<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
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 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Shares, par value $.001 per share (2)...... 1,523,750 $6.50 $9,904,375.00 $2,921.79
Representative's Warrants(3)...................... 132,500 $-0- $-0- $-0-
Common Shares issuable upon exercise of
Representative's Warrants (4)................... 132,500 $7.80 $1,033,500.00 $304.88
Total Registration Fee............................ $3,217.67
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
(2) Includes 198,750 shares issuable upon exercise of Underwriters'
over-allotment option.
(3) No registration fee required pursuant to Rule 457(g) under the Securities
Act.
(4) Pursuant to Rule 416 under the Securities Act, there are also being
registered hereby such additional indeterminate number of shares as may
become issuable pursuant to the antidilution provisions of the
Representative's Warrants.
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 SAID
SECTION 8(A), MAY DETERMINE.
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<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 MARCH 10, 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 Common Shares, and Assaf Ran, our founder and principal shareholder,
is offering 75,000 Common Shares. Mr. Ran will repay a loan of $295,262 owed to
us out of the net proceeds from the sale of his Common Shares.
There has been no prior market for our Common Shares. We will apply to have
our Common Shares listed on the Nasdaq SmallCap Market under the symbol "DAGM."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN FACTORS YOU SHOULD
CONSIDER BEFORE BUYING COMMON SHARES.
Neither the Securities and Exchange Commission nor any other regulatory body
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 at the initial public offering price
less the underwriting discounts and commissions to cover over-allotments.
The underwriters expect to deliver the Common Shares offered by this
Prospectus against payment on or about , 1999.
PAULSON INVESTMENT COMPANY, INC.
The date of this Prospectus is , 1999
<PAGE>
The JEWISH ISRAELI YELLOW PAGES-Registered Trademark- and variants thereof,
and THE JEWISH REFERRAL SERVICE-Registered Trademark- are registered trademarks
or service marks of the Company. 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.
We maintain a web site at HTTP://WWW.PORTY.COM.
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION THAT WE PRESENT MORE FULLY IN THE OTHER
SECTIONS OF THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN
ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE BUYING COMMON SHARES IN
THIS OFFERING.
UNLESS STATED TO THE CONTRARY, REFERENCES TO "WE," "US," "OUR" OR "THE
COMPANY" REFER TO DAG MEDIA AND, WHERE APPROPRIATE, OUR PREDECESSORS AND
SUBSIDIARIES. IN ADDITION, UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES THAT THE UNDERWRITERS WILL NOT EXERCISE THE OPTION GRANTED BY
US TO PURCHASE ADDITIONAL COMMON SHARES IN THIS OFFERING.
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 (the "JI
Directory"), is published, bilingually, in English and Hebrew. The first edition
of the JI Directory was published in February 1990 and it has been published in
February and August of each year since 1991. The JI Directory covers the New
York metropolitan area, which includes New York City, the counties of Nassau,
Suffolk, Westchester and Rockland, and northern New Jersey. Our 18(th) edition,
distributed in February 1999, has 1,696 pages and more than 3,200 ads, and we
believe it is the largest yellow page directory in the New York metropolitan
area not published by Bell Atlantic. We also publish a smaller English-only
yellow page directory, THE JEWISH MASTER GUIDE (the "Master Guide"), which is
distributed to the Hasidic and ultra-Orthodox Jewish communities in the New York
metropolitan area. To give added value to advertisers in our directories, we
also operate THE JEWISH REFERRAL SERVICE (the "Referral Service"), which directs
potential customers and clients to businesses that advertise in the JI Directory
and the Master Guide.
In 1995 we began publishing an English-only version of the JI Directory on
the world wide web. As an added benefit to advertisers in the JI Directory,
text-only ads are carried on our web site without additional charge. Graphic ads
may also be displayed by these advertisers for an additional fee. In February
1999 we introduced a "portal" web site at WWW.PORTY.COM (the "Portal") which
allows users to link with web sites maintained by advertisers in the JI
Directory or the Master Guide. The Portal also allows users to access other web
sites containing programs, events and news of particular interest to the Jewish
and Israeli communities as well as general content on the web.
GROWTH STRATEGY
We plan to expand operations by introducing an English-only, general
interest yellow page directory, NEWYELLOW, in the New York metropolitan area.
NEWYELLOW will compete directly with yellow page directories published by Bell
Atlantic. Ads in NEWYELLOW will be priced significantly below prices currently
charged by Bell Atlantic for its yellow page directories. We believe that our
pricing policies will expand the market for yellow page advertising by making
such ads a cost-effective way for smaller businesses to reach potential
customers. We also believe our pricing policies will cause some advertisers in
the Bell Atlantic publications to place ads in NEWYELLOW either in addition to
or in substitution for their Bell Atlantic ads. Our experience in publishing
yellow page directories and selling ads through an effective sales force,
should, we believe, enable us to compete with Bell Atlantic. We plan to
introduce the first NEWYELLOW directory in Manhattan by June 2000. If the
Manhattan NEWYELLOW directory is successful, we plan to add additional NEWYELLOW
directories covering other boroughs in New York City and other counties in the
New York metropolitan area. We may also explore opportunities for offering
yellow page directories and referral services in other cities with large Jewish
and Israeli populations such as Miami, Florida and Los Angeles, California.
3
<PAGE>
HISTORY
We were incorporated in New York in February 1999 to serve as the parent of
Dapey Assaf-Dapey Zahav, Ltd., which was incorporated in New York in 1995, and
of Dapey Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd., which was
incorporated in New York in 1989. We have entered into an Exchange Agreement
with Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh and their respective
shareholders pursuant to which such shareholders will exchange all of their
common shares in those entities for 1,726,190 of our Common Shares and Dapey
Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh will become our wholly owned
subsidiaries. The transactions contemplated by this Exchange Agreement will be
consummated immediately prior to the effective date of this Offering.
Our executive offices are located at 125-10 Queens Boulevard, Kew Gardens,
New York 11415, and our telephone number is (718) 263-8454. Our address on the
world wide web is WWW.PORTY.COM.
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 the Portal; and general
corporate purposes, including working
capital.
Risk Factors and Dilution.................... The purchase of the shares offered hereby
involves a high degree of risk and immediate
and substantial dilution.
Proposed Nasdaq SmallCap Market Symbol for
the Common Shares.......................... DAGM
</TABLE>
Common Shares Outstanding excludes 124,000 Common Shares reserved for
issuance pursuant to our 1999 Stock Option Plan. We have granted options
covering 22,324 Common Shares under this plan as of the effective date of this
Offering at the initial public offering price per Common Share. See
"Management--Stock Option Plan" for a description of our 1999 Stock Option Plan
and the options that will be granted under that plan as of the effective date of
this Offering.
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 and
the notes thereto and the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of this Prospectus.
- Our historical financial data include all of the operations of Dapey
Assaf-Dapey Zahav and 50% of the net income of Dapey Assaf-Hamadrikh. See
notes 1 and 2 to our Consolidated Financial Statements.
- Pro forma data give effect to the transactions contemplated by the
Exchange Agreement. See "DAG Media-- History" in the "Summary" section of
this Prospectus, notes 1, 2 and 8 to our Consolidated Financial Statements
and "Management's Discussion and Analysis of Financial Condition and
Results of Operation" for more information about the Exchange Agreement
and its accounting treatment.
- Pro forma, as adjusted balance sheet data give effect to the transactions
contemplated by the Exchange Agreement, the sale of the Common Shares
offered by us pursuant to this Prospectus, after deducting $1,512,500, our
share of the underwriting discounts and commissions and other estimated
offering expenses, and the repayment of the principal shareholder's loan.
See "Certain Transactions" for more information about the principal
shareholder's loan.
STATEMENTS 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................................... 658,956 765,233 851,116
------------ ------------ ------------
Total operating costs and expenses.................................... 1,581,080 1,711,548 1,808,343
Earnings from operations before provision for income taxes and equity
income................................................................ 479,139 669,561 649,591
Provision for income taxes.............................................. 240,000 329,000 329,000
Equity in earnings of affiliate......................................... 16,012 17,035 --
------------ ------------ ------------
Net income.............................................................. $ 255,151 $ 357,596 $ 320,591
------------ ------------ ------------
------------ ------------ ------------
Basic and diluted net income per Common Share outstanding............... $ 0.20 $ 0.29 $ 0.19
------------ ------------ ------------
------------ ------------ ------------
Basic and diluted weighted average number of Common Shares
outstanding........................................................... 1,250,000 1,250,000 1,726,190
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
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>
5
<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.
MANY COMPETITORS HAVE SIGNIFICANT ADVANTAGES. OUR BUSINESS IS NOT DEPENDENT ON
ANY PROPRIETARY TECHNOLOGY AND THE BARRIERS TO ENTRY ARE RELATIVELY LOW.
Currently, we publish yellow page directories that are used primarily by the
Jewish and Israeli communities in the New York metropolitan area. We plan to
introduce NEWYELLOW, an English-only, general interest yellow page directory,
which will compete directly with the Bell Atlantic Yellow Pages in Manhattan.
Bell Atlantic publishes yellow page directories for each of the five boroughs in
New York City, one or more yellow page directories for the counties of Nassau,
Suffolk, Westchester and Rockland, and various yellow page directories for
northern New Jersey. In addition, there are a number of independent companies
that publish yellow page directories for distinct neighborhoods. 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 that will compete with our existing directories and directories that
we may publish in the future. There are no significant technological barriers to
entry. In addition, the Internet is growing rapidly and is a current and
potential source of even greater competition. There are already a number of
online yellow page directories available on the Internet such as Bell Atlantic's
Big Yellow. Finally, strategic alliances could give rise to new or stronger
competitors.
Many competitors have significant operating and financial advantages. These
advantages include greater financial, personnel, technical and marketing
resources, superior systems, stronger relationships with advertisers, greater
productive capacity, better-developed distribution channels, and greater name
recognition. In addition, many of our competitors can subsidize competing
services with revenues from their other services. As competition increases, we
expect significant increases in general pricing pressures. For example, Bell
Atlantic could reduce its advertising rates, making advertising in NEWYELLOW
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. See "Business--Competition" for a
further discussion of the competitive environment in which we operate.
WE ARE PLANNING TO INTRODUCE A NEW PRODUCT, THE SUCCESS OF WHICH WILL DEPEND ON
MANY FACTORS.
We intend to use the majority of the net proceeds of this Offering to
introduce NEWYELLOW. Since we have never published a general interest yellow
page directory, we have no relevant operating history upon which you can
evaluate whether we will be successful. Because we are entering into a different
business, we cannot forecast the scope, magnitude or timing of our future
revenues, if any. To date, we have not marketed or sold any ads for NEWYELLOW
nor have we entered into any strategic alliances with respect to NEWYELLOW. We
cannot assure you that we will be able to generate advertising revenue for, or
enter into any strategic alliances with respect to, NEWYELLOW. Therefore, you
should consider our prospects in light of the risks and uncertainties
encountered by companies trying to establish a new line of business,
particularly companies proposing to enter markets dominated by large and
well-known companies.
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;
6
<PAGE>
- manage the production (which includes selling ads, 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;
- 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, results of operations and the value of our securities. Our
operating results will also depend on external factors such as the development
of similar or superior services or products by competitors, general economic
conditions and economic conditions specific to publishers of yellow page
directories.
OUR SUCCESS DEPENDS ON OUR ABILITY TO HIRE AND RETAIN EFFECTIVE SALES
REPRESENTATIVES. OUR EXPANSION STRATEGY REQUIRES US TO EXPAND OUR SALES FORCE
SIGNIFICANTLY.
The success and growth of our business primarily depends on our ability to
field a highly effective, well-trained sales force. Currently, we hire about
one-half of our sales representatives directly. The remainder are hired by
independent sales agencies with whom we have agreements. Due to the demands of
the job, many sales representatives leave within one year. In addition, our
agreements with the independent sales agencies provide that they are terminable
upon 30 days notice by either party. Regularly replenishing our sales force
involves significant time and expense for recruiting and training. Introduction
of NEWYELLOW will require us to increase the size of the sales force
significantly. We cannot assure you that we will be able to hire and retain
qualified personnel to keep pace with our expansion strategy.
WE DO NOT HAVE ANY LONG-TERM COMMITMENTS FROM ADVERTISERS, UPON WHOM OUR SUCCESS
DEPENDS.
Our revenues are generated by selling ads. We do not, however, 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
purchase ads in future editions of 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.
7
<PAGE>
IF WE FAIL TO PUBLISH A DIRECTORY, WE WOULD BE REQUIRED TO GIVE REFUNDS TO 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 advances to our advertisers. We may not have sufficient cash
reserves to repay all these advances. In such 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.
OUR ABILITY TO PRODUCE DIRECTORIES ON A COST EFFICIENT BASIS DEPENDS ON THE COST
OF PAPER AND PRINTING.
Aside from sales commissions, our two largest expenses are the cost of paper
and printing. We do not have any long-term contracts with paper suppliers or
with printers. We buy paper on the open market at prevailing prices. 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. A substantial increase in paper costs may materially
increase publication costs and will reduce our profitability.
The JI Directory and the Master Guide are printed in Israel by HaMakor
Printing. To date, we have secured favorable rates and high quality service from
HaMakor. However, we do not have any agreement with HaMakor and we cannot assure
you that we will continue to obtain favorable pricing from them or that they
will continue to provide us with high quality service. If we need to replace
HaMakor quickly for any reason, our business, results of operations and
financial condition may suffer.
WE DO NOT MEASURE THE EFFECTIVENESS OF ADVERTISEMENTS, BUT AS OUR BUSINESS
GROWS, OUR CUSTOMERS MAY REQUIRE US TO DO SO.
Our advertisers do not require us to measure the effectiveness of their
advertisements in the JI Directory or the Master Guide, and we believe our
competitors do not provide their advertisers with such information. However, we
may have to provide this type of information when we publish NEWYELLOW. 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 costs and may also cause interruptions in our business operations.
The costs involved to develop this capability internally include personnel costs
as well as capital costs.
WE REQUIRE SIGNIFICANT CAPITAL TO EXPAND OUR OPERATIONS.
The expansion of our operations to add NEWYELLOW and possibly other yellow
page directories requires substantial amounts of additional capital.
Accordingly, we need the proceeds of this Offering to launch NEWYELLOW. The
publication, printing, distribution and marketing of yellow page directories
involve significant expense which must be paid before generating advertising
revenues at a level sufficient to cover these expenses. We expect that the net
proceeds from this Offering, together with cash flow from operations, will be
sufficient to launch NEWYELLOW and 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 than we expect if our
operating assumptions change or prove to be inaccurate or we accelerate our
plans to launch directories in addition to the Manhattan NEWYELLOW. Our ability
to obtain any such additional financing may be limited by our financial
8
<PAGE>
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 such financing. See "Management's Discussion and Analysis
of Capital Resources" for a further discussion of our current and expected
future capital requirements and our belief regarding our ability to meet those
requirements
OUR QUARTERLY OPERATING RESULTS ARE NOT ALWAYS INDICATIVE OF OUR RESULTS OF
OPERATIONS FOR THE FULL YEAR OR OTHERWISE.
Our results of operations have been subject to quarterly fluctuations. Most
of our revenue has been recognized in the first and the third quarters when the
JI Directory is printed and distributed. Similarly, costs directly relating to
publishing the directories are also expensed in the first and third quarters.
All other costs are expensed as incurred. 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.
