain
qualified sales representatives include:
- the compensation package we will offer to them compared with those offered
by our competitors;
- the job market; and
- general economic conditions.
WE DO NOT HAVE ANY LONG-TERM COMMITMENTS FROM ADVERTISERS, UPON WHOM OUR SUCCESS
DEPENDS.
We do not have long-term contractual arrangements with advertisers. Thus, we
must obtain new advertisers and renewals from existing advertisers, for each
directory that we publish. There is no assurance that our current advertisers
will continue to place ads in our directories or that we will be able to attract
new advertisers. Any failure to achieve sufficient advertising revenues would
have a material adverse effect on our business, results of operations and
financial condition.
IF WE FAIL TO PUBLISH A DIRECTORY, IT IS UNLIKELY THAT WE WILL HAVE SUFFICIENT
CASH TO REFUND OUR ADVERTISERS.
A significant portion of our revenues is collected prior to the publication
and distribution of our directories and is used to pay our employees,
contractors and suppliers. If we did not publish a directory, we would be
obligated to refund prepaid advertising fees. It is unlikely that we would have
sufficient cash reserves to repay all these advances. In that event, we would
have to generate cash by borrowing money, selling securities or selling assets.
We do not know whether any of those alternatives will be possible. Further, any
of these alternatives, particularly the sale of our assets, would inhibit our
ability to conduct our business.
8
<PAGE>
WE DO NOT HAVE THE ABILITY TO MEASURE THE EFFECTIVENESS OF ADVERTISEMENTS. AS
OUR BUSINESS GROWS, OUR CUSTOMERS MAY REQUIRE US TO DO SO.
We do not have the ability to quantify the effectiveness of advertising in
our directories. However, we may have to provide this type of information when
we start publishing a directory that competes directly with the Bell Atlantic
Yellow Pages. The effectiveness of advertising is usually based upon demographic
and other relevant statistical data. If we cannot provide our advertisers with
this information or if they perceive the information that we provide to be
unreliable, they may not advertise in NEWYELLOW or refuse to pay our standard
advertising rates. Accordingly, we will have to either develop the ability to
provide this information to our advertisers or contract with third parties to
provide this information on our behalf. Either alternative will result in
additional personnel and equipment costs which we have not budgeted for, and may
also cause interruptions in our business operations.
WE CANNOT LAUNCH NEWYELLOW WITHOUT THE PROCEEDS OF THIS OFFERING.
The expansion of our operations to add NEWYELLOW, and possibly other yellow
page directories, requires substantial amounts of additional capital. Most of
our costs relating to the publication of the first NEWYELLOW directory,
including sales commissions, publishing costs and distribution costs, will be
incurred before we begin to collect our advertising revenue. Accordingly, we
cannot undertake this project if this offering is not successful.
OUR GROWTH DEPENDS ON THE CONTINUED SERVICES OF ASSAF RAN.
We depend on the continued services of Assaf Ran, our founder, president and
chief executive officer. Mr. Ran supervises all aspects of our business,
including our sales force and production staff. Mr. Ran has the personal
relationships with the principals of our key services providers including our
printer, HaMakor Printing Ltd., and the heads of the independent sales agencies
which provide about half of our sales representatives. If Mr. Ran's employment
terminates, our relationships with our key suppliers and vendors may be
jeopardized. Mr. Ran has entered into an employment agreement, but that is no
guarantee that his employment will not terminate before its expiration on June
30, 2002. In addition, we have applied to purchase a $3 million key man life
insurance policy on Mr. Ran. Mr. Ran has not yet been approved for a policy and
we do not know whether a policy will be available.
SOME OF OUR SENIOR OFFICERS LACK EXPERIENCE IN OUR BUSINESS.
All of our senior executive officers, other than Mr. Ran, are new. Our vice
president of sales commenced his employment in June 1998 and our vice president
of sales and corporate development and our chief financial officer will commence
their employment on the effective date of this offering. It will take some time
before these officers are fully knowledgeable about our business and operations.
This lack of experience and knowledge may cause delays in our expansion plans.
9
<PAGE>
ASSAF RAN HAS SIGNIFICANT CONTROL OVER SHAREHOLDER MATTERS, WHICH MAY IMPACT THE
ABILITY OF MINORITY SHAREHOLDERS TO HAVE A SAY IN OUR ACTIVITIES.
Assaf Ran controls the outcome of all matters submitted to a vote of the
shareholders, including the election of directors, amendments to our certificate
of incorporation and approval of significant corporate transactions. After the
closing of this offering, Mr. Ran will own approximately 47.5% of our
outstanding common stock. This consolidation of voting power could also have the
effect of delaying, deterring or preventing a change in control that might be
beneficial to other shareholders.
WE DO NOT KNOW IF HAMAKOR PRINTING IS YEAR 2000 COMPLIANT.
We do not know if HaMakor Printing, our only material supplier, is Year 2000
compliant. If HaMakor is not Year 2000 compliant, it may not be able to print
the February 2000 edition of the JEWISH ISRAELI YELLOW PAGES in a timely and
efficient manner. In that case we would have to find a new printer, resulting in
delays and potential additional costs. We cannot assure you that we will be able
to find a new printer that can provide us with the same favorable pricing,
service and quality as HaMakor does.
AN ACTIVE MARKET FOR OUR COMMON SHARES MAY NOT DEVELOP.
An active market for our common shares may not develop after this offering.
If it does not develop, you may not be able to sell your common shares.
VARIOUS PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD HARM OUR
SHAREHOLDERS.
Our certificate of incorporation and bylaws could make it more difficult for
a third party to acquire control of us, even if a change in control would be
beneficial to our shareholders. See "Description of Capital Stock" for
provisions of our certificate of incorporation and bylaws that could hinder a
third party's attempts to acquire control of us.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS.
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words like "anticipate," "believes," "expects," "future"
and "intends" and similar expressions to identify forward-looking statements.
You should not unduly rely on these forward-looking statements, which apply only
as of the date of this prospectus. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including the risks described above and elsewhere in this prospectus.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the common shares offered by us in
this prospectus will be approximately $6.6 million. Net proceeds from the sale
of common shares are computed by deducting our share of the underwriting
discounts and commissions and estimated offering expenses from the total public
offering price. We intend to use these net proceeds as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
-------------- -----------
<S> <C> <C>
Printing, publishing and distribution costs for NEWYELLOW............................. $ 2,600,000 39.39%
Sales commissions for NEWYELLOW....................................................... 2,400,000 36.36%
Marketing and promotional expenses for NEWYELLOW and our web site..................... 1,400,000 21.21%
General corporate purposes, including working capital................................. 200,000 3.04%
-------------- -----------
$ 6,600,000 100.00%
-------------- -----------
-------------- -----------
</TABLE>
- Printing, publishing and distribution costs represent the actual cost of
printing and distributing approximately 900,000 copies of the Manhattan
version of NEWYELLOW, assuming 1,500 pages per copy.
- Sales commissions reflect commissions that will be paid to our sales force
prior to our actual receipt of advertising revenues.
- Marketing and promotional expenses include expenses related to the
development of strategic alliances and relationships including:
- local newspaper, radio and broadcast and cable television advertising,
- bulletin board advertising and
- hiring a public relations firm.
- General corporate purposes include the following:
- hiring additional personnel;
- acquiring and enhancing our operating, support and management
systems;
- costs of opening two new sales offices; and
- capital expenditures for computers and other equipment.
Approximately $100,000 of the marketing and promotional expenses will be
used for the further development and expansion of our web site. The majority of
this amount will be used for programmers.
Working capital may also be applied to acquisitions, although we do not have
current plans, agreements or commitments for any acquisition. Any proceeds from
the exercise of the option we granted to the underwriters to purchase additional
common shares from us will be added to working capital. In addition, the
proceeds from the
11
<PAGE>
repayment of Assaf Ran's loan, approximately $300,000, will be added to working
capital. See "Related Party Transactions" for more information about this loan.
We will retain broad discretion in the allocation of the net proceeds of
this offering within the categories listed above. We may also use portions of
the net proceeds for other purposes. The amounts actually expended and their
uses will depend on a number of factors, including the amount of our future
revenues and the other factors described under "Risk Factors." Pending their
use, the net proceeds of this offering will be invested in short-term,
interest-bearing, investment grade securities.
We expect that the net proceeds from this offering, together with cash flow
from operations, will be sufficient to fund our operations and capital
requirements for at least 12 months following the consummation of this offering.
We may be required to seek additional sources of capital sooner if:
- operating assumptions change or prove to be inaccurate;
- we consummate any acquisitions of significant businesses or assets; or
- we further accelerate our expansion plans and enter new markets more
rapidly.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We may incur indebtedness in the future which may prohibit
or effectively restrict the payment of dividends, although we have no current
plans to do so.
12
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of December 31, 1998:
- on an actual basis,
- on a pro forma basis assuming Dapey Assaf-Hamadrikh became our wholly
owned subsidiary on December 31, 1998 and
- on a pro forma, as adjusted basis assuming Dapey Assaf-Hamadrikh became
our wholly owned subsidiary on December 31, 1998 and giving effect to the
sale of the common shares offered by us in this prospectus after deducting
$1,512,500, our share of the underwriting discounts and commissions and
other estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
<S> <C> <C> <C>
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
------------ -------------- --------------
Shareholders' equity:
Preferred shares, $0.01 par value; 5,000,000 shares authorized;
no shares issued and outstanding actual, pro forma or pro
forma, as adjusted............................................. $ -- $ -- $ --
Common shares, $0.001 par value; 25,000,000 shares authorized;
1,250,000 shares issued and outstanding actual; 1,726,190
shares issued and outstanding pro forma; 2,976,190 shares
issued and outstanding as adjusted............................. 1,250 1,726 2,976
Additional paid-in capital....................................... 150 1,392,530 8,003,780
Retained earnings................................................ 523,339 523,339 523,339
------------ -------------- --------------
Total shareholders' equity..................................... 524,739 $ 1,917,595 8,530,095
------------ -------------- --------------
Total capitalization............................................... $ 524,739 $ 1,917,595 $ 8,530,095
------------ -------------- --------------
------------ -------------- --------------
</TABLE>
Common shares outstanding, excludes 124,000 common shares reserved for
issuance pursuant to our stock option plan.
13
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1998 was
approximately $566,614, or $0.33 per common share. Pro forma net tangible book
value per common share represents the amount of total tangible assets less total
liabilities, divided by the pro forma common shares outstanding as of December
31, 1998. Pro forma net tangible book value and pro forma common shares
outstanding as of December 31, 1998 assume that both Dapey Assaf-Dapey Dapey
Zahav and Dapey Assaf-Hamadrikh are our wholly owned subsidiaries. Giving effect
to the issuance and sale of the common shares offered by us in this prospectus,
after deducting $1,512,500, our share of the underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of December 31, 1998 would have been $7,179,114, or $2.41 per common
share. This represents an immediate increase in pro forma net tangible book
value of $2.08 per common share to existing shareholders and an immediate
dilution of $4.09 per common share, or 62.9%, to new investors. The following
table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Initial public offering price per common share....................... $ 6.50
Net tangible book value per common share at December 31, 1998........ $ 0.33
Increase in pro forma net tangible book value per common share
attributable to new investors...................................... $ 2.08
Net tangible book value per common share after this offering......... $ 2.41
---------
Dilution per common share to new investors........................... $ 4.09
---------
---------
</TABLE>
The following table compares, on a pro forma basis, as of December 31, 1998,
information concerning common shares purchased by existing shareholders and
common shares to be purchased by new investors in this offering. This
information assumes an initial public offering price of $6.50 per share and does
not take into account underwriting discounts and commissions and other offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders...................... 1,726,190 58.00% $ 2,400 0.03% $ 0.00
New investors.............................. 1,250,000 42.00% $ 8,125,000 99.97% $ 6.50
------------ --------- -------------- ---------
Total................................ 2,976,190 100.00% $ 8,127,400 100.00%
------------ --------- -------------- ---------
------------ --------- -------------- ---------
</TABLE>
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
should be read together with, (1) our consolidated financial statements for the
years ended December 31, 1997 and 1998, including the accompanying notes, which
have been audited by Arthur Andersen, LLP, independent public accountants, and
(2) "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
<S> <C> <C>
1997 1998
-------------- --------------
Net advertising revenues......................................................... $ 2,501,754 $ 2,759,092
Publishing costs................................................................. 441,535 377,983
-------------- --------------
Gross profit..................................................................... 2,060,219 2,381,109
Operating costs and expenses:
Selling expenses............................................................... 922,124 946,315
Administrative and general expenses............................................ 658,956 765,233
-------------- --------------
Total operating costs and expenses............................................. 1,581,080 1,711,548
-------------- --------------
Earnings from operations before provision for income taxes and equity income..... 479,139 669,561
Provision for income taxes....................................................... 240,000 329,000
Equity in earnings of affiliate.................................................. 16,012 17,035
-------------- --------------
Net income....................................................................... $ 255,151 $ 357,596
-------------- --------------
-------------- --------------
Basic and diluted net income per common share.................................... $ 0.20 $ 0.29
-------------- --------------
-------------- --------------
Basic and diluted weighted average number of common shares outstanding........... 1,250,000 1,250,000
-------------- --------------
-------------- --------------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998
----------------------
<S> <C>
Cash...................................................................................... $ 310,185
Working capital........................................................................... 162,041
Total assets.............................................................................. 2,970,190
Total liabilities......................................................................... 2,445,451
Total shareholders' equity................................................................ 524,739
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS SECTION OF THIS PROSPECTUS INCLUDES A NUMBER OF FORWARD-LOOKING
STATEMENTS THAT REFLECT OUR CURRENT VIEWS ABOUT FUTURE EVENTS AND FINANCIAL
PERFORMANCE. WE USE WORDS LIKE "PLAN," "BELIEVES," "EXPECTS," "FUTURE" AND
"INTENDS" AND SIMILAR EXPRESSIONS TO IDENTIFY FORWARD-LOOKING STATEMENTS. YOU
SHOULD NOT UNDULY RELY ON THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS
OF THE DATE OF THIS PROSPECTUS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR OUR PREDICTIONS. FOR A DESCRIPTION OF SOME OF THESE
RISKS, SEE "RISK FACTORS."
We currently publish and distribute two yellow page directories, the JEWISH
ISRAELI YELLOW PAGES and the MASTER GUIDE, in print and on the world wide web.
These directories cover the New York metropolitan market. In addition, to give
added value to users of and advertisers in our directories, we also operate the
JEWISH REFERRAL SERVICE and a "portal" web site. By June 2000, we plan to launch
NEWYELLOW, an English-only, general interest yellow page directory that will
compete directly with the Bell Atlantic Yellow Pages in the New York
metropolitan market.
Our principal source of revenue derives from the sale of ads for our
directories. Our advertising rates for new advertisers have increased
approximately 20% to 30% a year since 1990. However, we believe it is unlikely
that this trend will continue. Any further increases in our advertising rates
would reduce the disparity between our rates and those of the Bell Atlantic
Yellow Pages and may cause some of our advertisers to stop advertising in our
directories.
Advertising fees, whether collected in cash or evidenced by a receivable,
generated in advance of publication dates are recorded as "Advanced billings for
unpublished directories" on our balance sheet. Many of our advertisers pay the
fee over a period of time. In that case, the entire amount of the deferred
payment is booked as a receivable. Revenues are recognized at the time the
directory in which the ad appears is published. Similarly, costs directly
related to the publication of a directory in advance of publication are recorded
as "Directories in progress" on our balance sheet and are recognized when the
directory to which they relate is published. All other costs are expensed as
incurred.
The principal operating costs incurred in connection with publishing the
directories are commissions payable to sales representatives and costs for paper
and printing. Generally, advertising commissions are paid as advertising revenue
is collected. However, we expect that for the initial edition of NEWYELLOW we
will have to pay commissions to our sales representatives even before we collect
the related advertising revenue. Accordingly, approximately $2.4 million of the
net proceeds of this offering is earmarked for commissions payable with respect
to NEWYELLOW advertising. We do not have any agreements with paper suppliers or
printers. Since ads are sold before we purchase paper and print a particular
directory, a substantial
16
<PAGE>
increase in the cost of paper or printing costs would reduce our profitability.
Administrative and general expenses include expenditures for marketing,
insurance, rent, state and local franchise taxes, licensing fees, office
overhead and wages and fees paid to employees and contract workers.
QUARTERLY OPERATING RESULTS
Our results of operations have been subject to quarterly fluctuations. Most
of our revenue and most of our expenses have been recognized in the first and
the third quarters when the JEWISH ISRAELI YELLOW PAGES is printed and
distributed. As a result, quarterly results have not been indicative of annual
results. Future quarterly operating results may fluctuate as a result of these
factors and the timing of publication of NEWYELLOW and associated start-up
costs.
RECENT DEVELOPMENTS
Currently, our entire business is operated by Dapey Assaf-Dapey Zahav and
Dapey Assaf-Hamadrikh. Dapey Assaf-Dapey Zahav, 100% owned by Assaf Ran,
publishes the directories and conducts all other aspects of our business. Dapey
Assaf-Hamadrikh owns all the trademarks, trade names and service marks used in
connection with our business and provides collection services to Dapey
Assaf-Dapey Zahav. Mr. Ran owns 50% of Dapey Assaf-Hamadrikh.
Management believed that the success of this offering would depend, in part,
on the ability of the public shareholders to acquire an interest in an entity
that owns all of the assets used in the business, including the intellectual
property rights. Accordingly, DAG Media was organized in February 1999 to serve
as the corporate parent of Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh.
This will be accomplished through an exchange transaction. Immediately before
the date of this prospectus, the shareholders of Dapey Assaf-Dapey Zahav and
Dapey Assaf-Hamadrikh will exchange all of their shares in those entities for
1,726,190 of our common shares. As a result, Dapey Assaf-Dapey Zahav and Dapey
Assaf-Hamadrikh will become our wholly owned subsidiaries.
The transaction described above will be accounted for under the purchase
method of accounting. Accordingly, the value of the consideration deemed to have
been paid to the minority shareholders of Dapey Assaf-Hamadrikh, 238,095 of our
common shares, will be allocated among the assets of Dapey Assaf-Hamadrikh,
including our trademarks, tradenames and other intellectual property, based on
their relative fair market values and to the extent of their fair market values.
The excess of "purchase price" over the value of these assets will be allocated
to goodwill. The purchase price is deemed to be approximately $1,393,000. Of
this amount, $350,000 will be allocated to the intellectual property rights and
approximately $1 million will be allocated to goodwill. These amounts will be
amortized on a straight-line basis over 25 years, or $54,000 per year, beginning
with our 1999 fiscal year.
17
<PAGE>
Until the exchange transaction described above occurs, our historical
financial data include all of the operations of Dapey Assaf-Dapey Zahav and 50%
of the net income of Dapey Assaf-Hamadrikh.
RESULTS OF OPERATIONS
The following table sets forth for the periods presented statement of
operations data as a percentage of net advertising revenue. The trends suggested
by this table may not be indicative of future operating results.
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Net advertising revenues......................................... 100.00% 100.00%
Publishing costs................................................. 17.65% 13.70%
Gross profit..................................................... 82.35% 86.30%
Selling expenses................................................. 36.86% 34.30%
Administrative and general expenses.............................. 26.34% 27.73%
Total operating costs and expenses............................... 63.20% 62.03%
Earnings before provisions for income taxes and equity income.... 19.15% 24.27%
Provision for income taxes....................................... 9.59% 11.92%
Equity in earnings of affilliate................................. 0.64% 0.62%
Net income....................................................... 10.20% 12.96%
</TABLE>
YEARS ENDED DECEMBER 31, 1997 AND 1998
NET ADVERTISING REVENUES. Net advertising revenues for 1998 increased to
$2,759,092 from $2,501,754 in the prior year, an increase of 10.29%. The
increase reflected both increases in ad rates to new advertisers as well as an
increase in the number of advertisers. The 16(th) and 17(th)editions published
in February and August 1998, had 2,675 and 2,776 advertisers, respectively. The
14(th) and 15(th) editions published in February and August 1997, had 2,311 and
2,725 advertisers, respectively.