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. We intend to purchase a $3 million key man life person
insurance policy on Mr. Ran before this Offering. Mr. Ran has not been approved
for such a policy and we do not know whether such a policy will be available. If
Mr. Ran's employment terminates, our business may be adversely affected. 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 may need to hire additional management personnel as our business
grows. See "Management" for a further discussion regarding Mr. Ran's employment
contract and information concerning our current management.
AFTER THIS OFFERING, ONE SHAREHOLDER WILL CONTINUE TO CONTROL OUR AFFAIRS.
Upon completion of this Offering, Assaf Ran, our founder, President and
Chief Executive Officer, will beneficially own approximately 47.5% (47% if the
option we granted to the underwriters to purchase additional Common Shares from
us is exercised in full) of the outstanding Common Shares. As a result, he will
be able to control substantially all matters submitted to our shareholders for
approval (including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets) and to control
our management and affairs. This concentration of ownership may have the effect
of delaying, deferring or preventing a change in control of us, impeding a
merger, consolidation, takeover or other business combination involving us or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us, which in turn could adversely affect the
market price of the Common Shares. See "Principal and Selling Shareholders" for
further information concerning Mr. Ran's ownership of Common Shares.
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.
We have not investigated nor spent any significant amount of money to
determine if our operating, management and financial systems, or those of our
suppliers are "Y2K compliant." If these systems are not Y2K 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 such data are retrieved or
recreated, if possible. We may also have to expend significant amounts of
capital to recreate such data and restore our computer systems to working order,
which could force us to delay or discontinue our expansion plans. See
"Management's Discussion and Analysis of Financial Condition
9
<PAGE>
and Results of Operations--Year 2000 Compliance" for a further discussion of
Year 2000 compliance issues.
WE ARE SUBJECT TO FEDERAL AND STATE LAWS, RULES AND REGULATIONS WHICH COULD
CHANGE AT ANY TIME IN AN UNPREDICTABLE MANNER.
We are subject to various laws, rules and regulations that address issues
such as safety in the workplace and our relationships with employees such as
OSHA, fair employment practices and minimum wage requirement. Our failure to
comply with these laws, rules and regulations, which could change at any time in
an unpredictable manner, could, among other things, limit or prohibit certain of
our business activities, subject us to adverse publicity, increase the cost of
regulatory compliance, or subject us to monetary fines or other penalties. Any
of the foregoing could negatively impact our business, results of operations and
financial condition. See "Business--Government Regulation" for a further
discussion of the effect of government regulations on our operations.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never paid any dividends on our Common Shares, and we do not intend
to pay any dividends in the foreseeable future. We intend to retain our cash for
the continued expansion of our business.
WE WILL HAVE BROAD DISCRETION IN HOW WE APPLY PROCEEDS FROM THIS OFFERING.
We plan to apply a substantial portion of the estimated net proceeds from
this Offering to the development of NEWYELLOW. We plan to use the balance for
general corporate purposes, including working capital. The precise use of these
funds and the timing of expenditures will be at the discretion of management.
See "Use of Proceeds" for a further discussion of how we plan to apply the
proceeds of this Offering.
THE NET TANGIBLE BOOK VALUE PER COMMON SHARE AFTER THIS OFFERING WILL BE
SUBSTANTIALLY LESS THAN THE PRICE YOU PAID FOR THE SHARES.
This Offering will result in the immediate and substantial dilution of $4.09
per share, or 62.9% of the initial public offering price, representing the
difference between our net tangible book value per Common Share after giving
effect to this Offering and the assumed public offering price of $6.50 per
share. See "Dilution" for a more detailed description of the dilution which
investors in this Offering will experience.
THIS IS OUR INITIAL PUBLIC OFFERING. THE MARKET PRICE OF THE COMMON SHARES CAN
FLUCTUATE SIGNIFICANTLY, SOMETIMES IN A MANNER UNRELATED TO OUR PERFORMANCE.
Prior to the Offering, there has been no public market for the Common
Shares. We cannot predict the extent to which investor interest in the Company
will lead to the development of a trading market or the liquidity of that
market. The market price of our Common Shares could vary widely in response to
various factors and events, including:
- the number of Common Shares being sold and purchased in the marketplace;
- variations in our operating results;
- press reports;
- regulation and industry trends;
10
<PAGE>
- rumors of significant events which can circulate quickly in the
marketplace, particularly over the Internet; and
- the difference between our actual results and the results expected by
investors and analysts.
The initial public offering price for the Common Shares offered by this
Prospectus was determined by negotiations between the Company and Paulson and
may not be indicative of prices that will prevail in the trading market. The
stock market has experienced significant price and volume fluctuations. You may
not be able to resell your Common Shares at or above the initial public offering
price. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources. See
"Underwriting" for a further discussion of the factors that may influence the
price of our Common Shares.
SALES OF SHARES AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR SHARE PRICE.
After this Offering, there will be 2,976,190 Common Shares issued and
outstanding (3,174,940 if the option granted by us to the underwriters to
purchase additional Common Shares is exercised in full). In addition, we have
reserved 124,000 Common Shares for issuance under our 1999 Stock Option Plan. We
have granted options covering 22,324 Common Shares under this plan as of the
effective date of this Offering. The Common Shares sold in this Offering will be
freely tradeable except for any Common Shares purchased by our "affiliates" as
defined in Rule 144 under the Securities Act of 1933. The remaining Common
Shares will be "restricted securities" and will become eligible for sale no
later than the first anniversary of the effective date of this Offering, subject
to the volume limitations and other conditions of Rule 144. Sales of a large
number of Common Shares could adversely affect the market price for the Common
Shares. See "Management--1999 Stock Option Plan" and "Shares Eligible for Future
Sale" for a further discussion of our Stock Option Plan and the effects of Rule
144.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD HAVE
EFFECTS THAT CONFLICT WITH THE INTERESTS OF OUR SHAREHOLDERS.
Certain provisions of our Certificate of Incorporation and Bylaws could make
it more difficult for a third party to acquire control of us, even if such
change in control would be beneficial to our shareholders. For example, our
Certificate of Incorporation allows us to issue preferred stock without
shareholder approval. Any such issuances of preferred stock could make it more
difficult for a third party to acquire us. As another example, our Bylaws
provide that only the Board of Directors may call a special meeting of
shareholders and that shareholders must follow an advance notification procedure
for certain shareholder nominations of candidates and for certain other
shareholder business to be conducted at the annual meeting. This provision could
delay or frustrate the removal of incumbent directors or a change in control. It
also could discourage, impede or prevent a merger, tender offer or proxy
contest, even if such event would be favorable to the interests of shareholders.
See "Description of Capital Stock" for a more detailed discussion of the terms
of our Certificate of Incorporation that could hinder a third party's attempts
to acquire control.
OUR DIRECTORS HAVE LIMITED PERSONAL LIABILITY FOR THEIR ACTIONS.
Subject to limitations imposed by the New York Business Corporation Law, our
Certificate of Incorporation provides that 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, under certain circumstances, neither we nor our shareholders
will be able to recover damages even if directors take actions which are harmful
to us. See "Management-- Limitation of Director Liability; Indemnification" for
a further discussion of director liability.
11
<PAGE>
THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS WILL DILUTE THE PERCENTAGE
OWNERSHIP OF OUR OTHER SHAREHOLDERS. THE SALE OF SUCH COMMON SHARES IN THE
OPEN MARKET COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON SHARES.
Simultaneously with this Offering, Paulson will receive five-year warrants
covering 132,500 Common Shares. In addition, we have granted options covering
22,324 Common Shares under our 1999 Stock Option Plan as of the effective date
of this Offering. More options may be granted in the future under our 1999 Stock
Option Plan. All of the Common Shares underlying Paulson's warrants and the
options granted under our 1999 Stock Option Plan will be registered for resale
under the Securities Act. The exercise of any of these warrants and options will
dilute the percentage ownership of our other shareholders. In addition, any
sales in the public market of Common Shares issuable upon the exercise of any of
these warrants or options or the perception that such sales could occur, may
adversely affect the prevailing market price of our Common Shares. See "Shares
Eligible For Future Sale" for a further discussion of the effect of the granting
of stock options, "Management--1999 Stock Option Plan" for a further description
of the stock options already granted and "Underwriting" for a description of the
warrants granted to Paulson.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "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.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to us from (1) the sale of the Common Shares offered by us
pursuant to this Prospectus and (2) the repayment of Mr. Ran's loan are expected
to be approximately $6.9 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 37.68%
Sales commissions for NEWYELLOW......................................................... 2,400,000 34.78%
Marketing and promotional expenses for NEWYELLOW and the Portal......................... 1,500,000 21.74%
General corporate purposes, including working capital................................... 400,000 5.80%
------------ -----------
$ 6,900,000 100.00%
------------ -----------
------------ -----------
</TABLE>
- Printing, publishing and distribution costs represent the actual cost of
printing and distributing approximately 900,000 copies of Manhattan
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 distribution relationships.
- General corporate purposes include hiring additional administrative,
management, financial, sales, marketing, technical and customer service
personnel; acquiring and enhancing our operating, support and management
systems; and capital expenditures for computers and other equipment.
Working capital may also be applied to acquisitions. We do not have current
plans, agreements or commitments with respect to any acquisition nor are we
currently engaged in any negotiations with respect to any such transaction. 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.
We will retain broad discretion in the allocation of the net proceeds of
this Offering within the categories listed above. The amounts actually expended
for the purposes may vary significantly and will depend on a number of factors,
including the amount of our future revenues and the other factors described
under "Risk Factors." Pending such uses, 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.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Liquidity and Capital Resources" for a further discussion of our
current and expected future capital requirements and our belief regarding our
ability to meet those requirements.
13
<PAGE>
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.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998
(1) on an actual basis, (2) pro forma giving effect to the consummation of the
transactions contemplated by the Exchange Agreement and (3) pro forma, as
adjusted to give effect to the consummation of the transactions contemplated by
the Exchange Agreement, the sale of the Common Shares offered by us pursuant to
this Prospectus after deducting $1,512,500, our share of the underwriting
discounts and commissions and other estimated offering expenses, and the
repayment of the principal shareholder's loan.
<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 1,351,655 7,962,905
Retained earnings....................................................... 523,339 564,214 564,214
---------- ------------ ------------
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, actual and as adjusted, exclude 124,000 Common
Shares reserved for issuance pursuant to our 1999 Stock Option Plan. We have
granted options covering 22,324 Common Shares under this plan as of the
effective date of this Offering at the initial public offering price per Common
Share. See "Management--Stock Option Plan" for a description of our 1999 Stock
Option Plan and the options that will be granted under that plan as of the
effective date of this Offering.
14
<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 taking into account the transactions contemplated by the exchange
agreement. See notes 1 and 8 to our Consolidated Financial Statements and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" section of this Prospectus. Giving effect to the issuance and sale of
the Common Shares offered by us pursuant to 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 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 summarizes, on a pro forma basis, as of December 31,
1998, the differences between the number of Common Shares we sold to, the total
consideration and the average price per Common Share paid by existing
shareholders and to be paid by new investors purchasing Common Shares from us in
this Offering, assuming an initial public offering price of $6.50 per share and
before deducting 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>
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read together with, (1) our Consolidated Financial Statements for the
years ended December 31, 1997 and 1998 and the notes thereto 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.
INCOME STATEMENT 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>
16
<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 WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE. WE USE WORDS SUCH AS "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 CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR OUR PREDICTIONS.
FOR A DESCRIPTION OF THESE RISKS, SEE "RISK FACTORS."
We believe that the yellow page directories which we publish for the New
York metropolitan market have more advertisers than those of any publisher
except Bell Atlantic. We currently publish and distribute two yellow page
directories, the JI Directory and the Master Guide, in print and on the world
wide web. The JI Directory, a bilingual Hebrew-English publication, was first
published in February 1990 and it has been published in February and August of
each year since 1991. The Master Guide, an English-only directory serving the
Hasidic and ultra-Orthodox Jewish communities, was first published in September
1998. In addition to these directories, we also operate the Referral Service,
which directs potential customers and clients to businesses that advertise in
the JI Directory and the Master Guide. Finally, in February 1999 we launched the
Portal, a web site that links to web sites maintained by advertisers in our
directories, featuring programs, events and news of particular interest to the
Jewish and Israeli communities and general content on the world wide web.
The JI Directory has grown from 118 pages in its initial edition in February
1990 to 1,696 pages in the 18(th) edition published in February 1999. Similarly,
the number of ads has increased from 217 in the first edition to more than 3,200
in our most recent edition. 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.
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. Initially, our plan is to market and
distribute NEWYELLOW in Manhattan. Once we have established ourselves in the
Manhattan market we intend to expand into the remaining boroughs of New York
City and the surrounding suburbs that make up the New York metropolitan area. We
believe that NEWYELLOW will become a viable alternative to the Bell Atlantic
Yellow Pages because of our low cost structure, low overhead and ability to
hire, train and manage an effective sales force.
Our principal source of revenue derives from the sale of ads for our
directories. Advertising rates for the 18(th) edition of the JI Directory range
from $300 for a line listing to $4,206 for a full-page ad. These rates are for
two color ads (black and/or red on yellow paper) and include all, graphics,
design and production work, including creation of a Hebrew version of, or Hebrew
text for, the ad. We charge premium rates for extra colors and special positions
ranging from $6,250 to $22,000 for the front and back covers. Advertising rates
for the 2(nd) edition of the Master Guide, expected to be published in June
1999, range from $300 for a line listing to $1,975 for a full page with premium
rates for additional colors and special positioning. The principal operating
costs incurred in connection with publishing the directories are commissions
payable to sales representatives and costs for paper and printing.
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.
Advertising fees, whether collected in cash or evidenced by a receivable,
generated in advance of publication dates is recorded as "Advanced billings for
unpublished directories" on our balance sheet. Many of our advertisers choose to
pay the fee over a period of time. In such case, the entire amount of the
deferred payment is booked as a receivable. Revenues are recognized at the time
the directory in
17
<PAGE>
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. 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.
Assaf Ran, our principal shareholder, owns 100% of Dapey Assaf-Dapey Zahav
and 50% of Dapey Assaf-Hamadrikh. Accordingly, our historical financial data
include all of the operations of Dapey Assaf-Dapey Zahav and 50% of the net
income of Dapey Assaf-Hamadrikh. Upon consummation of the transactions
contemplated by the Exchange Agreement, immediately prior to the effectiveness
of this Offering, Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh will become
our wholly owned subsidiaries. The transactions contemplated by the Exchange
Agreement will be accounted for under the purchase method of accounting.
Accordingly, the value of the amount deemed to have been paid to the minority
shareholders of Dapey Assaf-Hamadrikh will be allocated among our assets,
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 will be allocated to goodwill. The amounts allocated to our
intellectual property and goodwill, estimated at $1.35 million, will be
amortized on a straight-line basis over 25 years, or $54,000 per year, beginning
with our 1999 fiscal year.
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, 1998 AND 1997
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%. 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%.
18
<PAGE>
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.
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 JI Directory 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 such amount 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 11.34% 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 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 expect our working capital requirements to increase significantly over
the next 12 months as we implement our plan to launch NEWYELLOW and expand the
Portal. Accordingly, we will depend primarily on the net proceeds of this
Offering to expand our operations. The net proceeds of this Offering will be
used to pay sales commissions to our sales representatives with respect to ad
sales for NEWYELLOW, for marketing expenses for NEWYELLOW and the Portal, for
the cost of printing and distributing NEWYELLOW and for other operating expenses
that are expected to increase as we expand our business.