PUBLISHING COSTS. Publishing costs for 1998 decreased to $377,983 from
$441,535 in 1997, or 14.39%. This decrease resulted from:
- a global decrease in paper prices,
- the use of thinner paper and
- the printer's agreement to pay shipping costs.
As a result of the increase in net advertising revenues and the decrease in
publishing costs, gross profit for 1998 increased to $2,381,109 from $2,060,219,
or 15.58%.
SELLING EXPENSES. Selling expenses increased 2.62% to $946,315 in 1998 from
$922,124 in the prior year. However, as a percentage of net advertising
revenues, selling expenses declined to 34.30% in 1998 from 36.86% in the prior
year, reflecting lower commission rates and higher advertising rates.
18
<PAGE>
ADMINISTRATIVE AND GENERAL EXPENSES. Administrative and general expenses in
1998 were $765,233 compared to $658,956 in 1997, an increase of 16.13%. This
increase was attributable to the hiring of additional clerical personnel
necessitated by the growth in the size of the JEWISH ISRAELI YELLOW PAGES and
the publication of the 1(st) edition of the MASTER GUIDE.
EARNINGS BEFORE PROVISION FOR INCOME TAXES AND EQUITY INCOME. Earnings
before provision for income taxes and equity income in 1998 were $669,561
compared to $479,139 for the prior year, an increase of 39.74%. This increase is
attributable to a 10.29% increase in net advertising revenues and only a 3.31%
increase in total costs and expenses. More importantly, as a percentage of net
advertising revenues, total costs and expenses decreased from 80.85% in 1997 to
75.73% in 1998.
EQUITY IN EARNINGS OF AFFILIATE. Equity in earnings of affiliate represents
50% of the net income of Dapey Assaf-Hamadrikh. For 1998 equity in earnings of
affiliate was $17,035 compared to $16,012 for 1997, an increase of 6.39%. As a
percentage of net advertising revenues, equity in earnings of affiliate was
virtually the same in both years.
PROVISION FOR INCOME TAXES. Provision for income taxes in 1998 and 1997 was
$329,000 and $240,000, respectively. As a percentage of net advertising
revenues, provision for income taxes increased to 11.92% in 1998 from 9.59% in
1997.
NET INCOME. Net income for 1998 increased 40.15% to $357,596 from $255,151
in 1997. As a percentage of net advertising revenues, net income in 1998
increased 27.06% to 12.96% from 10.20% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
To date, our only source of funds has been cash flow from operations, which
has funded both our working capital needs and capital expenditures. We have no
debt or credit facilities. Generally, advertising fees, whether collected in
cash or evidenced by a receivable, are generated before the publication of the
related directory and before many of the costs directly associated with
publishing the related directory are incurred.
At December 31, 1998 we had cash and cash equivalents of $310,185 and
working capital of $162,041 compared to cash and cash equivalents of $132,741
and working capital of $47,638 at December 31, 1997. For the year ended December
31, 1998, net cash provided by operating activities was $433,731, compared to
$133,253 for the prior year. Net cash used in investing activities in 1998 was
$34,940 of which $17,035 represented 50% of the net income of Dapey
Assaf-Hamadrikh and $17,905 was used to purchase new computer equipment. Net
cash used in financing activities in 1998 was $221,347, the amount of the loan
made to our principal shareholder, Assaf Ran.
At December 31, 1998, advance billings for unpublished directories and
directories in progress were $1,832,341 and $623,335, respectively. In
comparison, the
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<PAGE>
corresponding amounts at December 31, 1997, were $1,226,343 and $379,390,
respectively. At December 31, 1998, we had income taxes payable of $358,000 and
deferred taxes payable of $171,000. Deferred taxes payable represents the timing
difference between reporting income on an accrual basis for financial purposes
and on a cash basis for tax purposes.
We do not have any material commitments under any leases, sales agency
agreements or employment agreements, other than the employment agreements with
Assaf Ran and Dvir Langer. Mr. Ran's employment agreement terminates June 30,
1999 and provides for a base salary of $75,000 per year. Mr. Langer's employment
agreement is for one year from the date of this prospectus and provides for a
guaranteed minimum base salary of $60,000.
We expect our working capital requirements to increase significantly over
the next 12 months as we implement our plan to launch our new directory,
NEWYELLOW, and continue to expand our web site. The net proceeds of this
offering will be used to pay our sales representatives commissions on ad sales
for NEWYELLOW, for marketing expenses for NEWYELLOW and our web site, for the
cost of printing and distributing NEWYELLOW and for other operating expenses
that are expected to increase as we expand our business. Accordingly, we will
depend primarily on the net proceeds of this offering to expand our operations.
We expect that the net proceeds of this offering, together with our cash
flow from operations, will be sufficient to meet our working capital
requirements for at least the next 12 months. However, if our operating
assumptions change or prove to be inaccurate or we accelerate our plans to
launch directories in addition to the initial NEWYELLOW directory, we may be
required to seek additional sources of capital sooner than we expect. Our
ability to obtain any additional financing may be limited by our financial
condition, our operating results or the condition of the financial markets. We
cannot assure you that we will be able to obtain additional financing or what
will be the terms of any subsequent financing.
YEAR 2000 COMPLIANCE
The "Year 2000" problem is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Computer
programs and microprocessors that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, or not recognize the
date at all, which could result in major system failures or miscalculations.
Year 2000 problems experienced by us or our suppliers, could adversely impact
our ability to service our customers or otherwise carry on our business,
including causing interruptions in the operation of our web site, customer
billing, and invoicing and data interfaces to and from these systems. We have
not yet developed a contingency plan to address situations that may result if we
or our suppliers are unable to achieve Year 2000 compliance. The cost of
developing and implementing this kind of plan, if necessary, could be material.
20
<PAGE>
We believe, based on evaluation by our own staff and an outside consultant,
that substantially all of our existing systems, software and hardware are Year
2000 compliant. The possibility exists that, despite assurances given by our
vendors and suppliers, and our own internal assessment, our systems may contain
undetected errors or defects relating to the Year 2000 problem. If these systems
are not Year 2000 compliant, on January 1, 2000 they may either malfunction or
shut down completely. In either case, historical data critical to our business,
operations and financial condition may be temporarily or permanently lost,
forcing us to discontinue operations for a significant amount of time until the
lost data are retrieved or recreated, if possible. We may also have to expend
significant amounts of capital to recreate the lost data and restore our
computer systems to working order, which could force us to delay or discontinue
our expansion plans.
During the third quarter of 1999 we plan to contact the banks, utility
companies, telecommunications and transportation providers and material
suppliers on whom we rely to assess their compliance with Year 2000 related
issues. Initially, we plan to send them letters asking them if they are Year
2000 compliant and, if not, when they expect to be. If we do not receive answers
to these inquiries, or the answers we receive are unsatisfactory, we will
evaluate our alternatives at that time. Such alternatives would include
switching to new suppliers who are Year 2000 compliant.
In particular, we must confirm that HaMakor Printing is Year 2000 compliant.
If HaMakor is not Year 2000 compliant, then we will assess whether its failure
would affect its ability to print our February 2000 JEWISH ISRAELI YELLOW PAGES
directory. If it does, we will have to find a new printer. While we believe that
we will be able to find a new printer relatively quickly, we cannot be certain
that a new printer will be willing or able to provide us with the same level of
pricing, service and quality as HaMakor.
At the present time, we do not anticipate that these inquiries will involve
any significant cost and expense. However, this may change as we develop new
information. We plan to use our administrative staff to handle these inquiries.
If the issues become too technical, we may retain the services of a Year 2000
consultant to advise us.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This statement establishes the
fair market value based method of accounting for an employee stock option but
allows companies to continue to measure the compensation cost for those plans
using the intrinsic value-based method of accounting prescribed by APB Opinion
No. 25 "Accounting for Stock Issued to Employees." Companies electing to
continue using the accounting provided for under APB Opinion No. 25 must,
however, make pro forma disclosures of net income and earnings per share as if
the fair value-based method of accounting defined in SFAS No. 123 had been
applied. We have elected to account for stock-based compensation awards to
employees and directors under the
21
<PAGE>
accounting prescribed by APB Opinion No. 25 and will provide the disclosures
required by SFAS No. 123.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." This statement requires the presentation of both
"basic earnings per share" and "diluted earnings per share" on the face of the
statement of operations. Basic earnings per share is computed on the weighted
average number of shares actually outstanding during the year and diluted
earnings per share takes into account the effect of potential dilution from the
exercise of outstanding dilutive stock options and warrants for common stock
using the treasury stock method. We have adopted SFAS No. 128 for the current
fiscal year.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131,
applicable to public companies, established new standards for reporting
information about operating segments in annual and periodic financial
statements. SFAS No. 131 is effective beginning with the year ended December 31,
1998. We believe that we operate in only one segment.
22
<PAGE>
BUSINESS
We currently publish and distribute two yellow page directories, the JEWISH
ISRAELI YELLOW PAGES and the MASTER GUIDE, in print and on the world wide web.
These directories cover the New York metropolitan market, which includes the
five boroughs of New York City, Nassau, Suffolk, Westchester and Rockland
counties and northern New Jersey. Based on our knowledge of the market, we
believe that our yellow page directories have more paying advertisers than those
of any publisher of yellow page directories for the New York metropolitan market
except Bell Atlantic. However, there is no independent source to confirm this
belief. In addition, to give added value to users of and advertisers in our
directories, we also operate the JEWISH REFERRAL SERVICE, and a "portal" web
site. By June 2000, we plan to launch NEWYELLOW, an English-only, general
interest yellow page directory that will compete directly with the Bell Atlantic
Yellow Pages in the New York metropolitan market.
INDUSTRY BACKGROUND(*)
In 1998, yellow page advertising revenues in the United States were
estimated to be $12.07 billion, a 6.3% increase over 1997 yellow page
advertising revenues of $11.36 billion. The eight largest publishers of yellow
page directories in the United States -- including the five regional bell
operating companies, GTE, SNET and Sprint -- account for the overwhelming
majority of yellow page advertising revenues. Bell Atlantic and SBC Directory
Operations, a division of SBC Corporation, one of the regional bell operating
companies, are the two largest publishers of yellow page directories in the
United States, each having annual yellow page advertising revenue in excess of
$2 billion.
There are many independent publishers of yellow page directories in the
United States. In 1997 United States publishers of yellow page directories not
affiliated with local telephone companies increased their market share to 6.4%
from 6.2% in 1996. Their yellow page advertising revenues were expected to grow
by 15.4% in 1998.
Further, in 1997 the total aggregate yellow page advertising revenues of
companies that publish yellow page directories on the Internet were
approximately $21.8 million. Simba estimates that yellow page Internet
advertising revenues will grow significantly, reaching $164.9 million by 2000.
PRODUCTS AND SERVICES
THE JEWISH ISRAELI YELLOW PAGES. The JEWISH ISRAELI YELLOW PAGES is a
bilingual, yellow page directory that is distributed free through local
commercial and retail
- ---------------------
* Except as otherwise indicated, all industry data are based on the YELLOW
PAGES & DIRECTORY REPORT, a publication of Cowles/Simba Information, a unit
of Cowles Business Media; INTERNET YELLOW PAGES, 1998: BUSINESS MODELS AND
MARKET OPPORTUNITIES, an annual research report published by Cowles/Simba;
and oral communications with representatives of Cowles/Simba in January
1999.
23
<PAGE>
establishments in the New York metropolitan area as well as through travel
agencies in Israel. All ads in the JEWISH ISRAELI YELLOW PAGES are in English
and Hebrew unless the advertiser specifically requests that the ad be English
only. The JEWISH ISRAELI YELLOW PAGES is organized according to the Hebrew
alphabet, although it is indexed in both Hebrew and English. We believe that the
JEWISH ISRAELI YELLOW PAGES is used principally by persons whose native language
is Hebrew although it is also used by members of the Jewish community whether or
not they speak Hebrew.
The JEWISH ISRAELI YELLOW PAGES was first published in February 1990 and has
been published in February and August of each year since 1991. Currently,
approximately 350,000 copies of the JEWISH ISRAELI YELLOW PAGES are printed and
distributed annually. The JEWISH ISRAELI YELLOW PAGES has grown substantially
since its initial edition. The 1(st)edition, published in February 1990, had 118
pages and approximately 217 advertisers. The 18(th) edition, published in
February 1999, has 1,696 pages and more than 3,200 advertisers. No single
advertiser accounts for a material portion of our ad revenues. We believe that,
based on the number of pages and paying advertisers, the JEWISH ISRAELI YELLOW
PAGES is the largest yellow page directory in the New York metropolitan area not
published by Bell Atlantic.
The tables below illustrate the growth in the number of pages and
advertisers of the JEWISH ISRAELI YELLOW PAGES. Data for the years 1991 through
1998 represent an average of the two directories published in each of those
years.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PAGES PER DIRECTORY
<S> <C>
PAGES
1990 118
1991 174
1992 215
1993 272
1994 321
1995 430
1996 792
1997 1239
1998 1408
1999 1696
YEAR
</TABLE>
24
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ADVERTISERS PER DIRECTORY
<S> <C>
ADVERTISERS
1990 217
1991 505
1992 574
1993 646
1994 806
1995 1115
1996 1592
1997 2518
1998 2725
1999 3244
YEAR
</TABLE>
Advertisers in the JEWISH ISRAELI YELLOW PAGES include companies such as El
Al Israel Airlines, Sprint PCS and AllState Insurance Company, as well as local
and neighborhood businesses, such as restaurants, car dealerships, retail
establishments, professionals, such as doctors, accountants and lawyers, and
travel agencies. Typically, the advertisers provide us with the copy of their ad
and our trained bilingual staff produces Hebrew text for the ad. Our editors
also design ads for our advertisers. The size of an ad can range from a single
line listing to a full page. Approximately 1% of the ads are line listings; the
others are at least one-sixth of a page. Prices range from $300 for a line
listing to $4,206 for a full page. Special rates apply for full color ads and
premium positioning. Full color ads are $6,250 and premium positioning ranges
from $8,250 to $22,000. Except for line listings, prices include all copy,
graphic and design work. Basic ads are printed in black and red while premium
ads are printed in four colors. Historically, our advertising rates for new
advertisers have increased at the rate of 20% to 30% annually since 1990. We
believe, however, that it is unlikely that this trend will continue. Any further
increases in our advertising rates would reduce the disparity between our rates
and those of the Bell Atlantic Yellow Pages and may cause some of our
advertisers to stop advertising in our directory.
All production, including layout, design, edit and most proofreading
functions, for the JEWISH ISRAELI YELLOW PAGES is performed at our headquarters
in Queens, New York by our bilingual staff. The final version of the JEWISH
ISRAELI YELLOW PAGES is shipped to Israel to be printed by HaMakor Printing Ltd.
The printed directories are shipped to our main office in New York for
distribution.
We believe that HaMakor provides us with a competitive advantage with
respect to cost, quality and responsiveness. From time to time we receive
solicitations from printers who would like to publish our directory. We have
consistently found their pricing to be significantly higher than that of
HaMakor, even after taking into account shipping costs. In addition, we believe
the quality of HaMakor's product is superior to anything that a local printer
would produce, particularly because so much of the
25
<PAGE>
directory is in Hebrew. Finally, because of our long standing relationship with
HaMakor we receive timely service.
We buy all our paper for our directories on the local market at prevailing
prices. Accordingly, we do not depend on any single source of supply although we
are subject to market forces that affect the price of paper. Paper costs
fluctuate according to supply and demand in the marketplace. In addition, paper
costs can be affected by events outside of our control, such as fluctuations in
currency rates, political events, global economic conditions, environmental
issues and acts of God.
THE MASTER GUIDE. In October 1998 we published the first edition of the
MASTER GUIDE, a yellow page directory designed to meet the special needs of the
Hasidic and ultra-Orthodox Jewish communities in the New York metropolitan area.
The first edition of the MASTER GUIDE had 124 pages and 80 advertisers. A second
edition is scheduled for publication in June 1999. We produce the MASTER GUIDE
generally in the same manner as we do the JEWISH ISRAELI YELLOW PAGES, including
printing it in Israel. The MASTER GUIDE differs from the JEWISH ISRAELI YELLOW
PAGES in that the MASTER GUIDE is published in English only, does not advertise
products or services that might offend the Hasidic and ultra-Orthodox Jewish
communities and is only published once a year. Generally, advertising rates for
the MASTER GUIDE are lower than those for the JEWISH ISRAELI YELLOW PAGES
because the market that it serves is smaller. Distribution of the MASTER GUIDE
is accomplished by placing copies of the directory in synagogues, community
centers and businesses located in Hasidic and ultra-Orthodox neighborhoods. The
development of the MASTER GUIDE reflects our strategy to expand by identifying
and pursuing niche markets for yellow page directories.
THE JEWISH REFERRAL SERVICE. The JEWISH REFERRAL SERVICE provides added
value to users of and advertisers in our directories. Potential consumers who
are looking to purchase goods or services call the referral service and an
operator directs them to one or more advertisers in our directories. Tourists
also call the referral service with questions involving travel, lodging, visa
issues, driver's license issues and the like. Finally, advertisers use the
referral service as a tool to generate new business.
The telephone number for the JEWISH REFERRAL SERVICE is published throughout
our directories and in newspapers serving the Jewish and Israeli communities. As
part of the referral service, we recently established a program under which
participating advertisers have agreed to give discounts to customers who produce
the Jewish Israeli Yellow Pages Consumer Discount Card. This card is distributed
with the JEWISH ISRAELI YELLOW PAGES or the MASTER GUIDE or can be ordered
directly from us. By presenting the card at participating establishments,
consumers can receive discounts of up to 10%.
ONLINE SERVICES. Initially our web site, launched in 1995, contained an
English-only version of the JEWISH ISRAELI YELLOW PAGES. In 1999 we expanded our
online presence so that our web site functions as a "portal" with links to a
variety of sites on the web, particularly those that carry information and news
that may be of particular
26
<PAGE>
interest to the Israeli and Jewish communities. It also provides a link to our
directories as well as the web sites of our advertisers. We also develop web
sites for our advertisers for a fee. We plan to further enhance our web site by
providing links to NEWYELLOW and community-focused yellow page directories, by
including news and information and by creating strategic alliances with other
Internet portals. While we have not yet derived any revenue from our web site,
we plan to explore ways in which it can be used to generate additional
advertising revenue.
GROWTH STRATEGY
We plan to expand our operations by introducing NEWYELLOW, English-only,
general interest yellow page directories, in the New York metropolitan area. We
plan to introduce the first NEWYELLOW directory in Manhattan by June 2000. If
the Manhattan NEWYELLOW directory is successful, we plan to offer additional
NEWYELLOW directories covering the other boroughs in New York City, the other
counties in the New York metropolitan area and northern New Jersey.
NEWYELLOW will compete directly with yellow page directories published by
Bell Atlantic. Ads in NEWYELLOW will be priced significantly below the rates
currently charged by Bell Atlantic for its yellow page directories. Thus,
NEWYELLOW will be positioned as a low-cost alternative to the Bell Atlantic
Yellow Pages, appealing to smaller businesses that are looking for a less
expensive alternative. Although we have not conducted any formal marketing
surveys, some of our advertisers have told us that they do not advertise in the
Bell Atlantic Yellow Pages because the rates are too high and other advertisers
have indicated that they would switch from the Bell Atlantic Yellow Pages if a
less expensive alternative were available. We believe that our lower advertising
rates as well as our expertise in publishing yellow page directories,
particularly our ability to hire, train and manage an effective sales force, our
low advertising rates and our low overhead will enable us to compete effectively
with Bell Atlantic.