19
<PAGE>
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. See "Use of Proceeds" for a further discussion as
to how we intend to use the net proceeds of this Offering.
YEAR 2000 COMPLIANCE
We are currently addressing the issue of whether or to what extent our
systems will be vulnerable to potential errors and failures as a result of the
"Year 2000" problem, which is the result of certain computer programs being
written using two digits, rather than four digits, 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. If we or our suppliers or vendors experience Year 2000
problems, these problems could adversely impact our ability to service our
customers or otherwise carry on our business, including causing interruptions in
the operation of the Portal, customer billing, and invoicing and data interfaces
to and from these systems. We are not currently aware of any material
operational issues or costs associated with preparing our internal systems for
the Year 2000 because substantially all of our existing systems have been
purchased or replaced since 1996 or are currently under development. We are,
however, working to identify and remedy potential Year 2000 problems in all of
our new and existing mission-critical and business-critical systems and
applications, including those supplied by third-party vendors. We may experience
material unexpected costs caused by undetected errors or defects in the
technology used in our systems or because of the failure of a material vendor to
be Year 2000 compliant. We are also subject to external Year 2000-related
failures or disruptions that might generally affect industry and commerce, such
as financial, utility or transportation industry Year 2000 compliance failures
and related service interruptions. All of these factors could materially
adversely affect our business, results of operations and financial condition. We
have not yet developed a contingency plan to address situations that may result
if we are unable to achieve Year 2000 compliance. The cost of developing and
implementing such a plan, if necessary, could be material.
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 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.
20
<PAGE>
BUSINESS
We believe that the yellow page directories which we publish for the New
York metropolitan market have more advertisers than those of any publisher
except Bell Atlantic. We currently publish and distribute two yellow page
directories, the JI Directory and the Master Guide, in print and on the world
wide web. The JI Directory, a bilingual Hebrew-English publication, was first
published in February 1990 and it has been published in February and August of
each year since 1991. The Master Guide, an English-only directory serving the
Hasidic and ultra-Orthodox Jewish communities, was first published in September
1998. In addition to these directories, we also operate the Referral Service,
which directs potential customers and clients to businesses that advertise in
the JI Directory and the Master Guide. Finally, in February 1999 we launched the
Portal, a web site that links to web sites maintained by businesses that
advertise in our directories, featuring programs, events and news of particular
interest to the Jewish and Israeli communities and general content on the world
wide web.
The JI Directory has grown from 118 pages in its initial edition in February
1990 to 1,696 pages in the 18(th) edition published in February 1990. Similarly,
the number of ads has increased from 217 in the first edition to approximately
3,200 in our most recent edition. Our advertising rates for new advertisers have
increased approximately 20% to 30% a year since 1990, although we believe it is
unlikely that this trend will continue.
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. Initially, our plan is to market, and
distribute NEWYELLOW in Manhattan. Once we have established ourselves in the
Manhattan market, we intend to expand into the remaining boroughs of New York
City and the surrounding suburbs that make up the New York metropolitan area. We
believe that NEWYELLOW will become a viable alternative to the Bell Atlantic
Yellow Pages because of our low cost structure, low overhead and ability to
hire, train and manage an effective sales force.
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 (RBOCs), GTE, SNET and Sprint--account for the overwhelming
majority of yellow page advertising revenues. Bell Atlantic and SBC Directory
Operations 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 (excluding the
RBOCS, GTE, SNET and Sprint) 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 JI DIRECTORY. The JI Directory is a bilingual, yellow page directory
that is distributed in the New York metropolitan area. All ads in the JI
Directory are in English and Hebrew unless the
- ------------------------
* Except as otherwise indicated, all industry data supplied by Simba
Information, Inc., a media consulting firm.
21
<PAGE>
advertiser specifically requests that the ad be English only. The JI Directory
is organized according to the Hebrew alphabet, although it is indexed in both
Hebrew and English. We believe that the JI Directory 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 JI Directory is published semi-annually and distributed free through
local commercial and retail establishments in the New York metropolitan area as
well as through travel agencies in Israel. Currently, approximately 350,000
copies of the JI Directory are printed and distributed annually. The JI
Directory 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. We believe that, based on the number of pages and advertisers, the
JI Directory 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 JI Directory. 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>
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>
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<PAGE>
Advertisers in the JI Directory include large, well-known airlines,
telecommunications, insurance and travel companies, as well as local and
neighborhood businesses such as restaurants, car dealerships, retail
establishments, professionals (E.G., 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
balance are at lease 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. However, we
believe that this rate of increase cannot continue in the future.
All production, including layout, design, edit and most proofreading
functions, for the JI Directory are performed at the Company's headquarters in
Queens, New York by the Company's bilingual staff. The final version of the JI
Directory is shipped to Israel to be printed by HaMakor Printing. The printed
directories are shipped to the Company's main office in New York for
distribution. The Company believes that the cost of printing the JI Directory in
Israel, even after taking into account shipping costs, is less than the cost of
printing a JI Directory of comparable quality locally.
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 JI Directory, including printing it in
Israel. The Master Guide differs from the JI Directory 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 JI Directory. The development of the Master Guide reflects our
strategy to expand by identifying and pursuing niche markets for yellow page
directories.
THE REFERRAL SERVICE. The Referral Service provides added value to
advertisers in our directories by referring to them potential customers, clients
and other users of their products and services. We have recently established a
program whereby certain of our advertisers have agreed to give discounts to
customers who produce the Jewish Referral Service Yellow Card. The Yellow Card
is distributed to customers with the JI Directory or the Master Guide or can be
ordered directly from the Company.
THE PORTAL. Our first web site, established in 1995, contained an
English-only version of the JI Directory. In 1999 we expanded our online
presence by launching Portal. Portal functions as a "portal" to the world wide
web, with links to a variety of sites on the web, particularly those that carry
information and news that may be of particular interest to the Israeli and
Jewish communities. It also provides a link to the JI Directory as well as the
web sites of advertisers in the JI Directory. We also develop web sites for our
advertisers for a fee. We plan to enhance the Portal 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 the Portal, we plan to explore
ways in which the Portal can 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 add
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<PAGE>
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. We believe that our expertise in publishing yellow page
directories, particularly our ability to hire, train and manage an effective
sales force, our low advertising rates and low overhead, will enable us to
compete effectively with Bell Atlantic. We expect that advertising rates for
NEWYELLOW will be significantly lower than those for the Bell Atlantic Yellow
Pages. We believe that our pricing policies will expand the market for yellow
page directory advertising. NEWYELLOW will be positioned as a low-cost
alternative to the Bell Atlantic Yellow Pages, appealing to smaller businesses
that cannot afford to advertise in the Bell Atlantic Yellow Pages. Furthermore,
we also believe our pricing policies will result in some advertisers switching
from the Bell Atlantic Yellow Pages to NEWYELLOW or supplementing their Bell
Atlantic Yellow Page advertising with NEWYELLOW advertising.
We may also explore opportunities for adding JI Directories and Master
Guides in other cities with large Jewish and Israeli populations such as Miami,
Florida and Los Angeles, California.
SALES
Advertisements for the JI Directory 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. The sales representatives hired by us work out of our offices in
Queens, New York and Fairlawn, New Jersey. Our two independent sales agencies
are located in Brooklyn and Manhattan, New York. Our selling force is based in
these locations because of the high concentration of Jewish and Israeli
consumers in these areas. We expect to open two new company-owned sales offices
in 1999, one in Long Island that will be dedicated to the JI Directory and the
Master Guide, and one in Manhattan dedicated to NEWYELLOW.
Pursuant to our agreements with the independent sales agencies, 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 JI Directory 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. Furthermore, 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 JI Directory as a way to advertise
directly to this market.
24
<PAGE>
Furthermore, we believe that the Jewish population in the New York metropolitan
area is likely use to the JI Directory because of the impression that businesses
that advertise in the JI Directory 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 JI Directory 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. Thereafter, it may also compete 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.
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 (black print on yellow paper).
<TABLE>
<CAPTION>
BELL
ATLANTIC
YELLOW
NEWYELLOW 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>
The Company plans 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 OSHA, 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
25
<PAGE>
liabilities under such laws and regulations. In addition, compliance with all
such laws and 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 certain 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 JI Directory 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, such as the RBOCs 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 competitors have significant operating and financial advantages. These
advantages include greater financial, personnel, technical and marketing
resources, superior systems, stronger relationships with advertisers, greater
productive capacity, better developed distribution channels, and greater name
recognition. In addition, many of our competitors can subsidize competing
services with revenues from their other services. As competition increases, we
expect significant increases in general pricing pressures. For example, Bell
Atlantic could lower its advertising rates, reducing the attractiveness of
advertising in NEWYELLOW. 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 certain of our
trademarks and service marks on the supplemental register of the United States
and certain 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 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 full-time and one
part-time), 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
26
<PAGE>
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. 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
The Company is not a party to any material legal proceedings.
27
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages, as of March 1, 1999,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Assaf Ran.............................. 33 Chief Executive Officer, President and
Director
Dvir Langer(1)(2)...................... 30 Vice President--Sales and Corporate
Development and Director
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(2)..................... 29 Director
Eran Goldshmid(2)...................... 32 Director
</TABLE>
- ------------------------
(1) Mr. Langer will take office upon the closing of this Offering.
(2) Messrs. Langer, Michals and Goldshmid will become directors upon the closing
of this Offering.
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 the executive officers and directors of the Company:
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 join our Board of Directors upon the closing of this Offering. Since August
1996, Mr. Langer has been 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 the Board of Directors since February 1999. From September 1997
through June 1998, he was an independent sales representative of the Company.
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.
HANAN GOLDENTHAL has been our Chief Financial Officer, Treasurer and
Secretary since February 1999. For more than five years prior thereto, he was
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.
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<PAGE>
YORAM EVAN has been one of our 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 upon the closing of this
Offering. 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 upon the closing of this
Offering. 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 reviews
and recommends to the Board of Directors the compensation and benefits of our
all our officers, reviews general policy matters relating to compensation and
benefits of our employees and administers the issuance of stock options under
our 1999 Stock Option Plan and discretionary cash bonuses to our officers,
employees, directors and consultants. The 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 sets forth certain 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 for such year.
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME SALARY BONUS COMPENSATION COMPENSATION
- ---------------------------------------------------------------- --------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Assaf Ran, Chief Executive Officer(1)........................... $ 25,000 -- -- --
</TABLE>
- ------------------------
(1) In addition, we advanced $295,262, net of repayments, to Mr. Ran in 1998.
See "Certain Transactions" for the repayment terms of this loan.
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.
29
<PAGE>
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. 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 simultaneously with the date of this Offering, 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.
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 the
Board of Directors approved the adoption of the DAG Media, Inc. 1999 Stock
Option Plan covering 124,000 Common Shares. Pursuant to our 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 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 the Stock Option 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 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 the date of the grant. We
have granted options covering 22,324 Common Shares under our Stock Option Plan
as of the effective date of this Offering. Options covering 14,884 Common Shares
were 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 immediately and the options granted to the other will be
exercisable one year from the date of this Offering. Options covering the
remaining 7,440 Common Shares were granted to a person who is expected to become
an employee before this Offering, 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 effective date of this
Offering. Such options have a term of five years and are exercisable one year
from the date of this Offering. No other options have been granted under our
Stock Option Plan.
COMPENSATION OF DIRECTORS
Each director, other than employee directors, upon first taking office after
the consummation of this Offering will receive a one-time grant under the 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. Such options will vest immediately upon
grant. In addition, each non-employee director will receive a $200 stipend for
each
30
<PAGE>
Board meeting he or she attends in person and reimbursement for travel expenses
for attendance at meetings.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
Our Certificate of Incorporation limits the liability to the Company of
individual directors for certain breaches of their fiduciary duty to the
Company. The effect of this provision is to eliminate the liability of directors
for monetary damages arising out of their failure, through negligent or grossly
negligent conduct, to satisfy their duty of care, which requires them to
exercise informed business judgment. 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 to the Company, 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 such 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 such person in connection
therewith.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons pursuant to the
foregoing provisions, we have been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
CERTAIN 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 upon completion of this
Offering.
We have adopted a policy that, in the future, all transactions between the
Company and any officer, director or 5% shareholder must be approved by a
majority of our disinterested directors.
31
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain 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 (1) each
shareholder who we know owns beneficially more than 5% of our outstanding Common
Shares, (2) each of our directors, (3) our Chief Executive Officer and (4) all
of our directors and executive officers as a group. 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 COMMON SHARES NUMBER OF
COMMON SHARES PERCENTAGE OF OFFERED BY COMMON SHARES PERCENTAGE OF
BENEFICIALLY COMMON SHARES SELLING BENEFICIALLY COMMON SHARES
NAME OF BENEFICIAL OWNER(1) OWNED (2) BENEFICIALLY OWNED SHAREHOLDER OWNED (2) BENEFICIALLY 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(3)........... -- -- -- 7,444 *
Yoram Evan(3)................. -- -- -- 7,000 *
Phillip Michals(3)............ -- -- -- 7,000 *
Eran Goldshmid(3)............. -- -- -- 7,000 *
All officers and directors as
a group(4)(5)............... 1,666,666 96.55% 75,000 1,620,110 53.92%
</TABLE>
- ------------------------
* Less than 1%
(1) All addresses are c/o DAG Media, Inc., 125-10 Queens Boulevard, Kew Gardens,
New York 11415.
(2) Pursuant to the rules and regulations of the Securities and Exchange
Commission, Common Shares that a person has a right to acquire within 60
days of the date of this Prospectus are deemed to be outstanding for the
purpose of computing the percentage ownership of such person but are not
deemed outstanding for the purpose of computing the percentage ownership of
any other person.
(3) Number of Common Shares beneficially owned after this Offering represents
Common Shares issuable upon exercise of options that vest immediately upon
the completion of this Offering.
(4) Includes five persons before this Offering and seven persons after this
Offering.
(5) Includes 28,444 Common Shares issuable upon exercise of options that vest
immediately upon the completion of this Offering.
All of the Common Shares set forth in the above 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 lock-up agreements.
32
<PAGE>
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.
Upon completion of the Offering, there will be 2,976,190 Common Shares issued
and outstanding (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)
and no Preferred Shares outstanding. As of the date of this Prospectus (not
taking into account Common Shares issued in this Offering), there were 1,726,190
Common Shares outstanding held of record by five shareholders and no Preferred
Shares outstanding.
COMMON SHARES
Subject to preferences that may apply to Preferred Shares outstanding at the
time, the holders of outstanding Common Shares are entitled to receive dividends
out of assets legally available therefor at such times and in such amounts as
the Board of Directors may from time to time determine. 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
The Board of Directors has the authority, within the limitations and
restrictions stated in our Certificate of Incorporation, to provide by
resolution for the issuance of Preferred Shares, in one or more classes or
series, and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of Preferred Shares could
have the effect of decreasing the market price of the Common Shares and could
adversely affect the voting and other rights of the holders of Common Shares.
OPTIONS
We have reserved 124,000 Common Shares for issuance under our 1999 Stock
Option Plan. We have granted options covering 22,324 Common Shares at an
exercise price of $6.50 per share as of the effective date of this Offering. See
"Management--1999 Stock Option Plan" for a further description of our 1999 Stock
Option Plan and the terms of the options that we have granted.
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.
33
<PAGE>
LISTING ON NASDAQ SMALLCAP MARKET
We will apply to list the Common Shares 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.
34
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Shares. We cannot predict the effect, if any, that sales of Common Shares or the
availability of such shares for sale 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 pursuant to our 1999 Stock Option Plan, could adversely
affect the prevailing market price of the Common Shares.
Upon completion of this Offering, we will have 2,976,190 Common Shares
outstanding (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
which 1,325,000 Common Shares (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 an "affiliate" of the
Company (as that term is defined by the rules and regulations issued under the
Securities Act), which 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 will be available for sale in
the public market subject to the volume limitations and other conditions of Rule
144. The shares could be available for resale immediately upon the expiration of
the one-year lock-up 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 Exchange Commission. Sales under Rule 144 are also
subject to certain 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 such 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 1999 Stock Option Plan. The registration
statement will become effective automatically upon filing. Under this plan, we
have granted options covering 22,364 Common Shares as of the effective date of
this Offering. See "Management--1999 Stock Option Plan" for a further
description of our 1999 Stock Option Plan and the terms of the options that we
have granted.
35
<PAGE>
UNDERWRITING
The underwriters named below, for whom Paulson Investment Company, Inc. is
acting as representative, 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..................................................................
Total........................................................................................ 1,325,000
---------------
---------------
</TABLE>
The Underwriting Agreement provides that the obligations of the named
underwriters to purchase Common Shares are subject to certain conditions. The
underwriters are committed to purchase all the Common Shares offered by this
Prospectus if any Common Shares are purchased, other than the 198,750 Common
Shares subject to the option granted by us to the underwriters to purchase
additional Common Shares in this Offering.
Paulson has advised us that it proposes 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 such price less
a concession within the discretion of Paulson and that the named underwriters
and such dealers may reallow a concession to other dealers, including the named
underwriters, within the discretion of Paulson. After the commencement of this
Offering, the public offering price, the concessions to selected dealers and the
reallowance to their dealers may be changed by Paulson.
We have granted Paulson an option, expiring at the close of business 45 days
after the date of this Prospectus, to purchase up to an aggregate of 198,750
additional Common Shares from us on the same terms as set forth in this
Prospectus. Paulson may exercise the 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.
Paulson has informed us that it does 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 certain selling group members to bid for and purchase
Common Shares. As an exception to these rules, the underwriters are permitted to
engage in certain transactions that stabilize the price of the Common Shares.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Shares. If the underwriters create
a short position in connection with the Offering, I.E., if they sell more Common
Shares than are set forth on the cover page of this Prospectus, Paulson may
reduce that short position by purchasing Common Shares in the open market.
Paulson 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.
Paulson may also impose a penalty bid on certain underwriters and selling
group members. This means that if Paulson purchases 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 in
the absence of such purchases. The imposition of
36
<PAGE>
a penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security. Neither we nor the named
underwriters make any representation of predictions as to 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 named underwriters
represent that the named underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Underwriting Agreement provides for indemnification between us and the
named underwriters against certain liabilities, including liabilities under the
Securities Act and for contribution by us and the named underwriters to payments
that may be required to be made in respect thereof. Insofar as indemnification
for liabilities under the Securities Act maybe permitted to our directors,
officers and controlling persons pursuant to the agreement between us and the
named underwriters, or otherwise, we have been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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 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.
We have agreed to issue warrants to Paulson 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 not transferable for one year from the date of
issuance, except to individuals who are either a partner or an officer of a
named 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, commencing one year after the date of
this Prospectus. 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 following the closing of this
Offering, we will not, subject to certain exceptions, offer, sell, contract to
sell, grant any option for the sale or otherwise dispose of any of our
securities without the consent of Paulson, other than with respect to option
grants under our 1999 Stock Option Plan. Our officers, directors and the
shareholders also have agreed that, for a period of one year following this
Offering, 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 the
consent of Paulson, 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.
Prior to 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
Paulson. 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 and the trends of such 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 set forth on the cover page of this Prospectus
should not be considered an indication of the actual value of the Common Shares.
Such a 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.
37
<PAGE>
The foregoing is a summary of the principal terms of the agreements
described above and is not complete. Reference is made to copies of each such
agreements, which are filed as exhibits to the registration statement filed in
connection with this Offering.
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 included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form SB-2 under the Securities Act
with respect to the 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 the Shares, you should refer to the Registration
Statement and the accompanying exhibits and schedules. Statements contained in
this Prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete, and in each instance you
should refer to the copy of such contract or other document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. 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 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 such 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 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.
38
<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, 1998 and 1997....................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998 and 1997............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997....................... 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, 1998 and 1997. 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, 1998 and 1997, 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, 1998 AND 1997
<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, 1998 AND 1997
<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, 1998 AND 1997
<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, 1998 AND 1997
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
("IPO") (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
May 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 certain 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.
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.
F-7
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
F-8
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-9
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
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>
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.
F-10
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
5. INCOME TAXES (CONTINUED)
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 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 IPO. 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 this 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
F-11
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
7. STOCK OPTION PLAN (CONTINUED)
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 the date
of grant. The Company will grant options covering 22,324 Common Shares as of the
effective date of the IPO. These options will have an exercise price equal to
the initial public offering price per Common Share in the IPO (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 IPO.
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 IPO 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 the
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 $6,900,000
from the sale of its Common Shares, net of commissions and offering expenses,
and the repayment of Mr. Ran's loan.
In connection with the IPO, the Company entered into an Exchange Agreement
with Dapey Assaf-Dapey Zahav Ltd. ("DAZ"), Dapey Assaf-Hamadrikh Le Assakim Be
New York Ltd. ("DAH") and the shareholders of DAZ and DAH. Pursuant to the
Exchange Agreement, the shareholders of DAZ and DAH will transfer 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 IPO
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 IPO.
F-12
<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>
Prospectus Summary.............................. 3
Risk Factors.................................... 6
Use of Proceeds................................. 13
Dividend Policy................................. 14
Capitalization.................................. 14
Dilution........................................ 15
Selected Financial Data......................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business........................................ 21
Management...................................... 28
Certain Transactions............................ 31
Principal and Selling Shareholders.............. 32
Description of Capital Stock.................... 33
Shares Eligible for Future Sale................. 35
Underwriting.................................... 36
Legal Matters................................... 38
Experts......................................... 38
Where You Can Find Additional Information....... 38
Index to Financial Statements................... F-1
</TABLE>
THROUGH AND INCLUDING , 1999 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), 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.
, 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 to the
Company the power to indemnify the officers and directors of the Company 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 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
II-1
<PAGE>
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
(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.
The Company's 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
II-2
<PAGE>
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 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 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.
II-3
<PAGE>
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 the Company. Other than the SEC registration fee
and the NASD filing fees all of such 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
Neither the Company nor Dapey Assaf-Dapey Zahav, Ltd. and Dapey
Assaf-Hamadrikh Leaasakim Israelim Be, New York, Ltd. have issued any
unregistered securities in the last three years. Immediately prior to the
effective date of this Registration Statement, pursuant to the Exchange
Agreement, the existing shareholders of Dapey Assaf-Dapey Zahav, Ltd and Dapey
Assaf-Hamadrikh Leaasakim Israelim Be, New York, Ltd will exchange all of their
shares in those two companies for 1,726,190 Common Shares of the Company.
Consequently, Dapey Assaf-Dapey Zahav, Ltd and Dapey Assaf-Hamadrikh Leaasakim
Israelim Be, New York, Ltd. will become wholly owned subsidiaries of the
Company. Those shares are being acquired without a view toward distribution in a
transaction exempt from registration under Section 4(2) of the Securities Act.
Each certificate will bear an appropriate restrictive legend.
II-4
<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
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Specimen Stock Certificate*
4.2 Form of Representative's Warrant
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 Form of DAG Media, Inc. 1999 Stock Option Plan
10.2 Form of Employment Agreement between the Company and Assaf Ran
10.3 Form of Employment Agreement between the Company and Dvir Langer
10.4 Form of Agreement between the Company and B.I.Y., Inc.*
10.5 Form of Agreement between the Company and M.I.Y., Inc.*
10.6 Form of Promissory Note of Assaf Ran
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
24 Power of Attorney (included in signature page)
27 Financial data schedule
99.1 Officer and Director Nominee Consent (Dvir Langer)
99.2 Director Nominee Consent (Phillip Michals)
99.3 Director Nominee Consent (Eran Goldshmid)
</TABLE>
- ------------------------
* To be filed by amendment.
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-5
<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 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 Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
<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
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York on March 10, 1999.
DAG MEDIA, INC.
BY: /S/ ASSAF RAN
-----------------------------------------
ASSAF RAN, PRESIDENT
ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Assaf Ran and Stephen A. Zelnick, or any one of them,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all pre- or post-effective amendments to this
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any one of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities indicated on March 10, 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-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Form of Exchange Agreement
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Specimen Stock Certificate*
4.2 Form of Representative's Warrant
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 Form of DAG Media, Inc. 1999 Stock Option Plan
10.2 Form of Employment Agreement between the Company and Assaf Ran
10.3 Form of Employment Agreement between the Company and Dvir Langer
10.4 Form of Agreement between the Company and B.I.Y., Inc.*
10.5 Form of Agreement between the Company and M.I.Y., Inc.*
10.6 Form of Promissory Note of Assaf Ran
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1).
24 Power of Attorney (included in signature page).
27 Financial data schedule
99.1 Officer and Director Nominee Consent (Dvir Langer)
99.2 Director Nominee Consent (Phillip Michals)
99.3 Director Nominee Consent (Eran Goldshmid)
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
1,325,000 SHARES OF COMMON STOCK
DAG MEDIA, INC.
UNDERWRITING AGREEMENT
__________, 1999
Paulson Investment Company, Inc.
As Representative 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 Representative (the "Representative") an aggregate of
1,250,000 shares ("Shares") of the Company's Common Stock, $.001 par value
("Common Stock") and Assaf Ran (the "Selling Stockholder") proposes to sell to
the Underwriters an aggregate of 75,000 shares of common stock. The respective
amounts of the 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 Representative, you have advised the Company (a) that you are
authorized to enter into this Agreement for yourself as Representative 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:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDER.
(a) The Company represents and warrants to each of the
Underwriters as follows:
<PAGE>
(i) A registration statement on Form SB-2 (File No.
333-______) with respect to the Shares has been carefully 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 and has
been filed with the Commission. 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. 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 shares of Common Stock of the Company,
including all Firm Shares to be sold by the Selling Stockholder, 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 Stock has 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 stockholders 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 shares
of Common Stock or other securities of the Company.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. The Common Stock
conforms to the description thereof contained in the Registration Statement. The
form of certificates for the Common Stock conforms to the corporate law of the
jurisdiction of the Company's incorporation.
2
<PAGE>
(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 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 Representative, 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.
(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 under
valid
3
<PAGE>
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 have been required to be filed 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
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
articles of incorporation or bylaws or under any agreement, lease, contract,
indenture or other instrument or obligation 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 articles 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 patents, patent rights
trademarks, trade names, copyrights, trade secrets and licenses of any of the
foregoing (collectively, "Intellectual
4
<PAGE>
Property Rights") that are necessary to 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. 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 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
5
<PAGE>
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
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 shares of Common Stock 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
6
<PAGE>
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.
(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 Representative's Warrants (as defined in Paragraph
(d) of Section 2 hereof) have been authorized for issuance to the Representative
and will, when issued, possess rights, privileges, and characteristics as
represented in the most recent form of Representative's Warrants filed as an
exhibit to the Registration Statement; the securities to be issued upon exercise
of the Representative's Warrants, when issued and delivered against payment
therefor in accordance with the terms of the Representative's 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 Representative's 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.
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(b) The Selling Stockholder represents and warrants to each of
the Underwriters as follows:
(i) The Selling Stockholder now has and at the
Closing Date will have good and marketable title to the Firm Shares to be sold
by the Selling Stockholder, 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 Firms
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 Stockholder 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 its obligations under such
agreements. The execution and delivery of this Agreement and consummation by the
Selling Stockholder of the transactions herein contemplated and the fulfillment
by the Selling Stockholder 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 Stockholder is a party, or of any order, rule or regulation applicable
to the Selling Stockholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) The Selling Stockholder 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 Stock of the Company and, other than as
permitted by the Act, the Selling Stockholder 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 Stockholder 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 Stockholder 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 Stockholder in
the Prospectus is true, correct and complete.
(v) Certificates in negotiable form for the Firms
Shares to be sold hereunder by the Selling Stockholder have been placed in
custody with _______________, as custodian ("Custodian") pursuant to a custody
agreement executed by the Selling Stockholder for delivery of all Shares to be
sold hereunder by the Selling Stockholder (the "Custody Agreement"). The Selling
Stockholder specifically agrees that the Shares represented by the
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certificates held in custody for the Selling Stockholder under the Custody
Agreement are subject to the interests of the Representative, that the
arrangements made by the Selling Stockholder for such custody are irrevocable,
and that the obligations of the Selling Stockholder hereunder shall not be
terminable by any act or deed of the Selling Stockholder (or by any other
person, firm or corporation including the Company, the Custodian or the
Representative) or by operation of law (including the death of the Selling
Stockholder) 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 Representative of the Firm Shares to be sold by the Selling
Stockholder 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 Stockholder of the transactions contemplated herein, except such as may
have been obtained under the Act and such as may be required under the Blue Sky
Laws of any jurisdiction in connection with the purchase and distribution of the
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 Stockholder nor the consummation of any other of the transactions
contemplated herein by the Selling Stockholder or the fulfillment of the terms
hereof by the Selling Stockholder 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 Stockholder is a party or bound, or any order or
regulation applicable to the Selling Stockholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction over
the Selling Stockholder.
(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 Stockholder specifically for use in
connection with the preparation thereof, the Selling Stockholder hereby makes
the same representations and warranties to each Underwriter as the Company makes
such Underwriter under paragraph (a)(vi) of this Section.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(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 Stockholder agrees to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a price of
$______ per Unit, 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.
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(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 Representative,
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 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 Representative) to the Representative for the several accounts
of the Underwriters. Such payment is to be made at the offices of the
Representative 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 Representative requests in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representative 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 Representative to purchase the
Option Shares at the price per Unit 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
Representative to the Company setting forth the number of Option Shares as to
which the Representative is exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at which
certificate 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 Representative 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 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 Representative 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 Representative, 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 delivery of
certificates therefor at the offices of Paulson Investment Company, Inc. set
forth on the first page of this Agreement.
(d) In addition to the sums payable to the Representative as
provided elsewhere herein, the Representative shall be entitled to receive at
the Closing, for itself alone
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and not as Representative of the Underwriters, as additional compensation for
their services, a purchase warrant (the "Representative's 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
Representative's Warrant filed as an exhibit to the Registration Statement.
(e) If on the Closing Date the Selling Stockholder fails to
sell the Firm Shares which the Selling Stockholder has agreed to sell on such a
date, the Company agrees that it will sell or arrange for the sale of that
number of shares of Common Stock to the Representative which represents the Firm
Shares which the Selling Stockholder has failed to so sell.
(f) The Selling Stockholder 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 Stockholder, 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 Representative deems 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
Representative 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 hereof, the Representative will offer them to
the public on the foregoing terms.