To successfully introduce NEWYELLOW into the New York market and sustain and
increase our profitability, we must do the following:
- convince advertisers that NEWYELLOW will be used by sufficient number of
their potential customers to make it worthwhile and cost effective for
them to advertise in NEWYELLOW;
- manage the production, including ad sales, graphic design, layout, editing
and proofreading, of multiple directories addressing different markets in
varying stages of development;
- attract, retain and motivate qualified personnel and expand the number of
sales, operating and management personnel;
- provide high quality, easy to use and reliable directories;
- establish a brand identity for NEWYELLOW;
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- develop new and maintain existing relationships with advertisers without
diverting revenues from our existing directories;
- develop and upgrade our management, technical, information and accounting
systems;
- respond to competitive developments promptly;
- introduce enhancements to our existing products and services to address
new technologies and standards and evolving customer demands;
- control costs and expenses and manage higher levels of capital
expenditures and operating expenses; and
- maintain effective quality control over all of our directories.
Our failure to achieve any of the above in an efficient manner and at a pace
consistent with the growth of our business could adversely affect our business,
financial condition and results of operations.
We may also explore opportunities for adding JEWISH ISRAELI YELLOW PAGES and
MASTER GUIDE directories in other cities with large Jewish and Israeli
populations, like Miami, Florida and Los Angeles, California.
SALES
Advertisements for the JEWISH ISRAELI YELLOW PAGES and the MASTER GUIDE are
sold through our network of trained sales representatives, all of which are
independent contractors and are paid solely on a commission basis. Of the
approximately 65 sales representatives in our network, 32 are hired directly by
us and 33 are hired by two independent sales agencies with which we have sales
agency agreements, B.I.Y., Inc. and M.I.Y. Inc. The sales representatives hired
by us work out of our offices in Queens, New York and Fairlawn, New Jersey.
B.I.Y. is located in Brooklyn, New York and M.I.Y. is located in Manhattan, New
York. Our selling force is based in these locations because of the high
concentration of Jewish and Israeli consumers in these areas. M.I.Y. is owned by
Daniel Frank and B.I.Y. is owned by Avi Sheffi. Mr. Frank and Mr. Sheffi will
each own approximately 1% of our outstanding common shares after this offering
is completed.
We plan to open two new company-owned sales offices in 1999: one in Long
Island that will be dedicated to the JEWISH ISRAELI YELLOW PAGES and the MASTER
GUIDE and one in Manhattan dedicated to NEWYELLOW. We have commenced our search
for managers to supervise these offices but have not taken any further steps in
connection with this expansion. At the appropriate time we will decide whether
to lease or buy the facilities that will house these operations. Funds for the
opening of these offices will come from the net proceeds of this offering and
cash flow from operations, including the repayment of Mr. Ran's loan.
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<PAGE>
Under our agreements with the independent sales agencies, which are
terminable upon 30 days notice, the agencies may not sell advertising for any
yellow page directories other than those we publish. Generally, each sales
agency is responsible for all fixed costs relating to its operations. We pay
sales commissions to the agencies, which, in turn, pays commissions to the
individual sales representatives who sell the ads. The commissions payable to
the individual sales representatives are prescribed in our agreements with the
agencies and are consistent with the commissions we pay to the sales
representatives that we hire directly.
We are responsible for training each sales representative, whether hired
directly by us or by one of our sales agencies. Generally, training consists of
one-day orientation, during which one of our sales managers educates the sales
representative about our business and operations, and a two-week period during
which the sales representative receives extensive supervision and support from a
sales manager or another experienced sales representative.
MARKETING STRATEGY
The JEWISH ISRAELI YELLOW PAGES and MASTER GUIDE are marketed to the Jewish
and Israeli communities living in the New York metropolitan area. According to
the American Jewish Congress, there are approximately two million Jews living in
this market, representing approximately 10.6% of the total population. We
believe that the Jewish population has higher than average disposable income, is
well educated and possesses a strong sense of community. In addition, while
there is no precise data as to the number of Israeli immigrants living in the
New York metropolitan area, we believe the number is substantial. Moreover, a
significant number of Israeli tourists visit the area annually. Accordingly, we
believe that advertisers are attracted to the JEWISH ISRAELI YELLOW PAGES as a
way to advertise directly to this market.
We further believe that the Jewish population in the New York metropolitan
area is likely use to the JEWISH ISRAELI YELLOW PAGES because of the impression
that businesses that advertise in the JEWISH ISRAELI YELLOW PAGES support or are
affiliated with the Jewish community. In the case of the MASTER GUIDE, users can
be comfortable that none of its advertisers will offend their religious beliefs.
We also believe that our advertising rates are attractive, particulalrly to
small businesses who cannot afford to advertise in the Bell Atlantic Yellow
Pages. Generally, advertising rates for the JEWISH ISRAELI YELLOW PAGES and the
MASTER GUIDE are approximately 33% of the rates for the Bell Atlantic Yellow
Pages.
NEWYELLOW will initially compete directly with the Bell Atlantic Yellow
Pages in Manhattan and then with the Bell Atlantic Yellow Pages in the other
boroughs of New York City and in the surrounding suburbs. Initially, we will
dedicate up to 10 sales representatives from our existing network, spread out
over the four sales offices, to selling ads for NEWYELLOW. Before the end of
1999, we expect to open a new company-owned sales office, which will be staffed
by sales representatives that we will hire directly and which will be dedicated
to selling ads exclusively for NEWYELLOW.
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Because NEWYELLOW is a new publication, which may make it more difficult to
sell, and because it will compete directly with Bell Atlantic, the commission
structure for NEWYELLOW sales representatives may have to be higher than it is
for our other directories.
We believe that advertisers will be attracted to NEWYELLOW for several
reasons. First, NEWYELLOW is likely to be smaller and less dense than the Bell
Atlantic Yellow Pages, so that each advertisement in NEWYELLOW will stand out
more prominently than it would in the Bell Atlantic Yellow Pages. Second,
advertising rates for NEWYELLOW will be significantly lower than the comparable
rates for advertising in the Bell Atlantic Yellow Pages. Accordingly, we believe
that NEWYELLOW will attract advertisers who do not currently advertise in the
Bell Atlantic Yellow Pages as well as existing Bell Atlantic Yellow Page
advertisers. The table below compares the proposed advertising rates for the
first edition of NEWYELLOW and the advertising rates generally offered by Bell
Atlantic for the 1999 edition of its Yellow Pages. All rates assume single color
ads using black print on yellow paper.
<TABLE>
<CAPTION>
BELL
ATLANTIC
NEWYELLOW YELLOW PAGES
------------ ------------
<S> <C> <C>
Full Page..................................................... $ 21,120 $ 74,496
Half Page..................................................... $ 12,684 $ 37,248
Quarter Page.................................................. $ 6,802 $ 18,624
Sixth Page.................................................... $ 4,864 $ 12,416
Eighth Page................................................... $ 3,686 $ 9,312
Sixteenth Page................................................ $ 1,824 $ 4,656
Inside Front Cover............................................ $ 75,000 $ 300,000
Inside Back Cover............................................. $ 75,000 $ 300,000
Back Cover.................................................... $ 150,000 $ 500,000
Page One...................................................... $ 75,000 ***
</TABLE>
We plan to advertise NEWYELLOW primarily in local media outlets where
advertising rates are relatively low. In addition to marketing NEWYELLOW
independently, we will also seek to enter joint marketing agreements with local
and long distance telecommunications companies. We intend to spend approximately
$1.5 million from the net proceeds of this offering on the marketing campaign
for NEWYELLOW. See "Use of Proceeds" for a more detailed discussion regarding
how we intend to use the net proceeds of this offering.
GOVERNMENT REGULATION
We are subject to laws and regulations relating to business corporations
generally, such as the Occupational Safety and Health Act, Fair Employment
Practices and minimum wage standards. We believe that we are in material
compliance with all laws and regulations affecting our business and we do not
have any material liabilities under these laws and regulations. In addition,
compliance with all these laws and
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regulations does not have a material adverse effect on our capital expenditures,
earnings, or competitive position.
COMPETITION
In New York, the market for yellow page advertising is dominated by Bell
Atlantic. In addition, there are a number of independent publishers of yellow
page directories, including bilingual directories for specific ethnic
communities. There are also independent publishers of yellow page directories
that publish community or neighborhood directories. However, we are not aware of
any other Hebrew-English yellow page directory or a yellow page directory that
is published specifically for the Hasidic and ultra-Orthodox Jewish communities
in the New York metropolitan area. By focusing on the special needs of the
Hebrew speaking and the Hasidic and ultra-Orthodox Jewish communities, we
believe that we have identified niche markets that allows us to compete
effectively with our larger rivals.
Unlike the JEWISH ISRAELI YELLOW PAGES and the MASTER GUIDE, NEWYELLOW will
compete directly with the Bell Atlantic Yellow Pages and other smaller,
English-only, general interest yellow page directories published by companies
other than Bell Atlantic. In addition, since there are virtually no barriers to
entry in this market, any company with a reasonable amount of capital, like the
regional bell operating companies or publishers, are potential competitors. In
addition, the Internet is growing rapidly and is a current and potential source
of even greater competition. There are a number of online yellow page
directories, including Big Yellow, owned by Bell Atlantic. Finally, strategic
alliances could give rise to new or stronger competitors. Many of our
competitors, such as Bell Atlantic, can reduce advertising rates, particularly
where directory operations can be subsidized by other revenues, making
advertising in our directories less attractive. In response to competitive
pressures, we may have to increase our sales and marketing expenses or reduce
our advertising rates. Since we may not capture a significant share of the
markets where we operate, we cannot assure you that we can compete effectively.
INTELLECTUAL PROPERTY
To protect our rights to our intellectual property, we rely on a combination
of federal, state and common law trademarks, service marks and trade names,
copyrights and trade secret protection. We have registered some of our
trademarks and service marks on the supplemental register of the United States
and some of our trade names in Queens, New York and New Jersey. In addition,
every directory we publish has been registered with the United States copyright
office. The protective steps we have taken may be inadequate to deter
misappropriation of our proprietary information. We may be unable to detect the
unauthorized use of, or take steps to enforce, our intellectual property rights.
In addition, although we believe that our proprietary rights do not infringe on
the intellectual property rights of others, other parties may assert
infringement claims against us or claims that we have violated a trademark,
trade name, service mark or copyright belonging to them. These claims, even if
not
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meritorious, could result in the expenditure of significant financial and
managerial resources on our part.
EMPLOYEES
As of March 1, 1999, we employed three people, two of whom are full-time,
and all of whom were employed in executive, managerial or administrative
positions capacities. In addition, we retained the services of 10
administrative, accounting and production personnel, all of whom are independent
contractors. Finally, we had a network of 65 sales representatives, 32 hired by
us directly and 33 hired by the independent sales agencies that sell ads for our
directories. We believe that our relationship with our employees and contractors
is good. None of our employees is represented by a labor union.
FACILITIES
Our executive and principal operating office is located in Queens, New York
in 3,000 square feet. This space is occupied under a lease expiring October 30,
1999. The monthly rent is $4,552. After this offering is completed, we intend to
negotiate with the owner of the premises regarding a new lease. If we cannot
reach an agreement within a reasonable amount of time, we will look for
alternative space which we believe will be available on satisfactory terms. Our
New Jersey sales office is located in an approximately 1,000 square foot
facility in Fair Lawn, New Jersey. The space is leased on a month-to-month basis
for $1,100 per month.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, including those who will take office
on the date of this prospectus, and their respective ages, as of April 20, 1999,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------
<S> <C> <C>
Assaf Ran.............................. 33 Chief executive officer, president and
director
Dvir Langer............................ 30 Vice president--sales and corporate
development nominee and director nominee
Eyal Huberfeld......................... 24 Vice president--sales and director
Hanan Goldenthal....................... 48 Chief financial and accounting officer,
treasurer and secretary
Yoram Evan............................. 32 Director
Phillip Michals........................ 29 Director nominee
Eran Goldshmid......................... 32 Director nominee
</TABLE>
All directors hold office until the next annual meeting of shareholders and
until their successors are duly elected and qualified. Officers are elected to
serve subject to the discretion of the board of directors.
Set forth below is a brief description of the background and business
experience of our executive officers and directors:
ASSAF RAN, our founder, has been our chief executive officer and president
since our inception in 1989. In 1987 Mr. Ran founded Dapey Assaf Maagarei
Mechirim, Ltd., a publishing company in Israel, and is a member of its board of
directors.
DVIR LANGER will become our vice president--sales and corporate development
and will join our board of directors on the date of this prospectus. From August
1996 through April 1999, Mr. Langer was employed by Prudential Securities as a
financial advisor. He has also been an employee of Cosmo Management Corporation,
a real estate management firm, since May 1994. Mr. Langer received a BA degree
in philosophy from the University of British Columbia in June 1993 and a JD from
Brooklyn Law School in June 1996. He has been a member of the New York State Bar
since February 1997.
EYAL HUBERFELD has been our vice president--sales since June 1998 and a
member of our board of directors since February 1999. From September 1997
through June 1998, was one of our independent sales representatives. From August
1996 to January 1997, Mr. Huberfeld worked for Yedeot Aharonot, an Israeli daily
newspaper, as a marketing manager and consultant. Between March 1993 and March
1996, Mr. Huberfeld served in the Israeli Defense Force, in the bomb disposal
unit.
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<PAGE>
HANAN GOLDENTHAL has been our chief financial and accounting officer,
treasurer and secretary since February 1999. For the last 10 years, he has been
engaged in the practice of public accounting. Until December 1998, he was a
principal of Goldenthal & Pankowski, CPAs, and since January 1999, he has been a
principal of Goldenthal & Suss, CPAs, PC. From September 1995 to December 1998,
he was also a principal of GP Business Solutions, Inc., a management consulting
firm. Mr. Goldenthal has been our accountant since our inception. Mr. Goldenthal
is a part-time employee and continues to practice accounting with Goldenthal &
Suss, CPAs, PC. Mr. Goldenthal is a certified public accountant and received a
BBA from Baruch College in June 1976.
YORAM EVAN has been a member of our board of directors since October 1998.
Since January 1999, he has been vice president of operations and finance and,
since July 1997, a member of the board of directors of Netgrocer, an internet
grocery company. From December 1997 to December 1998, he was the chief financial
officer of American Value Brands, Inc., a food marketing company. From April
1996 to September 1997, Mr. Evan has acted as the managing partner of two
investment funds in Israel, which he founded. From March 1992 to April 1996, Mr.
Evan served in the budget department of the Israeli Ministry of Finance. Mr.
Evan received a BA in economics in July 1991 and an MBA in February 1997 from
the University of Tel Aviv in Israel.
PHILLIP MICHALS will join our board of directors on the date of this
prospectus. He is the founder and, since August 1996, the president of Up-Tick
Trading, a consulting company to investment banking firms. Since July 1994, he
has also been a principal and a vice president of Michals and Stockmen
Consulting Inc., a management consulting firm. Mr. Michals received a BS degree
in human resources from the University of Delaware in May 1992.
ERAN GOLDSHMID will join our board of directors on the date of this
prospectus. Since December 1998, he has been the general manager of the Carmiel
Shopping Center in Carmiel, Israel. From April 1995 through December 1998, he
was head of marketing at Environmental Engineering & Design Company, Ltd., Tel
Aviv, Israel. From February 1993 through April 1995, he was head of a sales
office for Yedioth Aharonath, an Israeli daily newspaper. Mr. Goldshmid received
certification as a financial consultant in February 1993 from the School for
Investment Consultants, Tel Aviv, Israel, and a BA in business administration
from the University of Humberside, England in December 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established compensation and audit committees.
Messrs. Evan, Michals and Goldshmid will be members of both committees, and Mr.
Ran will be a member of the audit committee. The compensation committee will
review and make recommendations to the board of directors regarding compensation
matters. The compensation committee will also administer our stock option plan.
The
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<PAGE>
audit committee will meet with management and our independent public accountants
to determine the adequacy of internal controls and other financial reporting
matters.
EXECUTIVE COMPENSATION
The following table shows information regarding compensation paid during the
year ended December 31, 1998 to our chief executive officer. No other employee
received compensation in excess of $100,000 in 1998.
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME SALARY BONUS COMPENSATION COMPENSATION
- -------------------------------------------- --------- ----------- ------------------- -------------------
<S> <C> <C> <C> <C>
Assaf Ran................................... $ 25,000 -- -- --
</TABLE>
In addition, we advanced $295,262, net of repayments, to Mr. Ran in 1998.
Mr. Ran will repay this loan out of the net proceeds from the sale of his common
shares offered by this prospectus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until after the consummation of this offering, we will not have a
compensation committee or other board committee performing equivalent functions.
Employment contracts with Messrs. Ran and Langer have been approved by the
entire board of directors, consisting of Messrs. Ran, Huberfeld and Evan.
EMPLOYMENT CONTRACTS
In March 1999, we entered into an employment agreement with Assaf Ran
providing for his employment as president and chief executive officer until June
30, 2002 at an annual base salary of $75,000 and annual bonuses to be determined
by the compensation committee in its sole and absolute discretion. Under the
agreement, Mr. Ran is entitled to participate in all executive benefit plans and
has agreed to a one-year non-competition period following the termination of the
agreement except if his employment is terminated without cause or for good
reason as defined in the agreement. A court may determine not to enforce, or
only partially enforce, the non-compete provisions of this agreement. The
agreement renews automatically for successive one-year terms until either party
gives 180 days notice of its or his intention to terminate the agreement.
In March 1999, we entered into a one-year employment agreement with Dvir
Langer, commencing on the date of this prospectus, providing for his employment,
as vice president--sales and corporate development. His compensation consists of
commissions based on advertising revenue generated by him or other sales
representatives whom he supervises. Mr. Langer is guaranteed a minimum base
salary of $60,000. Under the agreement, Mr. Langer has agreed to a two-year
non-competition period following the termination of the agreement. A court may
determine not to enforce, or only partially enforce, the non-compete provisions
of this
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<PAGE>
agreement. The agreement renews automatically for successive one-year terms
until either party gives 14 days notice of its or his intention to terminate the
agreement.
1999 STOCK OPTION PLAN
To attract and retain persons necessary for our success, in March 1999 our
board of directors approved the adoption of the DAG Media, Inc. 1999 Stock
Option Plan covering 124,000 common shares. Under this plan, officers, directors
and key employees and consultants are eligible to receive incentive and/or
non-qualified stock options. This plan, which has a term of 10 years from the
date of its adoption, will be administered by the compensation committee. The
selection of participants, allotment of shares, determination of price and other
conditions relating to the purchase of options will be determined by the
compensation committee in its sole discretion.
Incentive stock options granted under this plan are exercisable for a period
of up to 10 years from the date of grant at an exercise price which is not less
than the fair market value of the common shares on the date of the grant, except
that the term of an incentive stock option granted under the plan to a
shareholder owning more than 10% of the outstanding common shares may not exceed
five years and its exercise price may not be less than 110% of the fair market
value of the common shares on the date of the grant.
As of the date of this prospectus, options covering 43,324 common shares
will be outstanding under our plan. Options covering 21,000 common shares will
be granted to our non-employee directors and are described in more detail below
under the subheading "Compensation of directors." Options covering 14,884 common
shares have been granted to two of our employees. These options have an exercise
price of $6.50 per share and a term of five years. The options granted to one
employee will be exercisable on the date of this prospectus and the options
granted to the other will be exercisable one year from the date of this
prospectus.
Options covering the remaining 7,440 common shares have been granted to one
of our contractors, subject to her becoming an employee. They will have an
exercise price equal to the fair market value on the date her employment
commences or $6.50 if her employment commences before the date of this
prospectus. They will have a term of five years and will be exercisable one year
from the date of this prospectus. No other options have been granted under our
plan.
COMPENSATION OF DIRECTORS
Each director, other than employee directors, upon first taking office after
the effective date of this offering will receive a one-time grant under our
stock option plan of options to purchase 7,000 common shares at a price equal to
the fair market value on the date of grant. These options will vest immediately
upon grant. In addition, each non-employee director will receive a $200 stipend
for each board meeting he or she attends in person and reimbursement for travel
expenses for attendance at meetings.