It is further understood that you will act as the
Representative for the Underwriters in the offering and sale of the Shares in
accordance with an Agreement Among Underwriters entered into by you and the
several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) The Company will (1) use its 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 Representative 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
Representative shall not previously have been advised and furnished with a copy
or to which the Representative shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations.
(ii) The Company will advise the Representative
promptly (1) when the Registration Statement or any post-effective amendment
thereto shall have become effective,
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(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 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
Representative in endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representative 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 Representative may reasonably request for
distribution of the Shares.
(iv) The Company will deliver to, or upon the order
of, the Representative, from time to time, as many copies of any Preliminary
Prospectus as the Representative may reasonably request. The Company will
deliver to, or upon the order of, the Representative 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
Representative may reasonably request. The Company will deliver to the
Representative 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 Representative 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 Representative 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.
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(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) in reasonable detail, 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 Representative copies of annual reports
and copies of all other documents, reports and information furnished by the
Company to its stockholders 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 Representative 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.
(viii) No offering, sale, short sale or other
disposition of any shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of Common Stock or
derivative of Common Stock (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
Representative, which consent will not be unreasonably withheld.
(ix) The Company will use its best efforts to list
the Common Stock and the Warrants, 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
Stock 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 the Underwriters, 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
Dates, 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.
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(xiii) The Company will maintain a transfer agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(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 Stockholder 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 1983 with respect to the transactions herein
contemplated, the Selling Stockholder 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 Stockholder 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 Stockholder
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) The Representative shall be entitled to receive from the
Company, for themselves alone and not as the Representative of the Underwriters,
a nonaccountable expense allowance equal to 3% of the aggregate public offering
price of Shares sold to the Underwriters in connection with the Offering. The
Representative 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 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 on the Option Closing Date.
(b) 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 Selling Stockholder 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 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 the NASD of the
terms of the sale of the Shares; the Listing Fee of The
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Nasdaq Stock Market; reasonable costs of a due diligence investigation of the
principals of the Company by a firm acceptable to the Representative; 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
Stockholder shall be responsible for transfer taxes arising from his pro-rata
shares being sold under this Agreement. Additionally, the Selling Stockholder
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 Stockholder
engages special legal counsel to represent him in connection with this offer,
the fees and expenses of such counsel shall be borne by such Selling
Stockholder. If the Offering is not consummated for any reason except knowing,
material misrepresentation by the Company or the Company or Selling Stockholder
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
Representative's 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 Company chooses, for whatever
reason, not to proceed with the Offering within the stated price range, the
Representative 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
Representative's legal counsel, travel expenses and the fees and expenses of
outside experts, if any, retained to assist the Representative 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 Stockholder contained herein, and to the performance by the
Company and Selling Stockholder 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
Representative and complied with to their reasonable satisfaction. No stop order
suspending the effectiveness of the Registration Statement, as amended from 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.
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(b) The Representative 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 Selling Stockholder, 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 shares of the Company's Common Stock have been duly authorized;
the outstanding shares of the Company's Common Stock 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 Stock, assuming they are in the form filed with
the Commission, are in due and proper form; the shares of Common Stock to be
sold by the Company and Selling Stockholder pursuant to this Agreement,
including shares of Common Stock 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 stockholders exist with respect
to any of the Common Stock of the Company or the issuance or sale thereof
pursuant to any applicable statute or the provisions of the Company's articles
of incorporation or bylaws or, pursuant to any contractual obligation. The
Representative's Warrants have been authorized for issuance to the
Representative and will, when issued, possess rights, privileges, and
characteristics as represented in the most recent form of the Representative's
Warrants filed as an exhibit to the Registration Statement; the securities to be
issued upon exercise of the Representative's Warrants, when issued and delivered
against payment therefor in accordance with the terms of the Representative's
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 Representative's 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, 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 Stock or other
securities of the Company
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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
shares of Common Stock 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 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 ___ 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) There are no material legal or governmental
proceedings pending or threatened against the Company.
(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 articles of incorporation or bylaws of the
Company, or any agreement or instrument 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 Stockholder.
(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 Stockholder 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
17
<PAGE>
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 Stockholder is valid and binding and enforceable against such
Stockholder 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
Stockholder 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 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 Representative 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
18
<PAGE>
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 Representative 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 Representative, 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 Representative
may reasonably have designated to the Company.
(e) The Representative, on behalf of the several Underwriters,
shall have received, on each of the dates hereof, the Closing Date and the
Option Closing 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 Representative, 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 Representative 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;
19
<PAGE>
(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, 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 Stockholder shall have
furnished to the Representative such further certificates and documents
confirming the representations and warranties, covenants and conditions
contained herein and related matters as the Representative may reasonably have
requested.
(h) The Common Stock has 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 Representative 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 Representative by notifying the Company and the Selling Stockholder 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 Stockholder 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.
20
<PAGE>
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 Stockholder 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:
(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 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 Stockholder 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, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representative
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, the Selling Stockholder and each person,
if any, who controls the Company within the meaning of the Act, against any
losses, claims, damages or liabilities to which the Company, the Selling
Stockholder 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
21
<PAGE>
circumstances under which they were made; and will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, the Selling
Stockholder, officer or controlling person 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 Representative specifically for use
in the preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(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) he 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
22
<PAGE>
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 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 Stockholder 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 Stockholder 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 Stockholder 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 Stockholder 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 Stockholder 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
23
<PAGE>
or claim. Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any 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
Stockholder, 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, 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 Stockholder), you, as Representative of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Stockholder such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case
24
<PAGE>
may be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representative, 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 Representative 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 Stockholder 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 Representative, 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 Stockholder, 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 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
25
<PAGE>
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 change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or 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 Stock 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 Stockholder 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. 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 Stockholder 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
26
<PAGE>
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
Stockholder and the several Underwriters in accordance with its terms.
Very truly yours,
DAG MEDIA, INC.
By:
--------------------------------
Assaf Ran
Chief Executive Officer
-----------------------------------
Assaf Ran
Selling Stockholder
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
PAULSON INVESTMENT COMPANY, INC.
As Representative of the several
Underwriters listed on Schedule I
By:
----------------------------------
Authorized Officer
27
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
- --------------------------------------------------------------------------- -------------------------
<S> <C>
Paulson Investment Company, Inc.
TOTAL: 1,325,0000
-------------------------
-------------------------
</TABLE>
<PAGE>
Exhibit 2.1
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT, made as of the 1st day of March, 1999 among DAG
Media, Inc., a New York corporation ("DAG"), Dapey Assaf-Dapey Zahav, Ltd.
("DAZ"), Dapey Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd. ("DAH"),
Assaf Ran ("Ran"), Dvir Langer ("Langer"), Eyal Huberfeld ("Huberfeld"), Avi
Shefi ("Shefi") and Daniel Frank ("Frank").
W I T N E S S E T H:
WHEREAS, Ran owns 100% of the issued and outstanding common shares, no
par value, of DAZ; and
WHEREAS, Ran, Langer, Huberfeld, Shefi and Frank own 100% of the issued
and outstanding common shares, no par value, of DAH; and
WHEREAS, DAG intends to file, pursuant to the Securities Act of 1933,
as amended, a registration statement on Form SB-2 (the "Registration Statement")
with the Securities and Exchange Commission covering the public sale of
1,250,000 of its common shares, par value $.001 per share (the "Common Shares");
and
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements contained herein and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. Immediately prior to the effective date of the Registration
Statement, (a) Ran will convey, transfer, contribute and assign to DAG all of
his common shares in DAZ in exchange for 1,250,000 DAG Common Shares and (b)
each of Ran, Langer, Huberfeld, Shefi and Frank will convey, transfer,
contribute and assign to DAG all of his common shares in DAH in exchange for
such number of DAG Common Shares as is set forth opposite their names below:
<TABLE>
------------------------------- ------------------------
<S> <C>
Ran 238,095
------------------------------- ------------------------
Langer 148,809
------------------------------- ------------------------
Huberfeld 29,762
------------------------------- ------------------------
Shefi 29,762
------------------------------- ------------------------
Frank 29,762
------------------------------- ------------------------
</TABLE>
2. Each of Ran, Langer, Huberfeld, Shefi and Frank represent and
warrant to the other shareholders and to DAG that he owns his common shares of
DAZ and DAH, as the case may be, free and clear of all liens, pledges, mortgages
and other security interests.
3. Each of the parties hereto will report the transfers described in
Paragraph 1 hereof, together with the sale of the DAG Common Shares pursuant to
the Registration Statement as a single transaction pursuant to section 351 of
the Internal revenue Code of 1986, as amended and any corresponding provisions
under state and local laws, and shall take such action
<PAGE>
and shall file such forms, returns and statements as may be required under such
section and the income tax regulations promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Exchange
Agreement as of the date, month and year first above written.
DAG MEDIA, INC.
BY:
----------------------------
Assaf Ran, President
DAPEY ASSAF-DAPEY ZAHAV, LTD.
BY:
----------------------------
Assaf Ran, President
DAPEY ASSAF-HAMADRIKH LEASSAKIM
ISRAELIM BE NEW YORK, LTD.
BY:
----------------------------
Assaf Ran, President
--------------------------------
ASSAF RAN
--------------------------------
DVIR LANGER
--------------------------------
EYAL HUBERFELD
--------------------------------
AVI SHEFI
--------------------------------
DANIEL FRANK
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
DAG MEDIA, INC.
------------------------------
Under Section 402 of the Business Corporation
The undersigned, being a natural person of at least eighteen (18) years
of age and acting as the incorporator of the corporation hereby being formed
under the Business Corporation Law, certifies that:
FIRST: The name of the corporation is DAG MEDIA, INC.
SECOND: The corporation is formed for the following purpose or
purposes:
To engage in any lawful act or activity for which corporations
may be organized under the Business Corporation Law, provided that the
corporation is not formed to engage in any act or activity requiring
the consent or approval of any state official, department, board,
agency or other body without such consent or approval first being
obtained.
To have, in furtherance of the corporate purposes, all of the
powers conferred upon corporations organized under the Business
Corporation Law subject to any limitations thereof contained in this
certificate of incorporation or in the laws of the State of New York.
THIRD: The office of the corporation is to be located in the County of
Queens, State of New York.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is 30,000,000 of which 25,000,000 shall be common shares, par
value $.001 per share (the "Common Shares") and 5,000,000 shall be preferred
shares, par value $.01 per share (the "Preferred Shares"). The Preferred Shares
may be issued, from time to time, in one or more series with such designations,
preferences and relative participating optional or other special rights and
qualifications, limitations or restrictions thereof including but not limited to
preemptive rights (notwithstanding anything contained to the contrary in Article
TENTH hereof), as shall be stated in the resolutions adopted by the Board of
Directors providing for the issuance of such Preferred Shares or series thereof;
and the Board of Directors is hereby expressly vested with authority to fix such
designations, preferences and relative participating optional or other special
rights or qualifications, limitations or restrictions for each series,
<PAGE>
including, but not by way of limitation, the power to affix the redemption and
liquidation preferences, the rate of dividends payable and the time for and the
priority of payment thereof and to determine whether such dividends shall be
cumulative or not and to provide for and affix the terms of conversion of such
Preferred Share or any series thereof into Common Shares of the Corporation and
fix the voting power, if any, of Preferred Shares or any series thereof and to
provide for preemptive rights (notwithstanding anything contained to the
contrary in Article TENTH hereof).
FIFTH: The Secretary of State is designated as the agent of the
corporation upon whom process against the corporation may be served. The post
office address within the State of New York to which the Secretary of State
shall mail a copy of any process against the corporation served upon him is:
Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New York 10022,
Attn: Joel J. Goldschmidt, Esq.
SIXTH: The duration of the corporation is perpetual.
SEVENTH: Any action required or permitted to be taken by the Board of
Directors of the corporation or of any committee thereof may be taken without a
meeting if all members of the Board of Directors or of any committee thereof
consent in writing to the adoption of a resolution authorizing the action.
Any one or more members of the Board of Directors or of any committee
thereof may participate in a meeting of said Board or of any such committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time, and
participation by such means shall constitute presence in person at the meeting.
EIGHTH: Whenever under the Business Corporation Law shareholders are
required or permitted to take any action by vote, such action may be taken
without a meeting on written consent, setting forth the action so taken, signed
by the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
NINTH: No holder of any of the shares of any class of the corporation
shall be entitled as of right to subscribe for, purchase, or otherwise acquire
any shares of any class of the corporation which the corporation proposes to
issue or any rights or options which the corporation proposes to grant for the
purchase of any shares, bonds, securities, or obligations of the corporation
which are convertible into or exchangeable for, or which carry any rights to
subscribe for, purchase, or otherwise acquire shares of any class of the
corporation; and any and all of such shares, bonds, securities or obligations of
the corporation, whether now or hereafter authorized or created, may be issued,
or may be reissued or transferred if the same have been reacquired and have
treasury status, and any and all of such rights and options may be granted by
the Board of Directors to such persons, firms, corporations and associations,
and for such lawful consideration, and on such terms, as the Board of Directors
in its
2
<PAGE>
discretion may determine, without first offering the same, or any thereof, to
any said holder. Without limiting the generality of the foregoing stated denial
of any and all preemptive rights, no holder of shares of any class of the
corporation shall have any preemptive rights in respect of the matters,
proceedings, or transaction specified in subparagraphs (1) to (6), inclusive, of
paragraph (e) of Section 622 of the Business Corporation Law.
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 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, provided 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
3
<PAGE>
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 financial profit or other
4
<PAGE>
advantage to which he was not legally entitled or that his acts violated Section
719 of the New York Business Corporation Law.
Subscribed and affirmed by me as true under the penalties of perjury on
February 22, 1999.
/s/ Joel J. Goldschmidt
----------------------------------
Joel J. Goldschmidt, Esq.
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, N.Y. 10022
5
<PAGE>
Exhibit 3.2
B Y L A W S
OF
DAG MEDIA, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE - The principal office of the Corporation
shall be as set forth in its Certificate of Incorporation.
Section 2. ADDITIONAL OFFICES - The Corporation may have such
additional offices at such other place within or without the State of New York
as the Board of Directors may from time to time determine or as the business of
the Corporation may require.
ARTICLE II
SHAREHOLDERS' MEETING
Section 1. ANNUAL MEETING - An annual meeting of shareholders shall be
held on the second Thursday in June in each year (or if said day shall be a
legal holiday, then the next succeeding business day) at the time and place
(either within or without the State of New York) as shall be fixed by the Board
of Directors and specified in the notice of meeting for the purpose of electing
directors and transacting such other business as may properly be brought before
the meeting.
Section 2. SPECIAL MEETING - A special meeting of shareholders may be
called at any time by the President and shall be called by the President at the
request in writing of a majority of the Board of Directors then in office or at
the request in writing filed with the Secretary by the holders of a majority of
the issued and outstanding shares of the capital stock of the Corporation
entitled to vote at such meeting. Any such request shall state the purpose or
purposes of the proposed meeting. Special meetings shall be held at such time
and place (either within or without the State of New York) as shall be specified
in the notice thereof. Business transacted at any special meeting of
shareholders shall be confined to the purposes set forth in the notice thereof.