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LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation provides that, to the extent permitted by
the New York Business Corporation Law, our directors will not be personally
liable to us or to our shareholders for monetary damages if they breach their
fiduciary duty of care as a director, including breaches which constitute gross
negligence. Thus, neither we nor our shareholders may be able to recover damages
even if directors take actions which are harmful to us. The liability of
directors under the federal securities laws is not affected. A director may be
liable for monetary damages only if a claimant can show a breach of the
individual director's duty of loyalty in performing their duties, a failure to
act in good faith, intentional misconduct, a knowing violation of the law, an
improper personal benefit or an illegal dividend or stock purchase.
There is no pending litigation or proceeding involving any of our directors,
officers, employees or agents in which we are required or permitted to provide
indemnification. We are not aware of any threatened litigation or proceeding
that may result in a claim for indemnification.
Our certificate of incorporation also provides that we will indemnify and
hold harmless each of our directors or officers to the fullest extent authorized
by the New York Business Corporation Law, against all expense, liability and
loss, including attorneys fees, judgments, fines, Employee Retirement Income
Security Act excise taxes or penalties and amounts paid or to be paid in
settlement, reasonably incurred or suffered by him or her arising from his or
her actions as an officer or director.
We have been advised that, in the opinion of the Securities and Exchange
Commission, indemnification for liabilities arising under the Securities Act, as
provided in our certificate of incorporation, is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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RELATED PARTY TRANSACTIONS
During the year ended December 31, 1998, we advanced $295,262, net of
repayments, to Assaf Ran, our principal shareholder. This amount is evidenced by
a five-year promissory note bearing interest at 4.74% per annum and repayable in
quarterly installments with interest only payable during the first two years and
interest and principal payments payable over the last three years of the note.
Mr. Ran is selling 75,000 of his common shares in this offering, the net
proceeds of which will be used to repay this loan.
In February 1999, we entered into an agreement with Dapey Assaf-Dapey Zahav,
Dapey Assaf-Hamadrikh and their respective shareholders, including Mr. Ran, Eyal
Huberfeld, one of our officers and directors, and Dvir Langer, who will become
an officer and director on the date of this prospectus. Under this agreement,
the shareholders agreed to exchange all of the shares that they own in Dapey
Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh for 1,726,190 of our common shares.
This exchange will take place immediately before the date of this prospectus.
In February 1999, our board of directors authorized the granting of options
covering 7,444 common shares to Hanan Goldenthal, our chief financial and
accounting officer. These options are not exercisable until the date of this
prospectus and have an exercise of $6.50, the initial public offering price. In
addition, the board of directors authorized the granting of options covering
7,000 common shares to each of Yoram Evan, Philip Michals and Evan Goldshmid,
our non-employee directors. These options will not be exercisable until the date
of this prospectus.
At the time of the loan to Mr. Ran described above, we lacked independent
directors to ratify the transaction and did not determine whether the terms of
the loan were as favorable to us as those generally available from unaffiliated
third parties. Our bylaws now provide that, all material transactions and loans
between us and any of our affiliates must be on terms that are no less favorable
than those that can be obtained from unaffiliated third parties. Also, all
future material transactions, loans, and any foregiveness of loans involving
affiliates must be approved by a majority of our independent directors who do
not have an interest in the transaction and who have access, at our expense, to
our or independent legal counsel.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of common shares as of the date of this prospectus and as adjusted to
reflect the sale of the common shares offered by this prospectus by:
- each shareholder who we know owns beneficially more than 5% of our
outstanding common shares,
- each of our directors,
- our chief executive officer and
- all of our directors and executive officers as a group.
In connection with this table:
- The address of each person listed is c/o DAG Media, Inc., 125-10 Queens
Boulevard, Kew Gardens, New York 11415.
- As required by the rules and regulations of the Securities and Exchange
Commission, number of common shares beneficially owned after this offering
by Messrs. Goldenthal, Evan, Michals, and Goldschmid represents common
shares issuable upon exercise of options that vest within 60 days of the
date of this prospectus.
- All officers and directors as a group consists of five persons before this
offering and seven persons after this offering.
All of the common shares set forth in the following table are subject to
agreements prohibiting the sale, assignment or transfer for a period of one year
from the date of this prospectus without the prior written consent of Paulson.
See "Underwriting" for more information about these agreements. Each person
listed below has sole investment and voting power with respect to the common
shares that he owns.
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
---------------------------------- ----------------------------------
NUMBER OF PERCENTAGE OF COMMON SHARES NUMBER OF PERCENTAGE OF
COMMON SHARES COMMON SHARES OFFERED BY COMMON SHARES COMMON SHARES
BENEFICIALLY BENEFICIALLY SELLING BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER(1) OWNED OWNED SHAREHOLDER OWNED OWNED
- ------------------------------ --------------- ----------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Assaf Ran..................... 1,488,095 86.21% 75,000 1,413,095 47.48%
Dvir Langer................... 148,809 8.62% -- 148,809 5.00%
Eyal Huberfeld................ 29,762 1.72% -- 29,762 1.00%
Hanan Goldenthal.............. -- -- -- 7,444 *
Yoram Evan.................... -- -- -- 7,000 *
Phillip Michals............... -- -- -- 7,000 *
Eran Goldshmid................ -- -- -- 7,000 *
All officers and directors as
a group..................... 1,666,666 96.55% 75,000 1,620,110 53.92%
</TABLE>
- ---------------------
* Less than 1%
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 common shares, par value
$.001 per share, and 5,000,000 preferred shares, par value of $.01 per share.
Before the transactions in the agreement described in the next paragraph are
consummated, we will not have any shares of capital stock issued and
outstanding.
We have entered into an agreement with Dapey Assaf-Dapey Zahav and Dapey
Assaf-Hamadrikh and their respective shareholders, which provides that
immediately prior to the date of this prospectus, the shareholders of Dapey
Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh, five individuals in total, will
exchange all of their shares in those two companies for an aggregate of
1,726,190 of our common shares. Upon completion of this offering, there will be
2,976,190 of our common shares issued and outstanding. If the option we granted
to the underwriters to purchase additional common shares from us in this
offering is exercised in full, we will have 3,174,940 common shares issued and
outstanding. There are no preferred shares outstanding.
COMMON SHARES
In general, after the payment of dividends payable with respect to any
issued and outstanding preferred shares, the holders of outstanding common
shares are entitled to receive dividends out of assets legally available for the
payment of dividends at the times and in the amounts that the board of directors
determines. Each shareholder is entitled to one vote for each common share held
on all matters submitted to a vote of shareholders. The holders of a majority of
the common shares voted can elect all of the directors then standing for
election. The common shares are not entitled to preemptive rights and are not
subject to conversion or redemption. If we are liquidated or dissolved or our
business is otherwise wound up, the holders of common shares would be entitled
to share ratably in the distribution of all of our assets remaining available
for distribution after satisfaction of all our liabilities and the payment of
the liquidation preference of any outstanding preferred shares. Each outstanding
common share is, and all common shares to be outstanding upon completion of this
offering will be, fully paid and nonassessable.
PREFERRED SHARES
Our board of directors has the authority, within the limitations and
restrictions stated in our certificate of incorporation, to issue preferred
shares, in one or more classes or series, and to fix the rights, preferences,
privileges and restrictions of the series of preferred shares, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any series or the
designation of a series. Any issuance of preferred shares must be approved by a
majority of our independent directors who do not have an interest in the
transaction and who have access, at our expense, to our or independent legal
counsel. The issuance of preferred shares could have the effect of decreasing
the
40
<PAGE>
market price of the common shares and could adversely affect the voting and
other rights of the holders of common shares.
OPTIONS AND WARRANTS
We have reserved 124,000 common shares for issuance under our stock option
plan. On the date of this prospectus, options covering 43,324 common shares will
be outstanding. Also, the representatives of the underwriters will receive
five-year warrants covering 132,500 common shares. The exercise of any of these
options and warrants will dilute the percentage ownership of our other
shareholders.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued common shares and preferred shares are available
for future issuance without shareholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued common shares and preferred shares
could render more difficult or discourage an attempt to obtain control of us by
means of a proxy contest, tender offer, merger or otherwise.
The New York Business Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
the corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our certificate of incorporation does not impose
any supermajority vote requirements.
LISTING ON NASDAQ SMALLCAP MARKET
Our shares have been approved for trading on the Nasdaq SmallCap Market
under the symbol "DAGM."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common shares will be American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there was no public market for the common shares. We
cannot predict the effect, if any, that sales of, or the availability for sale
of, our common shares will have on the market price of the common shares
prevailing from time to time. Future sales of substantial amounts of common
shares in the public market, including shares issued upon the exercise of
options to be granted under our stock option plan, could adversely affect the
prevailing market price of our common shares and could impair our ability to
raise capital in the future through the sale of securities.
Upon completion of this offering, we will have 2,976,190 common shares
outstanding, or 3,174,940 if the option we granted to the underwriters to
purchase additional common shares from us in this offering is exercised in full.
Of these common shares, 1,325,000, or 1,523,750 if the option we granted to the
underwriters to purchase additional common shares from us in this offering is
exercised in full, will be freely transferable without restriction under the
Securities Act of 1933, except for any shares held by someone who is our
"affiliate" as that term is defined by the rules and regulations issued under
the Securities Act. Common shares held by an affiliate will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act. The
remaining 1,651,190 common shares held by existing shareholders are "restricted
securities" as that term is defined in Rule 144. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144, the restricted securities could be available for resale
immediately upon the expiration of the one-year period imposed by the lock-up
agreements described below.
LOCK-UP AGREEMENTS
All of our officers, directors and shareholders will sign lock-up agreements
under which they will agree not to transfer or dispose of, directly or
indirectly, any common shares or any securities convertible into or exercisable
or exchangeable for common shares, for a period of one year after the date of
this prospectus. Transfers or dispositions can be made sooner with the prior
written consent Paulson. See "Underwriting" for a further discussion of the
terms of the lock-up agreements.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
this offering, a person, or persons whose shares are aggregated, who has
beneficially owned common shares 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 one percent of the then outstanding common shares or the average
weekly trading volume of the common shares on the Nasdaq SmallCap Market during
the four calendar weeks preceding the date on which notice of the sale is filed
with the Securities and
42
<PAGE>
Exchange Commission. Sales under Rule 144 are also subject to manner of sale
provisions, notice requirements and the availability of current public
information about us. Under Rule 144(k) any person, or persons whose shares are
aggregated, who is not deemed to have been one of our affiliates at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell those shares
without regard to the volume limitations, manner-of-sale provisions, public
information requirements or notice requirements of Rule 144.
STOCK OPTIONS
Following the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering 124,000 common shares
reserved for issuance under our stock option plan. The registration statement
will become effective automatically upon filing.
43
<PAGE>
UNDERWRITING
The underwriters named below, for whom Paulson Investment Company, Inc. and
Redwine & Company, Inc. are acting as representatives, have severally agreed,
subject to the terms and conditions contained in an underwriting agreement with
us, to purchase 1,250,000 common shares from us and 75,000 common shares from
Assaf Ran, at the price set forth on the cover page of this prospectus, in
accordance with the following table.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER COMMON SHARES
- --------------------------------------------------------------------------- ---------------
<S> <C>
Paulson Investment Company, Inc............................................
Redwine & Company, Inc.....................................................
Total.................................................................. 1,325,000
---------------
---------------
</TABLE>
The underwriting agreement provides that the underwriters are committed to
purchase all the common shares offered by this prospectus if any common shares
are purchased. This commitment does not apply to 198,750 common shares subject
to the option granted by us to the underwriters to purchase additional common
shares in this offering.
The representatives have advised us that they propose to offer the common
shares offered by this prospectus to the public at the initial public offering
price set forth on the cover page of this prospectus, and to selected dealers at
that price less a concession within their discretion and that the underwriters
and selected dealers may reallow a concession to other dealers, including the
underwriters, within the discretion of the representatives. After completion of
the initial public distribution of the common shares offered by this prospectus,
the public offering price, the concessions to selected dealers and the
reallowance to their dealers may be changed by the representatives.
We have granted the underwriters an option, expiring 45 days after the date
of this prospectus, to purchase up to 198,750 additional common shares from us
on the same terms as set forth in this prospectus. The underwriters may exercise
this option, in whole or in part, only to cover over-allotments, if any,
incurred in the sale of the common shares offered by this prospectus.
The representatives have informed us that they do not expect to confirm
sales of common shares offered by this prospectus on a discretionary basis.
Until the distribution of the common shares offered by this prospectus is
completed, rules of the Securities and Exchange Commission may limit the ability
of the underwriters and selling group members to bid for and purchase common
shares. As an exception to these rules, the underwriters may engage in
transactions that stabilize the price of the common shares. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common
44
<PAGE>
shares. If the underwriters create a short position in connection with the
offering, that is, if they sell more common shares than are set forth on the
cover page of this prospectus, the representatives may reduce that short
position by purchasing common shares in the open market. The representatives may
also elect to reduce any short position by exercising all or part of the option
granted by us to purchase additional common shares described above.
The representatives may also impose a penalty bid on the underwriters and
selling group members. This means that if the representatives purchase common
shares in the open market to reduce the underwriters' short position or to
stabilize the price of the common shares, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those securities as part of this offering.
In general, the purchase of a security to stabilize or to reduce a short
position could cause the price of the security to be higher than it might be
otherwise. The imposition of a penalty bid might also affect the price of a
security if it were to discourage resales of the security. Neither we nor the
underwriters can predict the direction or magnitude of any effect that the
transactions described above may have on the price of the common shares. In
addition, neither we nor the underwriters can represent that the underwriters
will engage in these types of transactions or that these types of transactions,
once commenced, will not be discontinued without notice.
The underwriting agreement provides for indemnification between us and the
underwriters against specified liabilities, including liabilities under the
Securities Act, and for contribution by us and the underwriters to payments that
may be required to be made in respect of those liabilities. We have been advised
that, in the opinion of the Securities and Exchange Commission, indemnification
for liabilities under the Securities Act is against public policy as expressed
in the Securities Act and is therefore unenforceable.
We have agreed to pay Paulson a nonaccountable expense allowance equal to
three percent of the gross proceeds from the sale of the common shares offered
by us by this prospectus, of which $35,000 has already been paid. If this
offering is not consummated, any nonaccountable portion of the advanced payment
will be promptly returned to us.
Assaf Ran, the selling shareholder, has also agreed to pay Paulson a
nonaccountable expense allowance equal to three percent of the gross proceeds
from the sale of his common shares offered by this prospectus. Additionally, Mr.
Ran has agreed to pay the registration fee of the Securities and Exchange
Commission and the blue sky filing fees attributable to the common shares he is
selling by this prospectus, as well as his pro rata share of the underwriting
discounts and commissions.
We have agreed to issue warrants to the representatives to purchase from the
Company up to 132,500 common shares at an exercise price per share equal to
$7.80 per share. These warrants are exercisable during the four-year period
beginning one
45
<PAGE>
year from the date of this prospectus. These warrants are not transferable for
one year from the date of issuance, except to an individual who is either a
partner or an officer of an underwriter, by will or by the laws of descent and
distribution and are not redeemable. We have agreed to maintain an effective
registration statement with respect to the issuance of the common shares
underlying these warrants, if necessary, to allow their public resale without
restriction, at all times during the period in which they are exercisable. These
common shares are being registered on the registration statement of which this
prospectus is a part.
We have agreed that, for a period of one year from the date of this
prospectus, in general we will not offer, sell, contract to sell, grant any
option for the sale or otherwise dispose of any of our securities without
Paulson's consent, other than with respect to option grants under our stock
option plan. Our officers, directors and the shareholders also have agreed that,
for a period of one year from the date of this prospectus, they will not offer,
sell, contract to sell, grant any option for the sale or otherwise dispose of
any common shares (other than intra-family transfers or transfers to trusts for
estate planning purposes) without Paulson's consent, which consent will not be
unreasonably withheld. They have also agreed that for the five-year period
beginning on the date of this prospectus that they will notify Paulson before
they sell common shares under Rule 144.
Before this offering, there has been no public market for the common shares.
Accordingly, the initial public offering price of the common shares offered by
this prospectus was determined by negotiations between us and the
representatives. Among the factors considered in determining the initial public
offering price of the common shares offered by this prospectus were:
- our history and our prospects,
- the industry in which we operate,
- the status and development prospects for our proposed products and
services,
- our past and present operating results,
- the previous experience of our executive officers, and
- the general condition of the securities markets at the time of this
offering.
The offering price stated on the cover page of this prospectus should not be
considered an indication of the actual value of the common shares. That price is
subject to change as a result of market conditions and other factors, and we
cannot assure you that the common shares can be resold at or above the initial
public offering price.
46
<PAGE>
LEGAL MATTERS
The validity of the common shares offered by this prospectus will be passed
upon for us and for Mr. Ran by Morse, Zelnick, Rose & Lander, LLP, New York, New
York. Weiss, Jensen, Ellis & Howard, Portland, Oregon, has acted as counsel to
the underwriters named in this prospectus in connection with this offering.
EXPERTS
Our consolidated financial statements and the financial statements of Dapey
Assaf-Hamadrikh included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect to those statements, and
are included in this prospectus in reliance upon their authority as experts in
giving those reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act
with respect to our common shares with the Securities and Exchange Commission.
This prospectus does not contain all of the information included in the
registration statement and the accompanying exhibits and schedules. For further
information with respect to us and our common shares, you should refer to the
registration statement and the accompanying exhibits and schedules. Statements
in this prospectus regarding the contents of contracts or other documents are
not necessarily complete. In each instance you should refer to the copy of the
contract or other document filed as an exhibit to the registration statement.
Statements in this prospectus about these contracts and documents are qualified
by reference to the exhibits.
You may inspect a copy of the registration statement and the accompanying
exhibits and schedules without charge at the public reference facilities
maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Securities and Exchange
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13(th) Floor, New York, New York 10048, and you may obtain copies of all
or any part of the registration statement from these offices upon the payment of
the fees prescribed by the Securities and Exchange Commission. You may obtain
information on the operation of the public reference room may be obtained by
calling the Securities and Exchange Commission at 1-800-SEC-0330.
The Securities and Exchange Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The address of the site is HTTP://WWW.SEC.GOV.
We intend to furnish our shareholders with annual reports containing
financial statements audited by its independent certified public accountants.
47
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheet at December 31, 1998............................................................ F-3
Consolidated Statements of Operations for the years ended December 31, 1997 and 1998....................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997 and 1998............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1998....................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the consummation of the exchange discussed in notes 1 and 8 to the
consolidated financial statements, the undersigned would be able to render the
following audit report.
Arthur Andersen LLP
New York, New York
March 10, 1999
To the Shareholders of DAG Media, Inc.:
We have audited the accompanying consolidated balance sheet of DAG Media,
Inc. (a New York corporation) and subsidiary as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1997 and 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DAG Media,
Inc. and subsidiary as of December 31, 1998, and the results of their operations
and their cash flows for the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles.
F-2
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 310,185
Trade accounts receivable (less allowance of $451,378 for doubtful
accounts).......................................................... 1,652,972
Directories in progress.............................................. 623,335
Deferred tax asset................................................... 21,000
----------
Total current assets............................................... 2,607,492
----------
Fixed assets, net of accumulated depreciation of $18,041............... 90,383
----------
Other noncurrent assets:
Shareholder loan receivable.......................................... 221,347
Investment in affiliate.............................................. 41,875
Deposits............................................................. 9,093
----------
Total assets....................................................... $2,970,190
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................ $ 84,110
Advance billings for unpublished directories......................... 1,832,341
Income taxes payable................................................. 358,000
Deferred taxes payable............................................... 171,000
----------
Total current liabilities.......................................... 2,445,451
----------
Shareholders' equity:
Common shares, $.001 par value; 1,250,000 shares issued and
outstanding........................................................ 1,250
Additional paid-in capital........................................... 150
Retained earnings.................................................... 523,339
----------
Total shareholders' equity......................................... 524,739
----------
Total liabilities and shareholders' equity......................... $2,970,190
----------
----------
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C>
Net advertising revenues......................................................... $ 2,501,754 $ 2,759,092
Publishing costs................................................................. 441,535 377,983
-------------- --------------
Gross profit............................................................... 2,060,219 2,381,109
Operating costs and expenses:
Selling expenses............................................................... 922,124 946,315
Administrative and general expenses............................................ 658,956 765,233
-------------- --------------
Total operating costs and expenses......................................... 1,581,080 1,711,548
-------------- --------------
Earnings from operations before provision for income taxes and equity income..... 479,139 669,561
Provision for income taxes....................................................... 240,000 329,000
Equity in earnings of affiliate.................................................. 16,012 17,035
-------------- --------------
Net income................................................................. $ 255,151 $ 357,596
-------------- --------------
-------------- --------------
Basic and diluted net income per common share outstanding...................... $ .20 $ .29
-------------- --------------
-------------- --------------
Basic and diluted weighted average number of common shares outstanding......... 1,250,000 1,250,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
SHARES CAPITAL (DEFICIT) TOTAL
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996..................................... $ 1,250 $ 150 $ (89,408) $ (88,008)
Net income for the year ended December 31, 1997.............. -- -- 255,151 255,151
--------- ----- ------------ ------------
Balance, December 31, 1997..................................... 1,250 150 165,743 167,143
Net income for the year ended December 31, 1998.............. -- -- 357,596 357,596
--------- ----- ------------ ------------
Balance, December 31, 1998..................................... $ 1,250 $ 150 $ 523,339 $ 524,739
--------- ----- ------------ ------------
--------- ----- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 255,151 $ 357,596
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization................................................... 3,917 13,094
Provision for bad debts......................................................... 136,155 208,909
Changes in operating assets and liabilities--
Accounts receivable........................................................... (779,747) (837,513)
Directories in progress....................................................... (531) (243,945)
Deferred tax asset............................................................ 40,000 --
Other current and noncurrent assets........................................... (1,002) --
Accounts payable and accrued expenses......................................... (41,124) 592
Advance billing for unpublished directories................................... 320,434 605,998
Income and deferred taxes payable............................................. 200,000 329,000
------------ ------------
Net cash provided by operating activities............................ 133,253 433,731
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliate, net........................................................ (16,012) (17,035)
Purchase of fixed assets............................................................ (80,219) (17,905)
------------ ------------
Net cash used in investing activities................................ (96,231) (34,940)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans to shareholder, net........................................................... (11,819) (221,347)
------------ ------------
Net cash used in financing activities................................ (11,819) (221,347)
------------ ------------
Net increase in cash................................................. 25,203 177,444
Cash and cash equivalents, beginning of year.......................................... 107,538 132,741
------------ ------------
Cash and cash equivalents, end of year................................................ $ 132,741 $ 310,185
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
1. COMPANY BACKGROUND AND SUMMARY
EXCHANGE
DAG Media, Inc. (the "Company" or "DAG") was incorporated in the State of
New York in February 1999. Immediately prior to the initial public offering (see
note 8), Assaf Ran, the sole shareholder of Dapey Assaf-Dapey Zahav, Ltd.
("DAZ"), will exchange all of his shares in DAZ for 1,250,000 common shares of
the Company and all of his shares in Dapey Assaf-Hamadrikh Leassakim Israelim Be
New York, Ltd. ("DAH"), an entity in which he has a 50% interest, for 238,095
common shares of the Company. In addition, the minority shareholders of DAH who
own the remaining 50% of DAH will exchange all of their shares in DAH for
238,095 common shares of the Company. As a result, DAZ and DAH will become
wholly owned subsidiaries of the Company. DAH is reflected in the accompanying
consolidated financial statements as an investment in affiliate. (See notes 2
and 8.)
NATURE OF BUSINESS
The Company publishes and distributes yellow page directories in print and
online. DAG's primary product is a bilingual (English--Hebrew) yellow page
directory called The Jewish Israeli Yellow Pages (the "JI Directory"). It was
first published in February 1990 and has been published in February and August
of each year since February 1991 and covers the New York metropolitan area. In
October 1998, the Company published the initial edition of a smaller,
English-only yellow page directory called The Jewish Master Guide (the "Master
Guide"), which is distributed to ultra-orthodox Jewish communities in the New
York metropolitan area. The JI Directory and the Master Guide are published on
DAG's web site at the address WWW.PORTY.COM (the "Portal"). The Company also
provides its customers and users with a referral service.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of DAG include the accounts of DAG and
DAZ. Significant intercompany accounts and transactions have been eliminated in
consolidation. The Company's 50% investment in DAH, the operating and financial
policies of which the Company is able to influence significantly, is accounted
for using the equity method of accounting. Accordingly, the Company's share of
the net earnings in DAH is included in consolidated net income.
F-7
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
DIRECTORIES IN PROGRESS/ADVANCE BILLINGS FOR UNPUBLISHED DIRECTORIES
Directories in progress include direct costs applicable to unpublished
directories. Advance billings for unpublished directories arise from prepayments
on advertising contracts. Upon publication, revenue and the related expense are
recognized.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis to distribute costs evenly over the useful economic lives of
the assets involved.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
REVENUE RECOGNITION
Advertising revenues are recognized under the point-of-publication method,
which is the method generally followed by publishing companies. Under this
method, revenues and expenses are recognized when the related directories are
published.
F-8
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with
Financial Accounting Standard Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." Under this standard, basic
earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. diluted earnings per share includes the potential dilution from the
exercise of outstanding dilutive stock options and warrrants for common shares
using the treasury stock method. As of December 31, 1998, the stock option plan
(see note 7) was not in effect. Accordingly there is no difference between basic
and fully diluted earnings per share.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement establishes a fair market value based method of
accounting for an employee stock option but allows companies to continue to
measure compensation cost for those plans using the intrinsic value based method
prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees."
Companies electing to continue using the accounting under APB Opinion No. 25
must, however, make pro forma disclosure of net income and earnings per share as
if the fair value based method of accounting in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation awards to
employees and directors under the accounting prescribed by APB Opinion No. 25,
under which no compensation cost has been recognized. The Company will be
required to make pro forma disclosures at December 31, 1999.
SEGMENT DISCLOSURE
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS 131, applicable to public companies,
established new standards for reporting information about operating segments in
annual financial statements. The disclosure prescribed by SFAS 131 is effective
beginning with the year ended December 31, 1998. The Company does not believe
that it operates in more than one segment.
F-9
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
3. FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Office equipment....................................................... $ 26,620
Automobile............................................................. 64,598
Leasehold improvement.................................................. 17,206
-----------------
Total fixed assets................................................... 108,424
Less: accumulated depreciation......................................... (18,041)
-----------------
Fixed assets, net of accumulated depreciation........................ $ 90,383
-----------------
-----------------
</TABLE>
4. SHAREHOLDER LOAN
During the year ended December 31, 1998, the Company advanced $221,347 to
Assaf Ran, its principal shareholder. In addition, Mr. Ran owes $73,915 to DAH.
The aggregate amount owed by Mr. Ran, $295,262, is evidenced by a five-year
promissory note bearing interest at 4.74% per annum and repayable in quarterly
installments with interest only payable during the first two years and interest
and principal payments payable over the last three years of the note.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Current taxes:
Federal..................................................... $ (13,000) $ 218,000
State....................................................... (8,000) 140,000
------------ ------------
Total current taxes....................................... (21,000) 358,000
------------ ------------
Deferred taxes:
Federal..................................................... 159,000 (18,000)
State....................................................... 102,000 (11,000)
------------ ------------
Total deferred taxes...................................... 261,000 (29,000)
------------ ------------
Provision for income taxes................................ $ 240,000 $ 329,000
------------ ------------
------------ ------------
</TABLE>
F-10
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
5. INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
------------------------------
1997 1998
------------- ---------------
<S> <C> <C>
Accounts receivable...................................... $ (469,000) $ (675,000)
Prepaid expenses......................................... (174,000) (285,000)
Other deferred tax liabilities, net...................... -- (50,000)
------------- ---------------
Gross deferred tax liability......................... (643,000) (1,010,000)
------------- ---------------
Advance billings for unpublished directories............. 564,000 839,000
Other deferred tax asset, net............................ 4,000 --
------------- ---------------
Gross deferred tax asset............................. 568,000 839,000
------------- ---------------
Net deferred tax liability........................... $ (75,000) $ (171,000)
------------- ---------------
------------- ---------------
</TABLE>
The Company is on the cash method of accounting for tax purposes. The
deferred tax items indicated above are primarily a result of recognizing items
of income or expense under the cash method in a different period from when those
items are recognized for accrual basis financial purposes. The provision for
income taxes on income differs from the amount computed by applying the U.S.
federal income tax rate (34%) because of the effect of the following items:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Tax at U.S. federal income tax rate........................... $ 163,000 $ 228,000
State income taxes, net of U.S. federal income tax benefit.... 62,000 85,000
Other......................................................... 15,000 16,000
------------ ------------
Provision for income taxes................................ $ 240,000 $ 329,000
------------ ------------
------------ ------------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
In March 1999 the Company entered into employment agreements with its two
principal officers. One agreement was entered into with Assaf Ran providing for
his employment as president and chief executive officer through June 30, 2002.
The agreement renews automatically for successive one-year periods until either
party gives
F-11
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
180 days written notice of its intention to terminate the agreement. Under the
agreement, Mr. Ran will receive an annual base salary of $75,000, annual bonuses
as is determined by the compensation committee in its sole and absolute
discretion and participation in all executive benefit plans. Under the agreement
Mr. Ran has also agreed to a one-year non-competition period following the
termination of the agreement so long as the Company is not in breach of the
agreement. The other agreement is with Dvir Langer providing for his employment
as vice president-sales and corporate development. The employment term is for
one year commencing upon the closing of the initial public offering. This
agreement is renewable for additional one-year terms until either party gives 14
days written notice of its intention to terminate the agreement. Under the
agreement, Mr. Langer will receive a minimum base salary of $60,000. Under the
agreement, Mr. Langer has agreed to a two-year non-competition period following
the termination of his agreement.
LITIGATION
From time to time in the normal course of business, the Company is party to
various claims and/or litigation. Management believes that the settlement of all
such claims and/or litigation, considered in the aggregate, will not have a
material adverse effect on the Company's financial position and results of
operations.
7. STOCK OPTION PLAN
To attract and retain persons necessary for the success of the Company, in
March 1999, the Board of Directors approved the adoption of DAG Media, Inc. 1999
Stock Option Plan ("the Stock Option Plan") covering 124,000 common shares.
Pursuant to the Stock Option Plan, officers, directors and key employees and
consultants are eligible to receive incentive and/or non-qualified stock
options. The Stock Option Plan, which has a term of ten years from the date of
its adoption, will be administered by the compensation committee. The selection
of participants, allotment of shares, determination of price and other
conditions relating to the purchase of options will be determined by the
compensation committee, in its sole discretion. Incentive stock options granted
under the Stock Option Plan are exercisable for a period of up to ten years from
the date of grant at an exercise price which is not less than the fair market
value of the common shares on the date of grant, except that the term of an
incentive stock option granted under the Stock Option Plan to a shareholder
owning more than 10% of the outstanding common shares may not exceed five years
and its exercise price may not be less than 110% of the fair market value of the
common shares on
F-12
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
7. STOCK OPTION PLAN (CONTINUED)
the date of grant. The Company has granted options covering 22,324 common shares
which cannot be exercised before the initial public offering. These options will
have an exercise price equal to the initial public offering price per common
share in the initial public offering (see note 8) and will have a five-year
term. The options granted to the employees are intended to qualify as incentive
stock options. Options granted to one employee will vest immediately and the
options granted to the other two persons will vest one year from the date of the
initial public offering.
8. SUBSEQUENT EVENTS: INITIAL PUBLIC OFFERING
On March 10, 1999, the Company filed a registration statement with the
Securities and Exchange Commission to register 1,325,000 common shares at an
expected initial public offering price of $6.50 per share. Of the 1,325,000
common shares offered, 1,250,000 are being offered by the Company and 75,000 are
being offered by Assaf Ran, the Company's principal shareholder. Mr. Ran will
use the net proceeds from the sale of his shares to repay his loan from the
Company. (See note 4.) The Company expects to realize proceeds of approximately
$6,600,000 from the sale of its common shares, net of commissions and offering
expenses.
In connection with the initial public offering, the Company entered into an
Exchange Agreement with DAZ, DAH and the shareholders of DAZ and DAH. Pursuant
to the Exchange Agreement, the shareholders of DAZ and DAH will exchange all of
their common shares in DAZ and DAH, as the case may be, for common shares of the
Company and DAZ and DAH will become wholly owned subsidiaries of the Company.
The exchange will be accounted for under the purchase method of accounting,
resulting in a "step up" in the basis of the Company's assets to the extent of
the interests of the minority shareholders. The value of the minority interest
is estimated to be $1,393,000 (assuming a 10% discount from the anticipated
initial public offering price) and is allocated among the assets of the Company
based on their relative fair market values. Of this amount, approximately
$42,000 will be allocated to the Company's tangible assets, $350,000 will be
allocated to the Company's trademarks, trade names and other intellectual
property and $1.0 million will be allocated to goodwill. The amounts allocated
to the Company's intellectual property and goodwill will be amortized on a
straight-line basis over 25 years, or approximately $54,000 per year, after the
initial public offering.
F-13
<PAGE>
DAPEY ASSAF--HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants.................................................................. F-15
Balance Sheet at October 31, 1998......................................................................... F-16
Statements of Operations for the years ended October 31, 1997 and 1998.................................... F-17
Statements of Shareholders' Equity for the years ended October 31, 1997 and 1998.......................... F-18
Statements of Cash Flows for the years ended October 31, 1997 and 1998.................................... F-19
Notes to Financial Statements............................................................................. F-20
</TABLE>
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Dapey Assaf-Hamadrikh Leassakim Israelim Be New York,
Ltd.:
We have audited the accompanying balance sheet of Dapey Assaf-Hamadrikh
Leassakim Israelim Be New York, Ltd. as of October 31, 1998, and the related
statements of operations, shareholders' equity and cash flows for the years
ended October 31, 1997 and 1998. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dapey Assaf-Hamadrikh
Leassakim Israelim Be New York, Ltd. as of October 31, 1998, and the results of
its operations and its cash flows for the years ended October 31, 1997 and 1998,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
March 10, 1999
F-15
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
BALANCE SHEET
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.............................................................................................. $ 75,140
Fixed assets, net of accumulated depreciation of $10,525............................................ 9,315
Other noncurrent assets:
Shareholder loan receivable....................................................................... 73,915
------------
Total assets.................................................................................... $ 158,370
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................................. $ 74,620
Shareholders' equity:
Common shares, no par value; 200 shares authorized; 100 shares issued and outstanding............. 1,000
Retained earnings................................................................................. 82,750
------------
Total shareholders' equity...................................................................... 83,750
------------
Total liabilities and shareholders' equity...................................................... $ 158,370
------------
------------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-16
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net revenues, related party.............................................................. $ 75,728 $ 76,825
Operating costs and expenses:
Selling expenses....................................................................... 10,301 10,912
Administrative and general expenses.................................................... 26,403 23,844
---------- ----------
Total operating costs and expenses................................................... 36,704 34,756
---------- ----------
Earnings from operations before provision for income taxes............................... 39,024 42,069
Provision for income taxes............................................................... 7,000 8,000
---------- ----------
Net income............................................................................... $ 32,024 $ 34,069
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON RETAINED
SHARES EARNINGS TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Balance, October 31, 1996..................................................... $ 1,000 $ 16,657 $ 17,657
Net income for the year ended October 31, 1997.............................. -- 32,024 32,024
--------- ---------- ----------
Balance, October 31, 1997..................................................... 1,000 48,681 49,681
Net income for the year ended October 31, 1998.............................. -- 34,069 34,069
--------- ---------- ----------
Balance, October 31, 1998..................................................... $ 1,000 $ 82,750 $ 83,750
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................... $ 32,024 $ 34,069
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation..................................................................... 3,130 1,595
Loss on retirement of fixed assets............................................... -- 180
Changes in operating assets and liabilities-
Accounts payable and accrued expenses.......................................... 2,824 70,025
Deposits....................................................................... 4,400 --
----------- -----------
Net cash provided by operating activities.................................... 42,378 105,869
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans to shareholder, net............................................................ (44,532) (38,915)
----------- -----------
Net cash used in financing activities........................................ (44,532) (38,915)
----------- -----------
Net increase (decrease) in cash.............................................. (2,154) 66,954
Cash, beginning of year................................................................ 10,340 8,186
----------- -----------
Cash, end of year...................................................................... $ 8,186 $ 75,140
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1998
1. COMPANY BACKGROUND
NATURE OF BUSINESS
Dapey Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd ("the Company" or
"DAH") acts as an agent on behalf of Dapey Assaf-Dapey Zahav, Ltd. ("DAZ") (see
note 5) and represents DAZ in the collection of advertising fees from its
customers. DAH also owns the Jewish Israeli Yellow Pages and the Jewish Referral
Service registered trademarks and service marks.
2. SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on October 31.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis to distribute costs evenly over the useful economic lives of
the assets involved.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-20
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company has entered into an agreement with DAZ, a related entity, to
represent DAZ in the collection of advertising fees from its customers. All of
the Company's revenue in the current and prior year was derived from the
agreement. (See note 5.)
3. FIXED ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
1998
---------------
<S> <C>
Automobile............................................................. $ 19,840
Less-Accumulated depreciation.......................................... (10,525)
---------------
Fixed assets, net of accumulated depreciation........................ $ 9,315
---------------
---------------
</TABLE>
4. SHAREHOLDER LOAN
During the year ended October 31, 1998, the Company advanced $73,915 to
Assaf Ran, its 50% shareholder, which is evidenced by a five-year promissory
note bearing interest at 4.74% per annum and repayable in quarterly installments
with interest only payable during the first two years and interest and principal
payments payable over the last three years of the note.
5. RELATED PARTY TRANSACTIONS
As discussed in note 1, the Company has an agreement with DAZ to collect
advertising fees from its customers. The agreement also includes reimbursement
of all commission and marketing expenses incurred by DAH on behalf of DAZ.
Management believes that the fees charged are consistent with those that would
be available from an unrelated party.
F-21
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997 AND 1998
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Current taxes:
Federal........................................................... $ 5,656 $ 6,310
State............................................................. 1,344 1,690
--------- ---------
Provision for income taxes...................................... $ 7,000 $ 8,000
--------- ---------
--------- ---------
</TABLE>
The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rates because of the effect of the following items:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Tax at U.S. federal income tax rate................................. $ 5,656 $ 6,310
State income taxes, net of U.S. federal income tax benefit.......... 1,344 1,690
--------- ---------
Provision for income taxes...................................... $ 7,000 $ 8,000
--------- ---------
--------- ---------
</TABLE>
7. SUBSEQUENT EVENTS: INITIAL PUBLIC OFFERING
On March 10, 1999, DAG Media, Inc. ("DAG") filed a registration statement
with the Securities and Exchange Commission to register 1,325,000 common shares
at an expected initial public offering price of $6.50 per share. Of the
1,325,000 common shares offered, 1,250,000 are being offered by DAG and 75,000
are being offered by Assaf Ran, the Company's principal shareholder. Mr. Ran
will use the net proceeds from the sale of his shares to repay his loan from the
Company. (See note 4.) DAG expects to realize proceeds of approximately
$6,600,000 from the sale of the common shares, net of commissions and offering
expenses.