Section 3. NOTICE OF MEETINGS - Written notice of the time, and place
and purpose of every meeting of shareholders (and, if other than an annual
meeting, indicating the person or persons at whose discretion the meeting is
being convoked), shall be given by the President, a Vice-President or by the
Secretary to each shareholder of record entitled to vote at such meeting and to
each shareholder who, by reason of any action proposed at such meeting, would be
entitled to have his stock appraised if such action were taken, not less than
ten nor more than fifty days prior to the date set for the meeting, either
personally or by mailing said notice by first class mail to each shareholder at
his address appearing on the stock book of the Corporation or at such other
address supplied by him in writing to the Secretary of the Corporation for the
purpose of receiving notice. Notice by mail shall be deemed to be given when
deposited, postage prepaid, in a post office or official depository under the
exclusive care and custody of the United States Post Office Department. The
record date for determining the shareholders entitled to such notice shall be
determined by the Board of Directors in accordance with Section 6 of ARTICLE
SIXTH of these Bylaws.
If the directors shall adopt, amend or repeal a by-law regulating an
impending election of directors, the notice of the next meeting of shareholders
for the election of directors shall set forth the by-law so adopted, amended or
repealed together with a concise statement of the
1
<PAGE>
changes made as required by Section 601(b) of the Business Corporation Law. If
any action is proposed to be taken which would, if taken, entitle shareholders
to receive payment for their shares, the notice of meeting shall include a
statement to such effect.
A written waiver of notice setting forth the purposes of the meeting
for which notice is waived, signed by the person or persons entitled to such
notice, whether before or after the time of the meeting stated therein, shall be
deemed equivalent to the giving of such notice. The attendance by a shareholder
at a meeting either in person or by proxy without protesting the lack of notice
thereof shall constitute a waiver of notice of such shareholder.
All notice given with respect to an original meeting shall extend to
any and all adjournments thereof and such business as might have been transacted
at the original meeting may be transacted at any adjournment thereof; no notice
of any adjourned meeting need be given if an announcement of the time and place
of the adjourned meeting is made at the original meeting.
Section 4. QUORUM - The holders of a majority of the shares of stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum at all
meetings of shareholders for the transaction of business except as otherwise
provided by statute or the Certificate of Incorporation. If, however, a quorum
shall not be present or represented at any meeting of shareholders, the
shareholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. When a quorum is once present to organize a
meeting, such quorum is not deemed broken by the subsequent withdrawal of any
shareholders.
Section 5. VOTING - Every shareholder entitled to vote at any meeting
shall be entitled to one vote for each share of stock entitled to vote and held
by him of record on the date fixed as the record date for said meeting and may
so vote in person or by proxy. At all elections of directors when a quorum is
present, a plurality of the votes cast by the holders of shares entitled to vote
shall elect and any other corporate action, when a quorum is present, shall be
authorized by a majority of the votes cast by the holders of shares entitled to
vote thereon except as may otherwise be provided by statute or the Certificate
of Incorporation.
Section 6. PROXIES - Every proxy must be signed by the shareholder
entitled to vote or by his duly authorized attorney-in-fact and shall be valid
only if filed with the Secretary of the Corporation or with the Secretary of the
meeting prior to the commencement of voting on the matter in regard to which
said proxy is to be voted. No proxy shall be valid after the expiration of
eleven months from the date of its execution unless otherwise expressly provided
in the proxy. Every proxy shall be revocable at the pleasure of the person
executing it except as otherwise provided by Section 609 of the Business
Corporation Law. Unless the proxy by its terms provides for a specific
revocation date and except as otherwise provided by statute, revocation of a
proxy shall not be effective unless and until such revocation is executed in
writing by the shareholder who executed such proxy and the revocation is filed
with the Secretary of the Corporation or with the Secretary of the Meeting prior
to the voting of the proxy.
Section 7. SHAREHOLDERS' LIST - A list of shareholders as of the record
date, certified by the Secretary of the Corporation or by a transfer agent
appointed by the Board of Directors shall be prepared for every meeting of
shareholders and shall be produced by the Secretary or some other officer of the
Corporation thereat.
2
<PAGE>
Section 8. INSPECTORS AT MEETINGS - In advance of any shareholders'
meeting, the Board of Directors may appoint one or more inspectors to act at the
meeting or at any adjournment thereof and if not so appointed the person
presiding at any such meeting may, and at the request of any shareholder
entitled to vote thereat shall, appoint one or more inspectors. Each inspector,
before entering upon the discharge of his duties as set forth in Section 611 of
the Business Corporation Law, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his ability.
Section 9. CONDUCT OF MEETING - All meetings of shareholders shall be
presided over by the President, or if he is not present, by a Vice-President, or
if neither the President nor any Vice-President is present, by a chairman
thereby chosen by the shareholders at the meeting. The Secretary of the
Corporation, or in his absence, an Assistant Secretary, shall act as secretary
of every meeting but if neither the Secretary nor the Assistant Secretary is
present, the chairman of the meeting shall appoint any person present to act as
secretary of the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. FUNCTION AND DEFINITION - The business and property of the
Corporation shall be managed by its Board of Directors who may exercise all the
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the shareholders.
Section 2. NUMBER AND QUALIFICATION - The number of directors
constituting the entire Board shall be not less than one nor more than nine, as
may be fixed by resolution of the Board of Directors or by the shareholders
entitled to vote for the election of directors, provided that any such action of
the Board shall require the vote of a majority of the entire Board and, provided
further, that the number of directors constituting the entire Board shall not be
less than three unless all the shares of capital stock of the Corporation are
owned beneficially and of record by less than three shareholders, in which event
the number of directors may be less than three but not less than the number of
such shareholders. The phrase "entire Board" as used herein means the total
number of directors which the Corporation would have if there were no vacancies.
Unless and until a different number shall be so fixed within the limits above
specified, the Board shall consist of three directors. The term of any incumbent
director shall not be shortened by any such action by the Board of Directors or
by the shareholders.
Each director shall be at least twenty-one years of age. A director
need not be a shareholder, a citizen of the United States or a resident of the
State of New York.
Section 3. ELECTION TERM AND VACANCIES - Except as otherwise provided
in this Section, all directors shall be elected at the annual meeting of
shareholders and all directors who are so elected or who are elected in the
interim to fill vacancies and newly created directorships, shall hold office
until the next annual meeting of shareholders and until their respective
successors have been elected and qualified.
In the interim between annual meetings of shareholders, newly-created
directorships resulting from an increase in the number of directors or from
vacancies occurring in the Board, but not, except as hereinafter provided, in
the case of a vacancy occurring by reason of removal of a director by the
shareholders, may be filled by the vote of a majority of the directors, then
remaining in office, although less than a quorum may exist.
In the case of a vacancy occurring in the Board of Directors by reason
of the removal of one or more directors by action of the shareholders, such
vacancy may be filled by the shareholders at a special meeting duly called for
such purpose.
3
<PAGE>
In the event a vacancy is not filled by such election by shareholders,
whether or not the vacancy resulted from the removal of a director with or
without cause, a majority of the directors then remaining in office, although
less than a quorum, may fill any such vacancy.
Section 4. REMOVAL - The Board of Directors may, at any time, with
cause, remove any director.
The shareholders entitled to vote for the election of directors may, at
any time, remove any or all of the directors with cause.
Section 5. MEETINGS - The annual meeting of the Board of Directors for
the election of officers and the transaction of such other business as may come
before the meeting, shall be held, without notice, immediately following the
annual meeting of shareholders, at the same place at which such shareholders'
meeting is held.
Regular meetings of the Board of Directors shall be held at such time
and place, within or outside the State of New York, as may be fixed by
resolution of the Board, and when so fixed, no further notice thereof need be
given. Regular meetings not fixed by resolution of the Board may be held on
notice at such time and place as shall be determined by the Board.
Special meetings of the Board of Directors may be called on notice at
any time by the President, and shall be called by the President at the written
request of a majority of the directors then in office.
Section 6. NOTICE OF MEETINGS - No notice shall be required for regular
meetings for which the time and place have been fixed. Written, oral, or any
other mode of notice of the time and place shall be given for special meetings
in sufficient time for the convenient assembly of the directors thereat. Notice
need not be given to any director or to any member of a committee of directors
who submits a written waiver of notice signed by him before or after the time
stated therein. Attendance of any such person at a meeting shall constitute a
waiver of notice of such meeting, except when he attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors need be specified in any written
waiver of notice.
Section 7. CONDUCT OF MEETINGS - The President, if present, shall
preside at all meetings of directors. At all meetings at which the President is
not present any other director chosen by the Board shall preside.
Section 8. QUORUM, ADJOURNMENT, VOTING - Except as otherwise provided
by the Certificate of Incorporation, a majority of the entire Board shall be
requisite and shall constitute a quorum at all meetings of the Board of
Directors for the transaction of business. Where a vacancy or vacancies prevents
such majority, a majority of the directors then in office shall constitute a
quorum.
A majority of the directors present at any meeting, whether or not a
quorum is present, may adjourn the meeting to another time and place without
further notice other than an announcement at the meeting.
Except as otherwise provided by the Certificate of Incorporation, when
a quorum is present at any meeting, a majority of the directors present shall
decide any questions brought before such meeting and the act of such majority
shall be the act of the Board.
Section 9. ACTION WITHOUT MEETING - Any action required or permitted to
be taken by the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or of any committee
thereof consent in writing to the adoption of a resolution authorizing the
action.
4
<PAGE>
Any one or more members of the Board of Directors or of any committee
thereof may participate in a meeting of said Board or of any such committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time, and
participation by such means shall constitute presence in person at the meeting.
Section 10. COMPENSATION OF DIRECTORS - Directors, as such, shall not
receive any stated salary for their services, but, by resolution of the Board, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
any meeting of the Board of Directors or of any committee thereof. Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving reasonable compensation
therefor.
Section 11. COMMITTEES - The Board of Directors, by resolution of a
majority of the entire Board, may designate from among its members one or more
committees, each consisting of three or more directors, and each of which, to
the extent provided in such resolution, shall have all the authority of the
Board except that no such committee shall have authority as to any of the
following matters:
(a) the submission to stockholders of any action as to which
stockholders' authorization or approval is required by statute, the Certificate
of Incorporation or by these Bylaws;
(b) the filing of vacancies in the Board of Directors or in any
committee thereof;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee thereof;
(d) the amendment or repeal of these Bylaws or the adoption of new
Bylaws; and
(e) the amendment or repeal of any resolution of the Board of Directors
which by its terms shall not be so amendable or repealable.
The Board may designate one or more directors as alternate members of
any such committee who may replace any absent member or members at any meeting
of such committee.
Each such committee shall serve at the pleasure of the Board. The Board
of Directors shall have the power at any time to fill vacancies in, to change
the membership of, or to discharge any such committee. Committees shall keep
minutes of their proceedings and shall report the same to the Board of Directors
at the meeting of the Board next succeeding, and any action by the committee
shall be subject to revision and alteration by the Board of Directors, provided
that no rights of a third party shall be affected in any such revision or
alteration.
5
<PAGE>
ARTICLE IV
OFFICES
Section 1. EXECUTIVE OFFICERS - The Officers of the Corporation shall
be a President, one or more Vice-Presidents, a Treasurer and a Secretary and
such Assistant Treasurers and Assistant Secretaries and other officers as the
Board of Directors may determine. Any two or more offices may be held by the
same person, except the offices of President and Secretary, unless all of the
issued and outstanding shares of capital stock of the Corporation are owned by
one person, in which event such person may hold all or any combination of
offices.
Section 2. ELECTION - The President, one or more Vice-Presidents, the
Treasurer and Secretary shall be elected by the Board of Directors to hold
office until the meeting of the Board held immediately following the next annual
meeting of shareholders and shall hold office for the term for which elected and
until their successors have been elected and qualified. The Board of Directors
may from time to time appoint all such other officers as it may determine and
such officers shall hold office from the time of their appointment and
qualifications until the time at which their successors are appointed and
qualified. A vacancy in any office arising from any cause may be filled for the
unexpired portion of the term by the Board of Directors.
Section 3. REMOVAL - Any officer may be removed from office by the
Board at any time with or without cause.
Section 4. DELEGATION OF POWERS - The Board of Directors may from time
to time delegate the power or duties of any officer of the Corporation, in the
event of his absence or failure to act otherwise, to any other officer or
director or person whom they may select.
Section 5. COMPENSATION - The compensation of each officer shall be
such as the Board of Directors may from time to time determine.
Section 6. CHIEF EXECUTIVE OFFICER - The Board of Directors shall
designate the President as the chief executive officer of the Corporation who
shall have general charge of the business and affairs of the Corporation,
subject, however, to the right of the Board of Directors to confer specified
powers on officers and subject generally to the direction of the Board.
Unless otherwise ordered by the Board of Directors, the Chief Executive
Officer, or in the event of his inability to act, any other officer designated
by the Board, shall have full power and authority on behalf of the Corporation
to attend and to act and to vote at any meetings of security holders of
corporations in which the Corporation may hold securities, and at such meetings
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities, and which, as the owner thereof, the Corporation
might have possessed and exercised, if present. The Board of Directors by
resolution from time to time may confer like powers upon any other person or
persons.
Section 7. PRESIDENT The President, if not designated as Chief
Executive Officer, shall have such duties as the Board may prescribe.
Section 8. VICE-PRESIDENT - The Vice-President shall have such powers
and perform such duties as the Board of Directors may from time to time
prescribe. In the absence or inability of the Chief Executive Officer to perform
his duties or exercise his powers, the Vice-President or, if there be more than
one, a Vice-President designated by the Board, shall exercise the powers and
perform the duties of the President subject to the direction of the Board of
Directors.
Section 9. SECRETARY - The Secretary shall keep the minutes of all
meetings and record all votes of shareholders, the Board of Directors and
committees in a book to be kept for that
6
<PAGE>
purpose. He shall give or cause to be given any required notice of meetings of
shareholders, the Board of Directors or any committee, and shall be responsible
for preparing or obtaining from a transfer agent appointed by the Board, the
list of shareholders required by Article II, Section 7 thereof. He shall be the
custodian of the seal of the Corporation and shall affix or cause to be affixed
the seal to any instrument requiring it and attest the same and exercise the
powers and perform the duties incident to the office of Secretary subject to the
direction of the Board of Directors.
Section 10. TREASURER - Subject to the direction of the Board of
Directors, the Treasurer shall have charge of the general supervision of the
funds and securities of the Corporation and the books of account of the
Corporation and shall exercise the powers and perform the duties incident to the
office of the Treasurer. If required by the Board of Directors, he shall give to
the Corporation a bond in such sum and with such sureties as may be satisfactory
to the Board of Directors for the faithful discharge of his duties.
Section 11. OTHER OFFICERS - All other officers, if any, shall have
such authority and shall perform such duties as may be specified from time to
time by the Board of Directors.
ARTICLE V
RESIGNATIONS
Any director or officer of the Corporation or any member of any
committee of the Board of Directors of the Corporation, may resign at any time
by giving written notice to the Board of Directors, the President or the
Secretary. Any such resignation shall take effect at the time specified therein
or, if the time is not specified therein, upon the receipt thereof, irrespective
of whether any such resignation shall have been accepted.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. FORM OF CERTIFICATES - Each shareholder shall be entitled to
a certificate or certificates in such form as prescribed by the Business
Corporation Law and by any other applicable statutes, which Certificate shall
represent and certify the number, kind and class of shares owned by him in the
Corporation. The Certificates shall be numbered and registered in the order in
which they are issued and upon issuance the name in which each Certificate has
been issued together with the number of shares represented thereby and the date
of issuance shall be entered in the stock book of the Corporation by the
Secretary or by the transfer agent of the Corporation. Each certificate shall be
signed by the President or a Vice-President and countersigned by the Secretary
or Assistant Secretary and shall be sealed with the Corporate Seal or a
facsimile thereof. The signature of the officers upon a certificate may also be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation itself or an employee of the
Corporation. In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer before the
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if the officer had not ceased to be such at the time of its
issue.