In connection with the initial public offering, DAG entered into an Exchange
Agreement with DAZ, DAH and the shareholders of DAZ and DAH. Under the Exchange
Agreement, the shareholders of DAZ and DAH will exchange all of their common
shares in DAZ and DAH, as the case may be, for common shares of DAG and DAZ and
DAH will become wholly owned subsidiaries of DAG. The exchange will be accounted
for under the purchase method of accounting, resulting in a "step up" in the
basis of DAG's assets to the extent of the interests of the minority
F-22
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997 AND 1998
7. SUBSEQUENT EVENTS: INITIAL PUBLIC OFFERING (CONTINUED)
shareholders of DAH. The value of the minority interest is estimated to be
$1,393,000 (assuming a 10% discount from the anticipated initial public offering
price per share) and is allocated among the assets of the Company based on their
relative fair market values. Of this amount, approximately $42,000 will be
allocated to DAG's tangible assets, $350,000 will be allocated to the DAG's
trademarks, trade names and other intellectual property and $1.0 million will be
allocated to goodwill. The amounts allocated to the DAG's intellectual property
and goodwill will be amortized on a straight-line basis over 25 years, or
approximately $54,000 per year, after the initial public offering.
F-23
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Statements........................................... F-25
Unaudited Pro Forma Condensed Consolidated Balance Sheet.................................................. F-26
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet......................................... F-27
Unaudited Pro Forma Condensed Consolidated Statement of Operations........................................ F-29
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations............................... F-30
</TABLE>
F-24
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements as of and for the year ended December 31, 1998 have been derived from
the application of pro forma adjustments to the historical consolidated
financial statements of DAG Media, Inc. and those of Dapey Assaf-Hamadrikh
Leassakim Israelim Be New York, Ltd. The unaudited pro forma condensed
consolidated balance sheet gives effect to the transaction by which Dapey
Assaf-Hamadrikh became a wholly owned subsidiary of DAG Media as if it occurred
on December 31, 1998 and the unaudited pro forma consolidated statement of
operations information for the year ended December 31, 1998 gives effect to that
transaction as if it occurred on January 1, 1998. The unaudited pro forma
condensed consolidated financial statements do not purport to be indicative of
DAG Media's results of operations or financial condition would have been
assuming that the transaction by which Dapey Assaf-Hamadrikh becomes a wholly
owned subsidiary of DAG Media had occurred on those respective dates, nor does
it purport to be indicative of DAG Media's future operating results or financial
condition.
The acquisition of the minority interest of Dapey Assaf-Hamadrikh will be
accounted for using the purchase method of accounting. The purchase method of
accounting allocates the aggregate purchase price to the assets acquired and
liabilities assumed based upon their respective fair values. The excess purchase
price over the fair value of net assets acquired, was approximately $1.3 million
and has been allocated to goodwill and trademarks.
F-25
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
<S> <C> <C> <C> <C>
10/31/98
12/31/98 DAPEY ASSAF- PRO FORMA
DAG MEDIA, INC. HAMADRIKH ADJUSTMENTS PRO FORMA
--------------- ------------ ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents............................... $ 310,185 $ 75,140 $ -- $ 385,325
Trade accounts receivable, net.......................... 1,652,972 -- (74,620)(a) 1,578,352
Directories in progress................................. 623,335 -- -- 623,335
Deferred tax asset...................................... 21,000 -- -- 21,000
--------------- ------------ ------------ -----------
Total current assets.................................. 2,607,492 75,140 (74,620) 2,608,012
--------------- ------------ ------------ -----------
Fixed assets, net....................................... 90,383 9,315 -- 99,698
--------------- ------------ ------------ -----------
Other noncurrent assets:
Intangibles............................................. -- 1,350,981(b) 1,350,981
Shareholder loan receivable............................. 221,347 73,915 -- 295,262
Investment in affiliate................................. 41,875 -- (41,875)(c) 0
Deposits................................................ 9,093 -- -- 9,093
--------------- ------------ ------------ -----------
Total assets.......................................... $2,970,190 $158,370 $ 1,234,486 $4,363,046
--------------- ------------ ------------ -----------
--------------- ------------ ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to Dapey Assaf...................................... $ -- $ 74,620 $ (74,620)(a) $ --
Accounts payable and accrued expenses................... 84,110 -- -- 84,110
Advance billings for unpublished directories............ 1,832,341 -- -- 1,832,341
Income taxes payable.................................... 358,000 -- -- 358,000
Deferred taxes payable.................................. 171,000 -- -- 171,000
--------------- ------------ ------------ -----------
Total current liabilities............................. 2,445,451 74,620 (74,620) 2,445,451
--------------- ------------ ------------ -----------
Shareholders' equity:
Common shares........................................... 1,250 1,000 (524) 1,726
Additional paid-in capital.............................. 150 0 1,392,380 1,392,530
Retained earnings....................................... 523,339 82,750 (82,750) 523,339
--------------- ------------ ------------ -----------
Total shareholders' equity............................ 524,739 83,750 1,309,106(c) 1,917,595
--------------- ------------ ------------ -----------
Total liabilities and shareholders' equity............ $2,970,190 $158,370 $ 1,234,486 $4,363,046
--------------- ------------ ------------ -----------
--------------- ------------ ------------ -----------
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this statement
F-26
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(a) Reflects the elimination of the intercompany payable/receivable.
(b) Hamadrikh acquistion
Immediately prior to the effective date of the initial public offering,
DAG Media, Inc. ("DAG"), in accordance with an Exchange Agreement among
DAG, Dapey Assaf-Dapey Zahav, Ltd. ("DAZ"), Dapey Assaf-Hamadrikh Le
Assakim Be New York, Ltd. ("DAH") and the shareholders of DAZ and DAH,
will acquire all of the outstanding shares of capital stock of DAH in
exchange for an aggregate of 476,190 of its common shares. Of this
amount, 238,095 common shares represent DAG's 50% interest in DAH. The
remaining 238,095 common shares issued to the minority shareholders of
DAH will be accounted for under the purchase method of accounting,
resulting in a "step up" in the basis of the DAH's assets. The deemed
purchase price for these assets is the value of the DAG common shares
received by the minority shareholders of DAH. For this purpose, the value
of these shares is deemed to be 90% of the initial public offering price.
Assuming that the actual offering price of the shares offered hereby is
$6.50 per share, the deemed purchase price will be approximately
$1,393,000.
Set forth below is DAG's allocation of the purchase price to the DAH
assets:
<TABLE>
<S> <C>
Aggregate purchase price.............................. $1,392,856
Less: net book value of assets acquired........... 41,875
----------
Excess of cost over net book value of assets
acquired............................................ $1,350,981
----------
----------
</TABLE>
Allocation of excess of cost over net book value of assets acquired:
<TABLE>
<S> <C>
Goodwill.............................................. $1,000,981
Trademarks............................................ 350,000
----------
Total............................................. $1,350,981
----------
----------
</TABLE>
The portion of the purchase price allocated to the intangible assets is
based on an estimated value of these assets by DAG.
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Trademarks.............................................. 25 years
Goodwill................................................ 25 years
</TABLE>
F-27
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(c) Reflects the adjustments to shareholders' equity as follows:
<TABLE>
<S> <C>
Elimination of DAZ common shares...................... $ (500)
Elimination of intercompany investment................ (500)
Issuance of common shares in connection with the
acquisition of DAH.................................. 476
----------
Subtotal.......................................... (524)
----------
Additional paid-in capital:
Additional paid-in capital from issuance of common
shares in connection with the acquisition of
DAH............................................. 1,392,380
Retained earnings:
Elimination of DAH historical retained earnings... (41,375)
Elimination of intercompany investment............ (41,375)
----------
(82,750)
----------
Total........................................... $1,309,106
----------
----------
</TABLE>
F-28
<PAGE>
DAG MEDIA, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
<S> <C> <C> <C> <C>
10/31/98
12/31/98 DAPEY ASSAF- PRO FORMA
DAG MEDIA, INC. HAMADRIKH ADJUSTMENTS PRO FORMA
--------------- ------------ ------------- ----------
Net advertising revenues......................................... $2,759,092 $76,825 $ -- $2,835,917
Publishing costs................................................. 377,983 -- -- 377,983
--------------- ------------ ------------- ----------
Gross profit............................................... 2,381,109 76,825 -- 2,457,934
Operating costs and expenses:
Selling expenses............................................... 946,315 10,912 -- 957,227
Administrative expenses........................................ 765,233 23,844 104,039(a) 893,116
--------------- ------------ ------------- ----------
Total operating costs and expenses......................... 1,711,548 34,756 104,039 1,850,343
--------------- ------------ ------------- ----------
Earnings from operations before provision for income taxes and
equity income.................................................. 669,561 42,069 104,039 607,591
Provision (benefit) for income taxes............................. 329,000 8,000 (25,000)(b) 312,000
Equity in earnings of affiliate.................................. 17,035 -- 17,035(c) --
--------------- ------------ ------------- ----------
Net income....................................................... $ 357,596 $34,069 $ 96,074 $ 295,591
--------------- ------------ ------------- ----------
--------------- ------------ ------------- ----------
Basic and diluted net income per common share outstanding........ $0.29 -- -- $0.17
--------------- ------------ ------------- ----------
--------------- ------------ ------------- ----------
Basic and diluted weighted number of common shares outstanding... 1,250,000 -- -- 1,726,190
--------------- ------------ ------------- ----------
--------------- ------------ ------------- ----------
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this statement
F-29
<PAGE>
DAG MEDIA, INC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(a) Pro forma adjustments to administrative and general expenses include:
<TABLE>
<S> <C>
Amortization of intangibles for the year ended December 31, 1998..... $ 54,039
Pro forma effect of increase compensation expense for chief executive
officer............................................................ 50,000
---------
Total.............................................................. $ 104,039
---------
---------
(b) The income tax benefit reflects a reduction in income taxes due to
increased administrative expenses.
(c) Reflects the elimination of equity in earnings of affiliate.
</TABLE>
F-30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION THAT IS DIFFERENT. THIS DOCUMENT
MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN
THIS PROSPECTUS MAY ONLY BE ACCURATE ON ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary........................................ 3
Risk Factors................................... 7
Use of Proceeds................................ 11
Dividend Policy................................ 12
Capitalization................................. 13
Dilution....................................... 14
Selected Financial Data........................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 16
Business....................................... 23
Management..................................... 33
Related Party Transactions..................... 38
Principal and Selling Shareholders............. 39
Description of Capital Stock................... 40
Shares Eligible for Future Sale................ 42
Underwriting................................... 44
Legal Matters.................................. 47
Experts........................................ 47
Where You Can Find Additional Information...... 47
Index to DAG Media, Inc. and Subsidiary
Consolidated Financial Statements............ F-1
Index to Dapey Assaf-Hamadrikh Leassakim Be New
York, Ltd. Financial Statements.............. F-14
Index to DAG Media, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated
Financial Statements......................... F-24
</TABLE>
THROUGH AND INCLUDING , 1999, ALL BROKER-DEALERS THAT BUY, SELL OR
TRADE THESE COMMON SHARES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THEIR OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,325,000 COMMON SHARES
[LOGO]
DAG MEDIA, INC.
---------------------
PROSPECTUS
---------------------
PAULSON INVESTMENT COMPANY, INC.
REDWINE & COMPANY, INC.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 722 and 723 of the New York Business Corporation Law grant us the
power to indemnify our officers and directors as follows:
(a) A corporation may indemnify any person made, or threatened to be made, a
party to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation or that he had reasonable
cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made, a
party to an action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the
II-1
<PAGE>
case of service for any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise, not opposed to, the best
interest of the corporation, except that no indemnification under this paragraph
shall be made in respect of (1) a threatened action, or a pending action which
is settled or otherwise disposed of, or (2) any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the court on which the action was brought,
or, if no action was brought, any court of competent jurisdiction, determines
upon application that, in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with respect to an employee benefit plan in
the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
Payment of indemnification other than by court award is as follows:
(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in section 722 shall be entitled to indemnification as authorized in such
section.
(b) Except as provided in paragraph (a), any indemnification under section
722 or otherwise permitted by section 721, unless ordered by a court under
section 724 (Indemnification of directors and officers by a court), shall be
made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are not
parties to such action or proceeding upon a finding that the director or
officer has met the standard of conduct set forth in section 722 or
established pursuant to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
(A) By the board upon the opinion in writing of independent legal
counsel that indemnification is proper in the circumstances because the
applicable standard of conduct set forth in such sections has been met by
such director or officer, or
II-2
<PAGE>
(B) By the shareholders upon a finding that the director or officer
has met the applicable standard of conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal action or
proceeding may be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amounts as, and
to the extent, required by paragraph (a) of section 725.
Our Certificate of Incorporation provides as follows:
"TENTH: (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigation
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Business Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights that
said law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall incur to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the Business
Corporation Law requires, the payment of such expenses incurred by a director or
officer (in his or her capacity as a director or officer and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall
II-3
<PAGE>
ultimately be determined that such director or officer is not entitled to be
indemnified under this Section or otherwise. The Corporation may, by action of
its Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
"(b) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Business Corporation Law for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Business Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
"(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
"(d) INSURANCE. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the Business Corporation Law.
"ELEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its shareholders for damages for any breach of duty in such
capacity, except for the liability of any director if a judgment or other final
adjudication adverse to him establishes that his acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law or that
he personally gained in fact a
II-4
<PAGE>
financial profit or other advantage to which he was not legally entitled or that
his acts violated Section 719 of the New York Business Corporation Law."
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons, on the one hand, and the Underwriters
and their respective controlling persons, on the other hand, against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act of 1933, as amended.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the expenses of the issuance and distribution of the
securities being registered, other than underwriting commissions and expenses,
all of which will be paid by us. Other than the SEC registration fee and the
NASD filing fees and the underwriter's nonaccountable expenses, all of these
expenses are estimated.
<TABLE>
<S> <C>
Registration fee...................................................... $ 3,217.67
NASD fee.............................................................. $ 1,593.79
Nasdaq SmallCap Market listing fee.................................... $ 6,523.75*
Printing expenses..................................................... $ 62,500.00*
Accounting fees and expenses.......................................... $180,000.00*
Legal fees and expenses............................................... $165,000.00*
State securities law fees and expenses................................ $ 30,000.00*
Transfer agent and registrar fees and expenses........................ $ 3,500.00*
Underwriter's nonaccountable expenses................................. $258,375.00
Miscellaneous......................................................... $ 3,914.79*
-----------
Total............................................................. $714,625.00
-----------
-----------
</TABLE>
- ---------------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
None of DAG Media, Dapey Assaf-Dapey Zahav, Ltd. or Dapey Assaf-Hamadrikh
Leassakim Israelim Be New York, Ltd. has issued any unregistered securities in
the last three years. Prior to the consummation of the exchange described below,
DAG Media does not have any shares of capital stock issued and outstanding. DAG
Media, Dapey Assaf-Dapey Zahav, Dapey Assaf-Hamadrikh and the shareholders of
Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh have entered into an
agreement. As provided in this agreement, immediately before the date of the
prospectus included in this registration statement, Assaf Ran, the sole
shareholder of Dapey Assaf-Dapey Zahav, will exchange all of his shares in that
company for 1,250,000 common shares of DAG Media and Assaf Ran, Dvir Langer,
Eyal Huberfeld, Avi Shefi and Daniel Frank, the shareholders of Dapey
Assaf-Hamadrikh,
II-5
<PAGE>
will exchange all of their shares in that company for 476,190 common shares of
DAG Media. Consequently, Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh will
become wholly owned subsidiaries of DAG Media.
The issuance of the common shares in the exchange transaction described
above is exempt from registration under Section 4(2) of the Securities Act.
Messrs. Ran and Huberfeld are executive officers and directors of DAG Media. Mr.
Langer will become an executive officer and director of DAG Media on the date of
the prospectus included in this registration statement. Messrs. Shefi and Frank,
the owners of the independent sales agencies that have entered into sales agency
agreements with DAG Media, are sophisticated investors and were given complete
access to all of the books and records of DAG Media. Except with respect to Mr.
Ran's 75,000 common shares being registered in this registration statement, all
of the shareholders have agreed that they are acquiring their common shares for
investment purposes only and without a view towards distribution and each
certificate evidencing such shares will bear an appropriate restrictive legend.
In February 1999 our board of directors authorized the granting of options
to the following persons. All options are nontransferable, have a five-year term
and are subject to this offering being effective.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES EXERCISE
NAME COVERED BY OPTIONS EXERCISE DATE PRICE PER SHARE
- --------------------- ------------------- ---------------------------------- ----------------------------------
<S> <C> <C> <C>
Hanan Goldenthal..... 7,444 Effective date of offering $6.50
Edith Grossman....... 7,440 1st anniversary of effective date $6.50
of offering
Avital Rubino........ 7,440 The later of the (1) first $6.50 if the exercise date is the
anniversary of effective date of first anniversary of the
this offering and (2) first effective date of this offering
anniversary of date she first or the fair market value of a
becomes an employee common share on the date she
becomes an employee if the first
exercise date is the first
anniversary of the date she first
becomes an employee
Yoram Evan........... 7,000 Effective date of offering $6.50
Philip Michels....... 7,000 Effective date of offering $6.50
Evan Goldschmid...... 7,000 Effective date of offering $6.50
</TABLE>
All common shares issued upon exercise of these options will be held for
investment and without a view towards distribution or sale and all share
certificates evidencing the shares underlying these options will be
appropriately legended. Accordingly, the issuance of shares upon exercise of
these options will be exempt from registration under Section 4(2) of the
Securities Act.
II-6
<PAGE>
ITEM 27. EXHIBITS
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Form of Exchange Agreement(1)
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 Specimen Stock Certificate(1)
4.2 Form of Representatives' Warrant(1)
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP(1)
10.1 Form of DAG Media, Inc. 1999 Stock Option Plan(1)
10.2 Form of Employment Agreement between the Company and Assaf Ran(1)
10.3 Form of Employment Agreement between the Company and Dvir Langer(1)
10.4 Intentionally ommitted*
10.5 Intentionally ommitted*
10.6 Form of Promissory Note of Assaf Ran(1)
10.7 Form of agreement between Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)(1)
24 Power of Attorney (included in signature page)(1)
27 Financial data schedule (1)
99.1 Officer and Director Nominee Consent (Dvir Langer)(1)
99.2 Director Nominee Consent (Phillip Michals)(1)
99.3 Director Nominee Consent (Eran Goldshmid)(1)
</TABLE>
- ---------------------
* To be filed by amendment.
(1) Previously filed
ITEM 28. CERTAIN UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
II-7
<PAGE>
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
B. 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.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Amendment No. 2 to Registration Statement No. 333-74203 to be signed on its
behalf by the undersigned, in the City of New York, State of New York on May 6,
1999.
DAG MEDIA, INC.
BY: /S/ ASSAF RAN
-------------------------------------
ASSAF RAN, PRESIDENT
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. 2 to Registration Statement No. 333-74203 has been
signed below by the following persons in the capacities indicated on May 6,
1999.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ ASSAF RAN President, Chief Executive
- ------------------------------ Officer and Director
Assaf Ran
/s/ HANAN GOLDENTHAL Chief Financial and
- ------------------------------ Accounting Officer
Hanan Goldenthal
/s/ EYAL HUBERFELD Director
- ------------------------------
Eyal Huberfeld
/s/ YORAM EVAN Director
- ------------------------------
Yoram Evan
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Form of Exchange Agreement(1)
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 Specimen Stock Certificate(1)
4.2 Form of Representatives' Warrant(1)
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP(1)
10.1 Form of DAG Media, Inc. 1999 Stock Option Plan(1)
10.2 Form of Employment Agreement between the Company and Assaf Ran(1)
10.3 Form of Employment Agreement between the Company and Dvir Langer(1)
10.4 Intentionally omitted*
10.5 Intentionally omitted*
10.6 Form of Promissory Note of Assaf Ran(1)
10.7 Form of agreement between Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)(1)
24 Power of Attorney (included in signature page)(1)
27 Financial data schedule(1)
99.1 Officer and Director Nominee Consent (Dvir Langer)(1)
99.2 Director Nominee Consent (Phillip Michals)(1)
99.3 Director Nominee Consent (Eran Goldshmid)(1)
</TABLE>
- ---------------------
* To be filed by amendment.