Section 2. CONSIDERATION - A certificate representing shares shall not
be issued until the full amount of consideration therefor has been paid to the
Corporation, except if otherwise permitted by Section 504 of the Business
Corporation Law.
Section 3. LOST CERTIFICATES - The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation, alleged to have been lost,
mutilated, stolen or destroyed, upon the making of an affidavit of that fact by
the person so claiming and upon delivery to the Corporation, if the Board of
Directors shall so require, of a bond in such form and with such surety or
sureties as
7
<PAGE>
the Board may direct, sufficient in amount to indemnify the Corporation and its
transfer agent against any claim which may be made against it or them on account
of the alleged loss, destruction, theft or mutilation of any such certificate or
the issuance of any such new certificate.
Section 4. FRACTIONAL SHARE INTERESTS - The Corporation may issue
certificates for fractions of a share where necessary to effect transactions
authorized by the Business Corporation Law; or it may pay in cash the fair
market value of fractions of a share as of the time when those entitled to
receive such fractions are determined; or it may issue scrip in registered or
bearer form over the manual or facsimile signature of an officer of the
Corporation or of its agent, exchangeable as therein provided for full shares,
but such scrip shall not entitle the holder to any rights of a shareholder
except as therein provided.
Section 5. SHARE TRANSFERS - Upon compliance with provisions
restricting the transferability of shares, if any, transfers of shares of the
Corporation shall be made only on the share record of the Corporation by the
registered holder thereof, or by his duly authorized attorney, upon the
surrender of the certificate or certificates for such shares properly endorsed
with payment of all taxes thereon.
Section 6. RECORD DATE FOR SHAREHOLDERS - For the purpose of
determining the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof or to express consent or dissent from
any proposal without a meeting, or for the purpose of determining the
shareholders entitled to receive payment of any dividend or the allotment of any
rights, or for the purpose of any other action, the Board of Directors may fix,
in advance, a date as the record date for any such determination of
shareholders. Such date shall not be more than fifty nor less than ten days
before the date of any meeting nor more than fifty days prior to any action
taken without a meeting, the payment of any dividend or the allotment of any
rights, or any other action. When a determination of shareholders of record
entitled to notice of or to vote at any meeting of shareholders has been made as
provided in this Section, such determination shall apply to any adjournment
thereof, unless the Board fixes a new record date under this Section for the
adjourned meeting.
Section 7. SHAREHOLDERS OF RECORD - The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other person whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of the State of New York.
ARTICLE VII
STATUTORY NOTICES
The Board of Directors may appoint the Treasurer or any other officer
of the Corporation to cause to be prepared and furnished to shareholders
entitled thereto any special financial notice and/or statement which may be
required by Sections 510, 511, 515, 516, 517, 519 and 520 of the Business
Corporation Law or by any other applicable statute.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject
to change from time to time, by the Board of Directors.
8
<PAGE>
ARTICLE IX
CORPORATE SEAL
The Corporate seal shall have inscribed thereon the name of the
Corporation, the year of its incorporation and the words "Corporate Seal" and
"New York" and shall be in such form and contain such other words and/or figures
as the Board of Directors shall determine. The Corporate seal may be used by
printing, engraving, lithographing, stamping or otherwise making, placing or
affixing, or causing to be printed, engraved, lithographed, stamped or otherwise
made, placed or affixed, upon any paper or document, by any process whatsoever,
an impression, facsimile or other reproduction of said Corporate seal.
ARTICLE X
BOOKS AND RECORDS
There shall be maintained at the principal office of the Corporation
books of account of all the Corporation's business and transactions.
There shall be maintained at the principal office of the corporation or
at the office of the Corporation's transfer agent a record containing the names
and addresses of all shareholders, the number and class of shares held by such
and the dates when they respectively became the owners of record thereof.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
Any person made or threatened to be made a party to an action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate, then is or was a director, officer, employee or agent of
the Corporation, or then serves or has served any other corporation in any
capacity at the request of the Corporation, shall be indemnified by the
Corporation against reasonable expenses, judgments, fines and amounts actually
and necessarily incurred in connection with the defense of such action or
proceeding or in connection with an appeal therein, to the fullest extent
permissible by the laws of the State of New York. Such right of indemnification
shall not be deemed exclusive of any other rights to which such person may be
entitled.
ARTICLE XII
AMENDMENTS
The shareholders entitled at the time to vote in the election of
directors and the Board of Directors by vote of a majority of the entire Board,
shall have the power to amend or repeal these By-Laws and to adopt new By-Laws,
provided, however, that any by-law adopted, amended or repealed by the Board of
Directors may be amended or repealed by the shareholders entitled to vote
thereon as herein provided.
9
<PAGE>
Exhibit 4.2
THIS WARRANT HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
AND IS NOT TRANSFERABLE
EXCEPT AS PROVIDED HEREIN
DAG MEDIA, INC.
PURCHASE WARRANT
Issued to:
PAULSON INVESTMENT COMPANY, INC.
EXERCISABLE TO PURCHASE
132,500 SHARES
OF
DAG MEDIA, INC.
Void after ______, 2004
<PAGE>
This is to certify that, for value received and subject to the terms
and conditions set forth below, the Warrantholder (hereinafter defined) is
entitled to purchase, and the Company promises and agrees to sell and issue to
the Warrantholder, at any time on or after ____, 1999 and on or before _____,__,
2004 up to 132,500 Shares (hereinafter defined) at the Exercise Price
(hereinafter defined).
This Warrant Certificate is issued subject to the following terms and
conditions:
1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Closing Date" means the date on which the Offering is closed.
(c) "Commission" means the Securities and Exchange Commission.
(d) "Common Stock" means the common stock, $.001 par value, of the
Company.
(e) "Company" means DAG Media, Inc., a New York Corporation.
(f) "Company's Expenses" means any and all expenses payable by the
Company or the Warrantholder in connection with an offering described in Section
6 hereof, except Warrantholder's Expenses.
(g) "Effective Date" means the date on which the Registration Statement
is declared effective by the Commission.
(h) "Exercise Price" means the price at which the Warrantholder may
purchase one Share upon exercise of Warrants as determined from time to time
pursuant to the provisions hereof. The initial Exercise Price is $_____ per
Share.
(i) "Offering" means the public offering of Shares made pursuant to the
Registration Statement.
(j) "Participating Underwriter" means any underwriter participating in
the sale of the Securities pursuant to a registration under Section 6 of this
Warrant Certificate.
(k) "Registration Statement" means the Company's registration statement
(File No. 333-_________) as amended on the Closing Date.
(l) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.
<PAGE>
(m) "Securities" means the securities obtained or obtainable upon
exercise of the Warrant or securities obtained or obtainable upon exercise,
exchange, or conversion of such securities.
(n) "Share" means a share of Common Stock (collectively known as
"Shares").
(o) "Warrant Certificate" means a certificate evidencing the Warrant.
(p) "Warrantholder" means a record holder of the Warrant or Securities.
The initial Warrantholder is Paulson Investment, Inc.
(q) "Warrantholder's Expenses" means the sum of (i) the aggregate
amount of cash payments made to an underwriter, underwriting syndicate, or agent
in connection with an offering described in Section 6 hereof multiplied by a
fraction the numerator of which is the aggregate sales price of the Securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
the denominator of which is the aggregate sales price of all of the securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
(ii) all out-of-pocket expenses of the Warrantholder, except for the fees and
disbursements of one firm retained as legal counsel for the Warrantholder that
will be paid by the Company.
(r) "Warrant" means the warrant evidenced by this certificate, any
similar certificate issued in connection with the Offering, or any certificate
obtained upon transfer or partial exercise of the Warrant evidenced by any such
certificate.
2. EXERCISE OF WARRANTS. All or any part of the Warrant may be exercised
commencing on the first anniversary of the Effective Date and ending at 5:00
p.m. Pacific Time on the fifth anniversary of the Effective Date by surrendering
this Warrant Certificate, together with appropriate instructions, duly executed
by the Warrantholder or by its duly authorized attorney, at the office of the
Company, 125-10 Queens Boulevard, Kew Gardens, NY 11415, or at such other office
or agency as the Company may designate. Upon receipt of notice of exercise, the
Company shall immediately instruct its transfer agent to prepare certificates
for the Securities to be received by the Warrantholder upon completion of the
Warrant exercise. When such certificates are prepared, the Company shall notify
the Warrantholder and deliver such certificates to the Warrantholder or as per
the Warrantholder's instructions immediately upon payment in full by the
Warrantholder, in lawful money of the United States, of the Exercise Price
payable with respect to the Securities being purchased. If the Warrantholder
shall represent and warrant that all applicable registration and prospectus
delivery requirements for their sale have been complied with upon sale of the
Securities received upon exercise of the Warrant, such certificates shall not
bear a legend with respect to the Securities Act of 1933.
If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver to
the Warrantholder a new Warrant Certificate (dated the date hereof), in form and
tenor similar to this Warrant Certificate, evidencing that portion of the
Warrant not exercised. The Securities to be obtained on exercise of the Warrant
will be deemed to have been issued, and any person exercising the
<PAGE>
Warrants will be deemed to have become a holder of record of those Securities,
as of the date of the payment of the Exercise Price.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of
Securities for which this Warrant Certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:
(a) If the outstanding shares of the Company's Common Stock are divided
into a greater number of shares or a dividend in stock is paid on the Common
Stock, the number of shares of Common Stock for which the Warrant is then
exercisable will be proportionately increased and the Exercise Price will be
proportionately reduced; and, conversely, if the outstanding shares of Common
Stock are combined into a smaller number of shares of Common Stock, the number
of shares of Common Stock for which the Warrant is then exercisable will be
proportionately reduced and the Exercise Price will be proportionately
increased. The increases and reductions provided for in this subsection 3(a)
will be made with the intent and, as nearly as practicable, the effect that
neither the percentage of the total equity of the Company obtainable on exercise
of the Warrants nor the price payable for such percentage upon such exercise
will be affected by any event described in this subsection 3(a).
(b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or other
change in the capital structure of the Company, then, as a condition of such
change, lawful and adequate provision will be made so that the holder of this
Warrant Certificate will have the right thereafter to receive upon the exercise
of the Warrant the kind and amount of shares of stock or other securities or
property to which he would have been entitled if, immediately prior to such
event, he had held the number of shares of Common Stock obtainable upon the
exercise of the Warrant. In any such case, appropriate adjustment will be made
in the application of the provisions set forth herein with respect to the rights
and interest thereafter of the Warrantholder, to the end that the provisions set
forth herein will thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrant. The Company will not permit any change in its
capital structure to occur unless the issuer of the shares of stock or other
securities to be received by the holder of this Warrant Certificate, if not the
Company, agrees to be bound by and comply with the provisions of this Warrant
Certificate.
(c) When any adjustment is required to be made in the number of shares
of Common Stock, other securities, or the property purchasable upon exercise of
the Warrant, the Company will promptly determine the new number of such shares
or other securities or property purchasable upon exercise of the Warrant and (i)
prepare and retain on file a statement describing in reasonable detail the
method used in arriving at the new number of such shares or other securities or
property purchasable upon exercise of the Warrant and (ii) cause a copy of such
statement to be mailed to the Warrantholder within thirty (30) days after the
date of the event giving rise to the adjustment.
<PAGE>
(d) No fractional shares of Common Stock or other securities will be
issued in connection with the exercise of the Warrant, but the Company will pay,
in lieu of fractional shares, a cash payment therefor on the basis of the mean
between the bid and asked prices of the Common Stock in the over-the-counter
market or the closing price on a national securities exchange on the day
immediately prior to exercise.
(e) If securities of the Company or securities of any subsidiary of the
Company are distributed pro rata to holders of Common Stock, such number of
securities will be distributed to the Warrantholder or his assignee upon
exercise of his rights hereunder as such Warrantholder or assignee would have
been entitled to if this Warrant Certificate had been exercised prior to the
record date for such distribution. The provisions with respect to adjustment of
the Common Stock provided in this Section 3 will also apply to the securities to
which the Warrantholder or his assignee is entitled under this subsection 3(e).
(f) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the sale of the Common Stock or other
Securities purchasable upon exercise of the Warrant.
4. RESERVATION OF SECURITIES. The Company agrees that the number of shares
of Common Stock or other Securities sufficient to provide for the exercise of
the Warrant upon the basis set forth above will at all times during the term of
the Warrant be reserved for exercise.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of
the Warrant will be duly and validly issued in accordance with their terms, and
the Company will pay all documentary and transfer taxes, if any, in respect of
the original issuance thereof upon exercise of the Warrant.
6. REGISTRATION OF SECURITIES ISSUABLE ON EXERCISE OF WARRANT CERTIFICATE.
(a) The Company will register the Securities with the Commission
pursuant to the Act so as to allow the unrestricted sale of the Securities to
the public from time to time commencing on the first anniversary of the
Effective Date and ending at 5:00 p.m. Pacific Time on the fifth anniversary of
the Effective Date (the "Registration Period"). The Company will also file such
applications and other documents necessary to permit the sale of the Securities
to the public during the Registration Period in those states in which the Shares
were qualified for sale in the Offering or such other states as the Company and
the Warrantholder agree to. In order to comply with the provisions of this
Section 6(a), the Company is not required to file more than one registration
statement. No registration right of any kind, "piggyback" or otherwise, will
last longer than five years from the Closing Date.
(b) The Company will pay all of the Company's Expenses and each
Warrantholder will pay its pro rata share of the Warrantholder's Expenses
relating to the registration, offer, and sale of the Securities.
<PAGE>
(c) Except as specifically provided herein, the manner and conduct of
the registration, including the contents of the registration, will be entirely
in the control and at the discretion of the Company. The Company will file such
post-effective amendments and supplements as may be necessary to maintain the
currency of the registration statement during the period of its use. In
addition, if the Warrantholder participating in the registration is advised by
counsel that the registration statement, in their opinion, is deficient in any
material respect, the Company will use its best efforts to cause the
registration statement to be amended to eliminate the concerns raised.
(d) The Company will furnish to the Warrantholder the number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably request
in order to facilitate the disposition of Securities owned by it.
(e) The Company will, at the request of Warrantholders holding at least
50 percent of the then outstanding Warrants, (i) furnish an opinion of the
counsel representing the Company for the purposes of the registration pursuant
to this Section 6, addressed to the Warrantholders and any Participating
Underwriter, (ii) furnish an appropriate letter from the independent public
accountants of the Company, addressed to the Warrantholders and any
Participating Underwriter, and (iii) make representations and warranties to the
Warrantholders and any Participating Underwriter. A request pursuant to this
subsection (e) may be made on three occasions. The documents required to be
delivered pursuant to this subsection (e) will be dated within ten days of the
request and will be, in form and substance, equivalent to similar documents
furnished to the underwriters in connection with the Offering, with such changes
as may be appropriate in light of changed circumstances.