(1) Previously filed.
<PAGE>
Exhibit 1.1
1,325,000 COMMON SHARES
DAG MEDIA, INC.
UNDERWRITING AGREEMENT
__________, 1999
Paulson Investment Company, Inc.
Redwine & Company, Inc.
As Representatives of the
Several Underwriters
c/o Paulson Investment Company, Inc.
811 SW Naito Parkway
Portland, Oregon 97204
Gentlemen:
DAG Media, Inc., a New York corporation (the "Company"), proposes to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as Representatives (the "Representatives") an aggregate
of 1,250,000 of its common shares, $.001 par value (the "Common Shares"), and
Assaf Ran (the "Selling Shareholder") proposes to sell to the Underwriters an
aggregate of 75,000 Common Shares. The respective amounts of the Common Shares
to be so purchased by the several Underwriters ("Firm Shares") are set forth
opposite their names in Schedule I hereto. The Company also proposes to grant to
the Underwriters an option to purchase in the aggregate up to 198,750 additional
Shares (the "Option Shares"), as set forth below. The offer and sale of the Firm
Shares and the Option Shares pursuant to this Agreement is referred to as the
"Offering."
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement for yourselves as Representatives and on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I. The Firm Shares
and the Option Shares (to the extent the aforementioned option is exercised) are
herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDER.
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form SB-2 (File No. 333-74203) with respect
to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, has been filed with the
Commission and is accurate in all material respects. Copies of such registration
statement, including any amendments thereto, the preliminary prospectuses
(meeting the requirements of the Rules and Regulations) contained therein and
the exhibits, financial statements and schedules, as finally amended and
revised, have heretofore been delivered by the Company to you. Such registration
statement, together with any registration statement filed by the Company
pursuant to Rule 462(b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted therefrom
in reliance upon Rule 430A and contained in the Prospectus referred to below,
has become effective under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement.
"Prospectus" means (a) the form of prospectus first filed with the Commission
pursuant to Rule 424(b) or (b) the last preliminary prospectus included in the
Registration Statement filed prior to the time it becomes effective or filed
pursuant to Rule 424(a) under the Act that is delivered by the Company to the
Underwriters for delivery to purchasers of the Shares, together with the term
sheet or abbreviated term sheet filed with the Commission pursuant to Rule
424(b)(7) under the Act if required thereunder. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of New York, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Except as described in the
Prospectus, the Company does not own and never has owned a controlling interest
in any corporation or other business entity that has or ever has had any
material assets, liabilities or operations. The Company is duly qualified to
transact business in all jurisdictions in which the conduct of its business
requires such qualification.
(iii) The outstanding Common Shares of the Company, including all Firm
Shares to be sold by the Selling Shareholder, have been duly authorized and
validly issued and are fully paid and non-assessable and have been issued and
sold by the Company in compliance in all material respects with applicable
securities laws; the Common Shares
2
<PAGE>
have been duly authorized and when issued and paid for as contemplated herein
will be validly issued, fully paid and non-assessable; and no preemptive rights
of shareholders exist with respect to any security of the Company or the issue
and sale thereof. Neither the filing of the Registration Statement nor the
offering or sale of the Shares as contemplated by this Agreement gives rise to
any rights, other than those which have been waived or satisfied, for or
relating to the registration of any Common Shares or other securities of the
Company.
(iv) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. The Common Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Common Shares conforms to the corporate law of the jurisdiction of the
Company's incorporation.
(v) The Commission has not issued an order preventing or suspending the use
of any Prospectus relating to the proposed offering of the Shares and has not
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information in the section of the Prospectus entitled "Underwriting" and any
other information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(vi) The financial statements of the Company, together with related notes
and schedules as set forth in the Registration Statement, present fairly the
financial position and the results of operations and cash flows of the Company
at the indicated dates and for the indicated periods. Such financial statements
and related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data of the Company included in the Registration Statement
present fairly the information shown therein and such data have been compiled on
a basis consistent with the financial statements presented therein and the books
and records of the Company.
3
<PAGE>
(vii) Arthur Andersen LLP, who have audited certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending
or, to the knowledge of the Company, threatened against the Company before any
court or administrative agency or otherwise which if determined adversely to the
Company might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) hereinabove described, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or which
are not material in amount. The Company occupies its leased properties (except
its New Jersey sales office) under valid and binding leases conforming in all
material respects to the description thereof set forth in the Registration
Statement.
(x) The Company has filed all federal, state, local and
foreign income tax returns which it has been required to file prior to the date
hereof and has paid all taxes indicated by said returns and all assessments
received by it to the extent that such taxes have become due and are not being
contested in good faith. All material tax liabilities have been adequately
provided for in the financial statements of the Company.
(xi) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company, other than transactions in the ordinary course of business and
changes and transactions described in the Registration Statement, as it may be
amended or supplemented. The Company has no material contingent obligations
which are not disclosed in the Company's financial statements included in the
Registration Statement or elsewhere in the Prospectus.
(xii) The Company is not, nor, with the giving of notice or
lapse of time or both, will it be, in violation of or in default under its
certificate of incorporation or bylaws or under any agreement, lease, contract,
indenture or other instrument or obligation
4
<PAGE>
to which it is a party or by which it, or any of its properties, is bound and
which default is of material significance in respect of the condition, financial
or otherwise of the Company or the business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company. The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated and the fulfillment of the terms hereof
will not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company is a party, or of the
certificate of incorporation or bylaws of the Company or any order, rule or
regulation applicable to the Company of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company holds all material trademarks, trade names,
copyrights, trade secrets and licenses of any of the foregoing (collectively,
"Intellectual Property Rights") that are necessary for the conduct of its
business; the Company holds no patents or patent rights and no such rights are
necessary for the conduct of its business. There is no claim pending or, to the
best knowledge of the Company, threatened against the Company alleging any
infringement of Intellectual Property Rights, or any violation of the terms of
any license relating to Intellectual Property Rights, nor does the Company know
of any basis for any such claim, except a trademark infringement action
threatened by Publishing Group, Inc. The Company knows of no material
infringement by others of Intellectual Property Rights owned by or licensed to
the Company. The Company has obtained, is in compliance in all material respects
with and maintains in full force and effect all material licenses, certificates,
permits, orders or other, similar authorizations granted or issued by any
governmental agency (collectively, "Government Permits") required to conduct its
business as it is presently conducted. All applications for additional
Government Permits described in the Prospectus as having been made by the
Company have been properly and effectively made in accordance with the
applicable laws and regulations with respect thereto and such applications
constitute, in the best judgment of the Company's management, those reasonably
required to have been made in order to carry out the Company's business plan as
described in the Prospectus. No proceeding to revoke, limit or otherwise
materially change any Government Permit has been commenced or, to the Company's
best knowledge, is threatened against the Company or any supplier to the Company
with respect to materials supplied to the Company, and the Company has no reason
to anticipate that any such
5
<PAGE>
proceeding will be commenced against the Company or any such supplier. Except as
disclosed or contemplated in the Prospectus, the Company has no reason to
believe that any pending application for a Government Permit will be denied or
limited in a manner inconsistent with the Company's business plan as described
in the Prospectus.
(xv) The Company is in all material respects in compliance
with all applicable Environmental Laws. The Company has no knowledge of any
past, present or, as anticipated by the Company, future events, conditions,
activities, investigation, studies, plans or proposals that (i) would interfere
with or prevent compliance with any Environmental Law by the Company or (ii)
could reasonably be expected to give rise to any common law or other liability,
or otherwise form the basis of a claim, action, suit, proceeding, hearing or
investigation, involving the Company and related in any way to Hazardous
Substances or Environmental Laws. Except for the prudent and safe use and
management of Hazardous Substances in the ordinary course of the Company's
business, (i) no Hazardous Substance is or has been used, treated, stored,
generated, manufactured or otherwise handled on or at any Facility and (ii) to
the Company's best knowledge, no Hazardous Substance has otherwise come to be
located in, on or under any Facility. No Hazardous Substances are stored at any
Facility except in quantities necessary to satisfy the reasonably anticipated
use or consumption by the Company. No litigation, claim, proceeding or
governmental investigation is pending regarding any environmental matter for
which the Company has been served or otherwise notified or, to the knowledge of
the Company threatened or asserted against the Company, or the officers or
directors of the Company in their capacities as such, or any Facility or the
Company's business. There are no orders, judgments or decrees of any court or of
any governmental agency or instrumentality under any Environmental Law which
specifically apply to the Company, any Facility or any of the Company's
operations. The Company has not received from a governmental authority or other
person (1) any notice that it is a potentially responsible person for any
Contaminated site or (2) any request for information about a site alleged to be
Contaminated or regarding the disposal of Hazardous Substances. There is no
litigation or proceeding against any other person by the Company regarding any
environmental matter. The Company has disclosed in the Prospectus or made
available to the Underwriters and their counsel true, complete and correct
copies of any reports, studies, investigations, audits, analysis, tests or
monitoring in the possession of or initiated by the Company pertaining to any
environmental matter relating to the Company, its past or present operations or
any Facility.
For the purposes of the foregoing paragraph, "Environmental Laws" means
any applicable federal, state or local statute, regulation, code, rule,
ordinance, order, judgment, decree, injunction or common law pertaining in any
way to the protection of human health or the environment, including without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Toxic Substances
Control Act, the Clean Air Act, the Federal Water Pollution Control Act and any
similar or comparable state or local law; "Hazardous Substance" means any
6
<PAGE>
hazardous, toxic, radioactive or infectious substance, material or waste as
defined, listed or regulated under any Environmental Law; "Contaminated" means
the actual existence on or under any real property of Hazardous Substances, if
the existence of such Hazardous Substances triggers a requirement to perform any
investigatory, remedial, removal or other response action under any
Environmental Laws or if such response action legally could be required by any
governmental authority; "Facility" means any property currently owned, leased or
occupied by the Company.
(xvi) Neither the Company, nor to the Company's best
knowledge, any of its affiliates, has taken or intends to take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Common Shares to facilitate the sale or resale
of the Shares.
(xvii) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940, as amended (the
"1940 Act"), and the rules and regulations of the Commission thereunder.
(xviii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xix) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties and as is customary for companies engaged in
similar industries.
(xx) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Section 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
7
<PAGE>
(xxi) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported or incorporated by reference in
the Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(xxii) The Company is in material compliance with all laws,
rules, regulations, orders of any court or administrative agency, operating
licenses or other requirements imposed by any governmental body applicable to
it, including, without limitation, all applicable laws, rules, regulations,
licenses or other governmental standards applicable to the industry in which the
Company operates; and the conduct of the business of the Company, as described
in the Prospectus, will not cause the Company to be in violation of any such
requirements.
(xxiii) The Representatives' Warrants (as defined in Paragraph
(d) of Section 2 hereof) have been authorized for issuance to the
Representatives and will, when issued, possess rights, privileges, and
characteristics as represented in the most recent form of Representatives'
Warrants filed as an exhibit to the Registration Statement; the securities to be
issued upon exercise of the Representatives' Warrants, when issued and delivered
against payment therefor in accordance with the terms of the Representatives'
Warrants, will be duly and validly issued, fully paid, nonassessable and free of
preemptive rights, and all corporate action required to be taken for the
authorization and issuance of the Representatives' Warrants, and the securities
to be issued upon their exercise, have been validly and sufficiently taken.
(xxiv) Except as disclosed in the Prospectus, neither the
Company nor any of its officers, directors or affiliates have caused any person,
other than the Underwriters, to be entitled to reimbursement of any kind,
including, without limitation, any compensation that would be includable as
underwriter compensation under the NASD's Corporate Financing Rule with respect
to the offering of the Shares, as a result of the consummation of such offering
based on any activity of such person as a finder, agent, broker, investment
adviser or other financial service provider.
(b) The Selling Shareholder represents and warrants to each of
the Underwriters as follows:
8
<PAGE>
(i) The Selling Shareholder now has and at the
Closing Date will have good and marketable title to the Firm Shares to be sold
by the Selling Shareholder, free and clear of any liens, encumbrances, equities
and claims, and full right, power and authority to effect the sale and delivery
of such Firm Shares; and upon the delivery of, against payment for, such Firm
Shares pursuant to this Agreement, the Underwriters will acquire good and
marketable title thereto, free and clear of any liens, encumbrances, equities
and claims.
(ii) The Selling Shareholder has full right, power
and authority to execute and deliver this Agreement and the Custody Agreement
(as defined in Section 1(b)(v)) and to perform his obligations under such
agreements. The execution and delivery of this Agreement and consummation by the
Selling Shareholder of the transactions herein contemplated and the fulfillment
by the Selling Shareholder of the terms hereof will note require any consent,
approval, authorization, or other order of any court, regulatory body,
administrative agency of other governmental body (except as may be required
under the Act, state securities laws or Blue Sky laws) and will not result in a
breach of any of the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Selling Shareholder is a party, or of any order, rule or regulation applicable
to the Selling Shareholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) The Selling Shareholder has not taken, directly
or indirectly, any action designed to, or which has constituted, or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of the Common Shares and, other than as permitted by the Act, the
Selling Shareholder will not distribute any prospectus or other offering
material in connection with the offering of the Shares.
(iv) Without having undertaken to determine
independently the accuracy or completeness of either the representations and
warranties of the Company contained herein or the information contained in the
Registration Statement, the Selling Shareholder has no reason to believe that
the representations and warranties of the Company contained in this Section 1
are not true, correct and compete, is familiar with the Registration Statement
and has no knowledge of any material fact, condition or information not
disclosed in the Registration Statement which has adversely affected, or may
adversely affect, the business of the Company and the sale of the Firm Shares by
the Selling Shareholder pursuant hereto is not prompted by any information
concerning the Company or any of its subsidiaries which is not set forth in the
Registration Statement. The information pertaining to the Selling Shareholder in
the Prospectus is true, correct and complete.
(v) Certificates in negotiable form for the Firm
Shares to be sold hereunder by the Selling Shareholder have been placed in
custody with Morse, Zelnick, Rose & Lander, L.L.P., as custodian ("Custodian"),
pursuant to a custody agreement
9
<PAGE>
executed by the Selling Shareholder for delivery of all Shares to be sold
hereunder by the Selling Shareholder (the "Custody Agreement"). The Selling
Shareholder specifically agrees that the Shares represented by the certificates
held in custody for the Selling Shareholder under the Custody Agreement are
subject to the interests of the Representatives, that the arrangements made by
the Selling Shareholder for such custody are irrevocable, and that the
obligations of the Selling Shareholder hereunder shall not be terminable by any
act or deed of the Selling Shareholder (or by any other person, firm or
corporation including the Company, the Custodian or the Representatives) or by
operation of law (including the death of the Selling Shareholder) or by the
occurrence of any other event or events, except as set forth in the Custody
Agreement. If any such event should occur prior to the delivery to the
Representatives of the Firm Shares to be sold by the Selling Shareholder
hereunder, certificates for such Firm Shares shall be delivered by the Custodian
in accordance with the terms and conditions of this Agreement as if such event
had not occurred, regardless of whether or not the Custodian shall have received
notice of such death, incapacity or other event. The Custodian is authorized to
receive and acknowledge receipt of the proceeds of sale of such Firm Shares held
by it against delivery of such Firm Shares.
(vi) No consent, approval, authorization or order of
any court or governmental agency or body is required for the consummation by the
Selling Shareholder of the transactions contemplated herein, except such as may
have been obtained under the Act and from the NASD and such as may be required
under the Blue Sky Laws of any jurisdiction in connection with the purchase and
distribution of the Firm Shares by the Underwriters and such other approvals as
have been obtained.
(vii) Neither the sale of the Firm Shares being sold
by the Selling Shareholder nor the consummation of any other of the transactions
contemplated herein by the Selling Shareholder or the fulfillment of the terms
hereof by the Selling Shareholder will conflict with, result in breach of, or
constitute a default under, the terms of any indenture or other agreement or
instrument to which the Selling Shareholder is a party or bound, or any order or
regulation applicable to the Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction over
the Selling Shareholder.
(viii) In respect of any statements in or omissions
from the Registration Statement or the Prospectus or any amendment or supplement
thereto made in reliance upon and in conformity with information furnished in
writing to the Company by the Selling Shareholder specifically for use in
connection with the preparation thereof, the Selling Shareholder hereby makes
the same representations and warranties to each Underwriter as the Company makes
to such Underwriter under paragraph (a)(vi) of this Section.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
10
<PAGE>
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Company and the Selling Shareholder agrees to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a price of
$______ per Share, the number of Firm Shares set forth opposite the name of each
Underwriter in Schedule I hereof, subject to adjustments in accordance with
Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in New York Clearing House funds and, at the option of the Representatives,
by certified or bank cashier's checks drawn to the order of the Company or bank
wire to an account specified by the Company against either uncertificated
delivery of the Firm Shares or of certificates therefor (which delivery, if
certificated, shall take place in such location in New York, New York as may be
specified by the Representatives) to the Representatives for the several
accounts of the Underwriters. Such payment is to be made at the offices of
Paulson Investment Company, Inc. ("Paulson") at the address set forth on the
first page of this Agreement, or at such other place as you and the Company
shall designate, at 7:00 a.m., Pacific time, on the third business day after the
date of this Agreement or at such other time and date not later than five
business days after as you and the Company shall agree upon, such time and date
being herein referred to as the "Closing Date." (As used herein, "business day"
means a day on which the New York Stock Exchange is open for trading and on
which banks in New York are open for business and not permitted by law or
executive order to be closed.) Except to the extent uncertificated Firm Shares
are delivered at closing, the certificates for the Firm Shares will be delivered
in such denominations and in such registrations as the Representatives request
in writing not later than the second full business day prior to the Closing
Date, and will be made available for inspection by the Representatives at least
one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Representatives to purchase
the Option Shares at the price per Share as set forth in the first paragraph of
this Section 2. The option granted hereby may be exercised in whole or in part
by giving written notice (i) at any time before the Closing Date and (ii) only
once thereafter within 45 days after the date of this Agreement, by the
Representatives to the Company setting forth the number of Option Shares as to
which the Representatives are exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at which
certificates representing such Shares are to be delivered. The time and date at
which certificates for Option Shares are to be delivered shall be determined by
the Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The option
11
<PAGE>
with respect to the Option Shares granted hereunder may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters. The
Representatives may cancel such option at any time prior to its expiration by
giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date in New York Clearing House funds and, at the option
of the Representatives, by certified or bank cashier's check drawn to the order
of the Company for the Option Shares to be sold by the Company or bank wire to
an account specified by the Company against either uncertificated delivery of
the Option Shares or of delivery of certificates therefor(which delivery, if
certificated, shall take place in such location in New York, New York as may be
specified by the Representatives) to the Representatives for the several
accounts of the Underwriters.
(d) In addition to the sums payable to the Representatives as
provided elsewhere herein, the Representatives shall be entitled to receive at
the Closing, for itself alone and not as Representatives of the Underwriters, as
additional compensation for their services, a purchase warrant (the
"Representatives' Warrant") for the purchase of up to 132,500 Shares at a price
of $_____ per Share, upon the terms and subject to adjustment and conversion as
described in the form of Representatives' Warrant filed as an exhibit to the
Registration Statement.
(e) If on the Closing Date the Selling Shareholder fails to
sell the Firm Shares which the Selling Shareholder has agreed to sell on such a
date, the Company agrees that it will sell or arrange for the sale of that
number of Common Shares to the Representatives which represents the Firm Shares
which the Selling Shareholder has failed to so sell.
(f) The Selling Shareholder will pay all applicable state
transfer taxes, if any, involved in the transfer to the several Underwriters of
the Firm Shares to be purchased by them from the Selling Shareholder, and the
respective Underwriters will pay any additional stock transfer taxes involved in
further transfers.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2(c) hereof, the Representatives will offer
them to the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with an Agreement
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Among Underwriters entered into by you and the several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDER.
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (1) use its reasonable best efforts to
cause the Registration Statement to become effective or, if the procedure in
Rule 430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus
in a form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A of the Rules and Regulations, and (2) not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a copy
or to which the Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives promptly
(1) when the Registration Statement or any post-effective amendment thereto
shall have become effective, (2) of receipt of any comments from the Commission,
(3) of any request of the Commission for amendment of the Registration Statement
or for supplement to the Prospectus or for any additional information, and (4)
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the use of the Prospectus or of the institution
of any proceedings for that purpose. The Company will use its reasonable best
efforts to prevent the issuance of any such stop order preventing or suspending
the use of the Prospectus and to obtain as soon as possible the lifting thereof,
if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order
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of, the Representatives during the period when delivery of a Prospectus is
required under the Act, as many copies of the Prospectus in final form, or as
thereafter amended or supplemented, as the Representatives may reasonably
request. The Company will deliver to the Representatives at or before the
Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and Regulations, and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law.
(vi) The Company will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earnings statement
(which need not be audited) covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which earnings
statement shall satisfy the requirements of Section 11(a) of the Act and Rule
158 of the Rules and Regulations and will advise you in writing when such
statement has been so made available.
(vii) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and copies of all other
documents, reports and information furnished by the Company to its Shareholders
or filed with any securities exchange pursuant to the requirements of such
exchange or with the Commission pursuant to the Act or the Exchange Act. The
Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements. The Company's
obligation hereunder to deliver documents permitted to be filed with the
Commission electronically through the EDGAR system shall be satisfied by such
electronic filing.
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(viii) No offering, sale, short sale or other disposition of any Common
Shares or other securities convertible into or exchangeable or exercisable for
Common Shares or derivatives of Common Shares (or agreement for such) will be
made for a period of one year after the date of this Agreement, directly or
indirectly, by the Company otherwise than hereunder or with the prior written
consent of the Representatives, which consent will not be unreasonably withheld.
(ix) The Company will use its reasonable best efforts to list the Common
Shares, subject to notice of their issuance, on The Nasdaq Stock Market.
(x) The Company has caused each officer and director and each person who
owns, beneficially or of record, 5% or more of the Common Shares outstanding
immediately prior to this offering (the "Insiders") to furnish to you, on or
prior to the date of this Agreement, a letter or letters, in form and substance
satisfactory to you, pursuant to which, except as permitted in the agreement,
without prior written consent they will not sell or otherwise dispose of equity
securities of the Company for a period of one year following the Effective Date
and for a period of two years from the Effective Date they will provide us with
prior notice of any sales of equity securities of the Company pursuant to Rule
144 or other similar rule.
(xi) The Company shall apply the net proceeds of its sale of the Shares as
set forth in the Prospectus and shall file such reports with the Commission with
respect to the sale of the Shares and the application of the proceeds therefrom
as may be required in accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the proceeds received
by the Company from its sale of the Shares in such a manner as would require the
Company or any of the subsidiaries to register as an investment company under
the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Shares.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(b) The Selling Shareholder covenants and agrees with the several
Underwriters that:
(i) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
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1983 with respect to the transactions herein contemplated, the Selling
Shareholder agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(ii) The Selling Shareholder shall not take, directly or indirectly,
any action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
(iii) On the Closing Date, the Selling Shareholder shall apply the
net proceeds of the sale of his Shares to satisfy any and all loans or other
indebtedness owed by him to the Company as of the Closing Date, including any
principal and accrued interest.
5. COSTS AND EXPENSES.
(a) Paulson shall be entitled to receive from the Company, for itself
alone and not as a Representative of the Underwriters, a nonaccountable expense
allowance equal to 3% of the aggregate public offering price of Shares sold by
the Company to the Underwriters in connection with the Offering. Paulson shall
be entitled to withhold this allowance on the Closing Date (less the $35,000
advance against such amount that has been paid by the Company) with respect to
Shares delivered by the Company on the Closing Date and to require the Company
to make payment of this allowance on the Option Closing Date with respect to
Shares delivered by the Company on the Option Closing Date.
(b) Paulson shall also be entitled to receive from the Selling
Shareholder, for itself and not as a Representative of the Underwriters, a
nonaccountable expense allowance equal to 3% of the aggregate public offering
price of Shares sold by the Selling Shareholder to the Underwriters in
connection with the Offering. Paulson shall be entitled to withhold this
allowance on the Closing Date with respect to Shares delivered by the Selling
Shareholder on the Closing Date.
(c) In addition to the payment described in Paragraph (a) of this
Section 5, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company and the Selling Shareholder under
this Agreement, including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements of counsel
for the Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the NASDAQ Stock Market Listing Application,
the Blue Sky Survey and any supplements or amendments thereto; the filing fees
of the Commission; the filing fees incident to securing any required review by
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the NASD of the terms of the sale of the Shares; the Listing Fee of The Nasdaq
Stock Market; reasonable costs of a due diligence investigation of the
principals of the Company by a firm acceptable to the Representatives; and the
expenses, including the fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the Shares under state
securities or Blue Sky laws. Any transfer taxes imposed on the sale of the
Shares to the several Underwriters will be paid by the Company, but the Selling
Shareholder shall be responsible for transfer taxes arising from his pro-rata
shares being sold under this Agreement. Additionally, the Selling Shareholder
shall be responsible for the registration fee of the Securities and Exchange
Commission and for the Blue Sky filing fees attributable to the shares being
sold by him as well as for his pro rata share of the underwriting discount and
expense allowance. To the extent, if at all, that the Selling Shareholder
engages special legal counsel to represent him in connection with this offer,
the fees and expenses of such counsel shall be borne by the Selling Shareholder.
If the Offering is not consummated for any reason except knowing, material
misrepresentation by the Company or the Selling Shareholder or if the Company
chooses, for whatever reason, not to proceed with the Offering within the stated
price range, then the Company is obligated to cover the Representatives'
additional actual, out of pocket expenses, only up to the $35,000 previously
paid. If the Offering is not consummated due to any knowing, material
misrepresentation by the Company or the Selling Shareholder or the Company
chooses, for whatever reason, not to proceed with the Offering within the stated
price range, the Representatives will be entitled, upon presentation of a
written accounting therefor in reasonable detail (but without the need to
include the underlying statements or evidence of payment), to prompt
reimbursement of up to $75,000 (including the $35,000 previously paid) of
actual, out of pocket expenses related to the Offering, including but not
limited to fees and expenses of the Representatives' legal counsel, travel
expenses and the fees and expenses of outside experts, if any, retained to
assist the Representatives with due diligence.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company and Selling Shareholder contained herein, and to the performance by the
Company and Selling Shareholder of their covenants and obligations hereunder and
to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from
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time to time, shall have been issued and no proceedings for that purpose shall
have been taken or, to the knowledge of the Company, shall be contemplated by
the Commission and no injunction, restraining order, or order of any nature by a
federal or state court of competent jurisdiction shall have been issued as of
the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Morse, Zelnick, Rose &
Lander, LLP, counsel for the Company and the Selling Shareholder, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of New York, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification, or in which the failure to qualify would
have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding capital stock as set forth
under the caption "Capitalization" in the Prospectus; the authorized Common
Shares have been duly authorized; the outstanding Common Shares have been duly
authorized and validly issued and are fully paid and non-assessable; all of the
securities of the Company conform to the description thereof contained in the
Prospectus; the certificates for the Common Shares, assuming they are in the
form filed with the Commission, are in due and proper form; the Common Shares to
be sold by the Company and the Selling Shareholder pursuant to this Agreement,
including Common Shares to be sold as a part of the Option Shares, have been
duly authorized and, upon issuance and delivery thereof as contemplated in this
Agreement and the Registration Statement, will be validly issued, fully paid and
non-assessable; no preemptive rights of Shareholders exist with respect to any
of the Common Shares or the issuance or sale thereof pursuant to any applicable
statute or the provisions of the Company's certificate of incorporation or
bylaws or, pursuant to any contractual obligation. The Representatives' Warrants
have been authorized for issuance to the Representatives and will, when issued,
possess rights, privileges, and characteristics as represented in the most
recent form of the Representatives' Warrants filed as an exhibit to the
Registration Statement; the securities to be issued upon exercise of the
Representatives' Warrants, when issued and delivered against payment therefor in
accordance with the terms of the Representatives' Warrants, will be duly and
validly issued, fully paid, nonassessable and free of preemptive rights, and all
corporate action required to be taken for the authorization and issuance of the
Representatives' Warrants and the securities to be issued upon their exercise
has been validly and sufficiently taken.
(iii) Except as described in or contemplated by the Prospectus,
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there are no outstanding securities of the Company convertible or exchangeable
into or evidencing the right to purchase or subscribe for any shares of capital
stock of the Company and there are no outstanding or authorized options,
warrants or rights of any character obligating the Company to issue any shares
of its capital stock or any securities convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of such stock; and
except as described in the Prospectus, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
Common Shares or other securities of the Company.
(iv) The Registration Statement has become effective under the Act and no
stop order proceedings with respect thereto have been instituted or are pending
or, to such counsel's knowledge, threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules therein).
(vi) The statements under the captions "Shares Eligible for Future Sale"
and "Description of Capital Stock" in the Prospectus and in Item 24 of the
Registration Statement, insofar as such statements constitute a summary of
documents referred to therein or matters of law, fairly summarize in all
material respects the information called for with respect to such documents and
matters.
(vii) No contracts or documents required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or the
Prospectus which are not so filed or described as required, and such contracts
and documents as are summarized in the Registration Statement or the Prospectus
are fairly summarized in all material respects.
(viii) To counsel's knowledge, there are no material legal or governmental
proceedings pending or threatened against the Company, except a trademark
infringement action threatened by Publishing Group, Inc.
(ix) The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated do not and will not conflict with or result
in a breach of any of the terms or provisions of, or constitute a default under,
the certificate of incorporation or bylaws of the Company, or any agreement or
instrument
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known to such counsel to which the Company is a party or by which the Company
may be bound.
(x) This Agreement has been duly authorized, executed and delivered by the
Company and the Selling Shareholder.
(xi) No approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental body
is necessary in connection with the execution and delivery of this Agreement by
the Company or the Selling Shareholder and the consummation of the transactions
herein contemplated (other than as may be required by the NASD or as required by
state securities and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xiii) The Custody Agreement executed and delivered by the Selling
Shareholder is valid and binding and enforceable against such Shareholder in
accordance with its terms.
(xiv) The Underwriters (assuming that they are bona fide purchasers within
the meaning of the Uniform Commercial Code) have acquired good and marketable
title to the Firm Shares being sold by the Selling Shareholder on the Closing
Date free and clear of all liens, encumbrances, equities and claims.
(xv) On the effective date thereof as described in the Prospectus, the
Exchange (as described in the Prospectus) was consummated in accordance with the
applicable provisions of the New York Business Corporation Law, and each of the
parties thereto had all requisite authority (including all necessary shareholder
and board of director approvals) to enter into and consummate the Exchange.
In rendering such opinion, such counsel may rely as to matters governed by
the laws of states other than New York or federal laws on local counsel in such
jurisdictions, provided that in each case such counsel shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel. In addition to the matters set forth above, the opinion of Morse,
Zelnick, Rose & Lander, LLP, shall also include a statement to the effect that
nothing has come to the attention of such counsel that has caused them to
believe that (i) the Registration Statement, at the time it became effective
under the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing
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Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements, in
the light of the circumstances under which they are made, not misleading (except
that such counsel need express no view as to financial statements, schedules and
statistical information therein).
(c) The Representatives shall have received from Weiss,
Jensen, Ellis & Howard, counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (i), (iv) and (v) of Paragraph (b) of this
Section 6. In rendering such opinion Weiss, Jensen, Ellis & Howard may rely as
to all matters governed other than by the laws of the state of Oregon or federal
laws on the opinion of counsel referred to in Paragraph (b) of this Section 6.
In addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
that has caused them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) the Prospectus, or any supplement thereto, on the date
it was filed pursuant to the Rules and Regulations and as of the Closing Date or
the Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact, necessary in order to make
the statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Weiss, Jensen, Ellis & Howard may state that their belief is based
upon the procedures set forth therein, but is without independent check and
verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Weiss, Jensen, Ellis & Howard a memorandum or summary, in form
and substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under the
state securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(e) The Representatives, on behalf of the several
Underwriters, shall have received, on each of the date hereof, the Closing Date
and the Option Closing
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Date, as the case may be, a letter dated the date hereof, the Closing Date or
the Option Closing Date, as the case may be, in form and substance satisfactory
to the Representatives, of Arthur Andersen LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations and containing such other statements and information as are
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act and no
stop order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for such purpose have been taken or are, to his or
her knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in Section
1 hereof are true and correct as of the Closing Date or the Option Closing Date,
as the case may be;
(iii) All filings required to have been made pursuant to Rule 424 or Rule
430A under the Act have been made;
(iv) He or she has carefully examined the Registration Statement and the
Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set forth
in such supplement or amendment; and
(v) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, there has not been any material adverse
change or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company or the earnings,
business, management,
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properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company, whether or not arising in the ordinary course of
business.
(g) The Company and the Selling Shareholder shall have
furnished to the Representatives such further certificates and documents
confirming the representations and warranties, covenants and conditions
contained herein and related matters as the Representatives may reasonably have
requested.
(h) The Common Shares have been approved for designation on
The Nasdaq Stock Market upon notice of issuance.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to Weiss,
Jensen, Ellis & Howard, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company and the Selling Shareholder of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Company, the Selling Shareholder and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion
of the Shares required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company and the Selling Shareholder jointly and
severally agree to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of the Act, against any
losses, claims, damages or liabilities to which such Underwriter or any such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon:
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(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus or
Prospectus (including, but not limited to the section entitled
"Underwriting"), or any amendment or supplement thereto, or
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse each Underwriter and each such controlling person
upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Company and the Selling
Shareholder will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus or Prospectus
(including, but not limited to the section entitled "Underwriting"), or any
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, each person, if any, who controls the Company
within the meaning of the Act, and the Selling Shareholder against any losses,
claims, damages or liabilities to which the Company, the Selling Shareholder or
any such director, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company, any such director, officer or controlling person or the
Selling Shareholder in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
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<PAGE>
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event:
(i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel;
(ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them; or
(iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable period of
time after notice of commencement of the action.
It is understood that the indemnifying party shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the case
of parties indemnified pursuant to Section 8(a) and by the Company in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
25
<PAGE>
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company on the one hand and the Underwriters
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, (or actions or proceedings in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Shareholder on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Shareholder bears to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Selling Shareholder on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Selling Shareholder and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any
26
<PAGE>
amount in excess of the underwriting discounts and commissions applicable to the
Shares purchased by such Underwriter, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of:
(i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Company, the Selling
Shareholder, its directors or officers or any persons controlling the Company;
(ii) acceptance of any Shares and payment therefor
hereunder; and
(iii) any termination of this Agreement.
A successor to any Underwriter, to the Selling Shareholder, or to the
Company, its directors or officers, or any person controlling the Company, shall
be entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or the
Selling Shareholder), you, as Representatives of the Underwriters, shall use
your reasonable efforts to procure within 36 hours thereafter
27
<PAGE>
one or more of the other Underwriters, or any others, to purchase from the
Company and the Selling Shareholder such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of Shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of Firm Shares or Option Shares, as the case may be, with
respect to which such default shall occur equals or exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company or of the Selling Shareholder except to the
extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or
Option Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representatives, may determine in order that
the required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action taken
under this Section 9 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Paulson
Investment Company, Inc., 811 SW Naito Boulevard, Portland, Oregon 97204,
Attention: Chester L.F. Paulson; with a copy to Weiss, Jensen, Ellis & Howard,
2300 U.S. Bancorp Tower, 111 Fifth Avenue, Portland, Oregon 97204, Attention:
Mark A. von Bergen; if to the Company or the Selling Shareholder, to DAG Media,
Inc., 125-10 Queens Boulevard, Kew Gardens, NY 11415; with a copy to Morse
Zelnick, Rose & Lander, LLP, 450 Park Ave., New York, NY 10022, Attention:
Stephen A. Zelnick, Esq.
11. TERMINATION.
This Agreement may be terminated by you by notice to the
Company and to
28
<PAGE>
the Selling Shareholder as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its subsidiaries taken as
a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or material change in economic or political conditions if the effect of such
outbreak, escalation, declaration, emergency, calamity, crisis or material
change on the financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares or to enforce contracts for
the sale of the Shares, (iii) the Dow Jones Industrial Average shall have fallen
by 15 percent or more from its closing price on the day immediately preceding
the date that the Registration Statement is declared effective by the
Commission, (iv) suspension of trading in securities generally on the New York
Stock Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such Exchange, (v) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company,
(vi) declaration of a banking moratorium by United States or New York State
authorities, (vii) any downgrading in the rating of the Company's debt
securities by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Exchange Act); (viii) the
suspension of trading of the Common Shares by the Commission on The Nasdaq Stock
Market or (ix) the taking of any action by any governmental body or agency in
respect of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company, the Selling Shareholder and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder.
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<PAGE>
No purchaser of any of the Shares from any Underwriter shall be deemed a
successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Shareholder and the Underwriters
acknowledge and agree that the only information furnished or to be furnished by
any Underwriter to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-B under the Act
and the information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the state of Oregon. All disputes relating to this
Underwriting Agreement shall be adjudicated before a court located in Multnomah
County, Oregon to the exclusion of all other courts that might have
jurisdiction.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholder and the several Underwriters in accordance with its terms.
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Very truly yours,
DAG MEDIA, INC.
By:
---------------------------------
Assaf Ran
Chief Executive Officer
-------------------------------------
Assaf Ran
Selling Shareholder
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
PAULSON INVESTMENT COMPANY, INC.
REDWINE & COMPANY, INC.
As Representatives of the several
Underwriters listed on Schedule I
By: PAULSON INVESTMENT COMPANY, INC.
By:
Authorized Officer
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
- --------------------------------------------- ---------------
Paulson Investment Company, Inc.
Redwine & Company, Inc.
TOTAL: 1,325,0000
==========
<PAGE>
COLLECTION AGREEMENT
-between-
DAPEY ASSAF-DAPEY ZAHAV
and
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK
THIS AGREEMENT made this __ day of ________, 199_, by and between DAPEY
ASSAF-DAPEY ZAHAV (hereinafter "DZ"), a New York corporation, and DAPEY
ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK (hereinafter "DA"), also a New
York corporation.
W I T N E S S E T H :
WHEREAS, DZ desires and needs an entity to collect advertising fees
from customers; and
WHEREAS, DA desires to represent DZ in the collection of advertising
revenues from customers;
NOW, THEREFORE, in consideration of the foregoing premise and the
mutual covenants and agreements herein contained, the parties hereto agree as
follows:
1. Representational Duties and Terms: DA agrees to collect advertising
revenues for DZ from DZ customers.
<PAGE>
Commission and marketing expenses incurred by DA during the pendency of
this agreement shall be paid by DZ.
By virtue of this Agreement, withdrawals by executives and shareholders
of DA from funds collected shall be endorsed to DZ.
This Agreement shall begin on ______________ and shall continue until
October 31, 199_.
2. Compensation: During the term of this Agreement, DA shall be paid
the sum of ________ by DZ.
IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.
DAPEY ASSAF-DAPEY ZAHAV
By: /s/ ASSAF RAN
---------------------------
President
DAPEY ASSAF-HAMADRIKH
LEASSAKIM ISRAELIM BE NEW YORK
By: /s/ ASSAF RAN
---------------------------
President
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated March 10, 1999 included in this registration statement Form SB-2 and to
all references to our firm included in this registration statement.
New York, New York ARTHUR ANDERSEN LLP
May 6, 1999