7. INDEMNIFICATION IN CONNECTION WITH REGISTRATION.
(a) If any of the Securities are registered, the Company will indemnify
and hold harmless each selling Warrantholder, any person who controls any
selling Warrantholder within the meaning of the Act, and any Participating
Underwriter against any losses, claims, damages, or liabilities, joint or
several, to which any Warrantholder, controlling person, or Participating
Underwriter may be subject under the Act or otherwise; and it will reimburse
each Warrantholder, each controlling person, and each Participating Underwriter
for any legal or other expenses reasonably incurred by the Warrantholder,
controlling person, or Participating Underwriter in connection with
investigating or defending any such loss, claim, damage, liability, or action,
insofar as such losses, claims, damages, or liabilities, joint or several (or
actions in respect thereof), arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained, on the effective
date thereof, in any such registration statement or any preliminary prospectus
or final prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any case
to the extent that any loss, claim, damage, or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any
<PAGE>
registration statement, preliminary prospectus, final prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished by a Warrantholder for use in the preparation thereof. The
indemnity agreement contained in this subparagraph (a) will not apply to amounts
paid to any claimant in settlement of any suit or claim unless such payment is
first approved by the Company, such approval not to be unreasonably withheld.
(b) Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed any registration statement
or other filing or any amendment or supplement thereto, and any person who
controls the Company within the meaning of the Act, against any losses, claims,
damages, or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or action, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement of any material
fact contained in said registration statement, any preliminary or final
prospectus, or other filing, or any amendment or supplement thereto, or arise
out of or are based upon 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, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, preliminary or final prospectus, or other filing, or
amendment or supplement, in reliance upon and in conformity with written
information furnished by such Warrantholder for use in the preparation thereof;
provided, however, that the indemnity agreement contained in this subparagraph
(b) will not apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by the Warrantholder, such approval
not to be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under subparagraphs
(a) or (b) above of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, notify the indemnifying party of the commencement thereof; but the
omission to notify the indemnifying party will not relieve it from any liability
that it may have to any indemnified party otherwise than under subparagraphs (a)
and (b).
(d) If any such action is brought against any indemnified party and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party; and after
notice from the indemnifying party to such indemnified party of its election to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
<PAGE>
8. RESTRICTIONS ON TRANSFER. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the Effective Date except to underwriters of the Offering or to individuals who
are either a partner or an officer of such an underwriter or by will or by
operation of law. The Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates evidencing the
same aggregate number of Warrants.
9. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.
10. NOTICE. Any notices required or permitted to be given hereunder will be
in writing and may be served personally or by mail; and if served will be
addressed as follows:
If to the Company:
DAG Media, Inc.
125-10 Queens Boulevard
Kew Gardens, NY 11415
Attention: Chief Executive Officer
If to the Warrantholder:
At the address furnished by the Warrantholder to the
Company for the purpose of notice.
Any notice so given by mail will be deemed effectively given 48 hours
after mailing when deposited in the United States mail, registered or certified
mail, return receipt requested, postage prepaid and addressed as specified
above. Any party may by written notice to the other specify a different address
for notice purposes.
<PAGE>
11. APPLICABLE LAW. This Warrant Certificate will be governed by and
construed in accordance with the laws of the state of Oregon, without reference
to conflict of laws principles thereunder. All disputes relating to this Warrant
Certificate shall be tried before the courts of Oregon located in Multnomah
County, Oregon to the exclusion of all other courts that might have
jurisdiction.
Dated as of _______ ___, 1999
DAG MEDIA, INC.
By:
--------------------------------------------
Assaf Ran
President and Chief Executive Officer
Agreed and accepted as of , 1999.
------- ---
PAULSON INVESTMENT COMPANY, INC.
By:
--------------------------------------------
Authorized Officer
<PAGE>
Exhibit 5.1
MORSE, ZELNICK, ROSE & LANDER, LLP
450 PARK AVENUE
NEW YORK, NY 10022
March 10, 1999
DAG Media, Inc.
125-10 Queens Boulevard
Kew Gardens, NY 11415
and
Mr. Assaf Ran
c/o DAG Media, Inc.
125-10 Queens Boulevard
Kew Gardens, NY 11415
Dear Sirs:
We have acted as counsel to DAG Media, Inc., a New York corporation
(the "Company") and Assaf Ran ("Ran") in connection with the preparation of a
registration statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), to register (a) the offering by the Company of 1,250,000 common
shares, par value $.001 per share (the "Common Shares") and the offering of an
additional 198,750 shares if the over-allotment option is exercised in full, (b)
the offering by Ran of 75,000 Common Shares and (c) any additional shares of
Common Stock issued pursuant to Rule 462(b) of the Act.
In this regard, we have reviewed the Certificate of Incorporation of
the Company, as amended, resolutions adopted by the Company's Board of
Directors, the Registration Statement, the other exhibits to the Registration
Statement and such other records, documents, statutes and decisions as we have
deemed relevant in rendering this opinion. Based upon the foregoing, we are of
the opinion that each Common Share being offered has been duly and validly
authorized for issuance and when issued as contemplated by the Registration
Statement will be legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such opinion, we do not thereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ Morse, Zelnick, Rose & Lander, LLP
MORSE, ZELNICK, ROSE & LANDER, LLP
<PAGE>
Exhibit 10.1
DAG MEDIA, INC.
1999 STOCK OPTION PLAN
1. PURPOSE; TYPES OF AWARDS; CONSTRUCTION.
The purpose of the DAG Media, Inc. 1999 Stock Option Plan (the "Plan")
is to align the interests of officers, other key employees, consultants and
non-employee directors of DAG Media, Inc. (the "Company") and its subsidiaries
with those of the shareholders of the Company, to afford an incentive to such
officers, employees, consultants and directors to continue as such, to increase
their efforts on behalf of the Company and to promote the success of the
Company's business. To further such purposes, the Committee may grant options to
purchase Common Shares. The provisions of the Plan are intended to satisfy the
requirements of Section 16(b) of the Securities Exchange Act of 1934 and of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and shall be
interpreted in a manner consistent with the requirements thereof, as now or
hereafter construed, interpreted and applied by regulations, rulings and cases.
2. DEFINITIONS.
As used in this Plan, the following words and phrases shall have the
meanings indicated below:
(a) "Agreement" shall mean a written agreement entered into
between the Company and an Optionee in connection with an award under the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" when used in connection with the termination of an
Optionee's employment by the Company or the cessation of an Optionee's service
as a consultant or a member of the Board, shall mean (i) the conviction of the
Optionee for the commission of a felony, (ii) the willful and continued failure
by the Optionee substantially to perform his duties and obligations to the
Company or a Subsidiary (other than any such failure resulting from his
incapacity due to physical or mental illness), or (iii) the willful engaging by
the Optionee in misconduct that is demonstrably injurious to the Company or a
Subsidiary. For purposes of this Section 2(c), no act, or failure to act, on an
Optionee's part shall be considered "willful" unless done, or omitted to be
done, by the Optionee in bad faith and without reasonable belief that his action
or omission was in the best interest of the Company. The Committee shall
determine whether a termination of employment is for Cause for purposes of the
Plan.
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(d) "Change in Control" shall mean the occurrence of the event
set forth in any of the following paragraphs:
(i) any Person (as defined below) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any securities
acquired directly from the Company or its subsidiaries) representing 50% or more
of the combined voting power of the Company's then outstanding securities; or
(ii) the following individuals cease for any reason
to constitute a majority of the number of directors then serving: individuals
who, on the date hereof, constitute the Board and any new director (other than a
director whose initial assumption of office is in connection with an actual or
threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the Company's
shareholders was approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors on the date
hereof or whose appointment, election or nomination for election was previously
so approved or recommended; or
(iii) there is consummated a merger or consolidation
of the Company or a direct or indirect subsidiary thereof with any other
corporation, other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, at least 50%
of the combined voting power of the securities of the Company or such surviving
entity or any parent thereof outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the beneficial owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its subsidiaries) representing
50% or more of the combined voting power of the Company's then outstanding
securities; or
(iv) the shareholders of the Company approve a plan
of complete liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets, other than a sale or disposition by the Company of all
or substantially all of the Company's assets to an entity, at least 50% of the
combined voting power of the voting securities of which are owned by Persons in
substantially the same proportions as their ownership of the Company immediately
prior to such sale.
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For purposes of this Section 2(d), "Person" shall have the
meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in
Sections 13(d) and 14(d) thereof, except that such term shall not include (i)
the Company or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any of its
subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
(e) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(f) "Committee" shall mean a committee established by
the Board to administer the Plan.
(g) "Common Shares" shall mean the common shares, par
value $0.001 per share, of the Company.
(h) "Company" shall mean DAG Media, Inc., a
corporation organized under the laws of the State of Delaware, or any successor
corporation.
(i) "Disability" shall mean an Optionee's inability
to perform his duties with the Company or on the Board by reason of any
medically determinable physical or mental impairment, as determined by a
physician selected by the Optionee and acceptable to the Company.
(j) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time, and as now or hereafter construed,
interpreted and applied by regulations, rulings and cases.
(k) "Fair Market Value" per share as of a particular
date shall mean (i) if the Common Shares are then listed on a national
securities exchange, the closing sales price per Common Shares on the national
securities exchange on which the Common Shares are principally traded for the
last preceding date on which there was a sale of such Common Shares on such
exchange, or (ii) if the Common Shares are then traded in an over-the-counter
market, the closing bid price for the Common Shares in such over-the-counter
market for the last preceding date on which there was a sale of such Common
Shares in such market, or (iii) if the Common Shares are not then listed on a
national securities exchange or traded in an over-the-counter market, such value
as the Committee, in its sole discretion, shall determine.
(l) "Incentive Stock Option" shall mean any option
intended to be and designated as an incentive stock option within the meaning of
Section 422 of the Code.
(m) "Non-employee Director" shall mean a member of
the Board who is not an employee of the Company.
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(n) "Nonqualified Option" shall mean an Option that
is not an Incentive Stock Option.
(o) "Option" shall mean the right, granted hereunder,
to purchase Common Shares. Options granted by the Committee pursuant to the Plan
may constitute either Incentive Stock Options or Nonqualified Stock Options.
(p) "Optionee" shall mean a person who receives a
grant of an Option.
(q) "Option Price" shall mean the exercise price of
the Common Shares covered by an Option.
(r) "Parent" shall mean any company (other than the
Company) in an unbroken chain of companies ending with the Company if, at the
time of granting an Option, each of the companies other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other companies in such chain.
(s) "Plan" shall mean this DAG Media, Inc. 1999 Stock
Option Plan.
(t) "Retirement" shall mean the retirement of an
Optionee in accordance with the terms of any tax-qualified retirement plan
maintained by the Company or a Subsidiary in which the Optionee participates. If
the Optionee is not a participant in such a plan, such term shall mean the
termination of the Optionee's employment or cessation of the Optionee's service
as a member of the Board, other than by reason of death, Disability or Cause on
or after attainment of the age of 65.
(u) "Rule 16b-3" shall mean Rule 16b-3, as from time
to time in effect, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, including any successor to such Rule.
(v) "Subsidiary" shall mean any company (other than
the Company) in an unbroken chain of companies beginning with the Company if, at
the time of granting an Option, each of the companies other than the last
company in the unbroken chain owns stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
companies in such chain.
(w) "Ten Percent Stockholder" shall mean an Optionee
who, at the time an Incentive Stock Option is granted, owns (or is deemed to own
pursuant to the attribution rules of Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary.
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3. ADMINISTRATION.
The Plan shall be administered by the Committee, the members of which
shall, except as may otherwise be determined by the Board, be "non-employee
directors" under Rule 16b-3 and "outside directors" under Section 162(m) of the
Code.
The Committee shall have the authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to administer the
Plan and to exercise all the powers and authorities either specifically granted
to it under the Plan or necessary or advisable in the administration of the
Plan, including, without limitation, the authority to grant Options; to
determine which Options shall constitute Incentive Stock Options and which
Options shall constitute Nonqualified Stock Options; to determine the purchase
price of the Common Shares covered by each Option; to determine the persons to
whom, and the time or times at which awards shall be granted; to determine the
number of shares to be covered by each award; to interpret the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the Agreements (which need not be
identical) and to cancel or suspend awards, as necessary; and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, including
delegating to one or more of the Company's management employees the authority to
grant Options to employees who are not "insiders" for purposes of Section 16 of
the Exchange Act and who are not "covered employees" for purposes of Section
162(m) of the Code, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with respect
to any responsibility the Committee or such person may have under the Plan. The
Board shall have sole authority, unless expressly delegated to the Committee, to
grant Options to Non-employee Directors. All decisions, determination and
interpretations of the Committee shall be final and binding on all Optionees of
any awards under this Plan.
The Board shall have the authority to fill all vacancies, however
caused, in the Committee. The Board may from time to time appoint additional
members to the Committee, and may at any time remove one or more Committee
members. One member of the Committee shall be selected by the Board as chairman.
The Committee shall hold its meetings at such times and places as it shall deem
advisable. All determinations of the Committee shall be made by a majority of
its members either present in person or participating by conference telephone at
a meeting or by written consent. The Committee may appoint a secretary and make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any award
granted hereunder.
4. ELIGIBILITY.
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Awards may be granted to officers and other key employees of and
consultants to the Company, and its Subsidiaries, including officers and
directors who are employees, and to Non-employee Directors. In determining the
persons to whom awards shall be granted and the number of shares to be covered
by each award, the Committee shall take into account the duties of the
respective persons, their present and potential contributions to the success of
the Company and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan.
5. STOCK.
The maximum number of Common Shares reserved for the grant of awards
under the Plan shall be 124,000, subject to adjustment as provided in Section 9
hereof. Such shares may, in whole or in part, be authorized but unissued shares
or shares that shall have been or may be required by the Company.
If any outstanding award under the Plan should for any reason expire,
be canceled or be forfeited without having been exercised in full, the Common
Shares allocable to the unexercised, canceled or terminated portion of such
award shall (unless the Plan shall have been terminated) become available for
subsequent grants of awards under the Plan.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to the Plan shall be evidenced by an
Agreement, in such form and containing such terms and conditions as the
Committee shall from time to time approve, which Agreement shall comply with and
be subject to the following terms and conditions, unless otherwise specifically
provided in such Option Agreement:
(a) NUMBER OF SHARES. Each Option Agreement shall state the
number of Common Shares to which the Option relates.
(b) TYPE OF OPTION. Each Option Agreement shall specifically
state that the Option constitutes an Incentive Stock Option or a Nonqualified
Stock Option.
(c) OPTION PRICE. Each Option Agreement shall state the Option
Price, which shall not be less than one hundred percent (100%) of the Fair
Market Value of the Common Shares covered by the Option on the date of grant
unless, with respect to Nonqualified Stock Options, otherwise determined by the
Committee. The Option Price shall be subject to adjustment as provided in
Section 9 hereof. The date as of which the Committee adopts a resolution
expressly granting an Option shall be considered the day on which such Option is
granted, unless such resolution specifies a different date.
(d) MEDIUM AND TIME OF PAYMENT. The Option Price shall be paid
in full, at the time of exercise, in cash or in Common Shares then owned by the
Optionee having a Fair Market Value equal to such Option Price or in a
combination of cash and Common Shares
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or, unless the Committee shall determine otherwise, by a cashless exercise
procedure through a broker-dealer.
(e) EXERCISE SCHEDULE AND PERIOD OF OPTIONS. Each Option
Agreement shall provide the exercise schedule for the Option as determined by
the Committee; PROVIDED, HOWEVER, that, the Committee shall have the authority
to accelerate the exercisability of any outstanding Option at such time and
under such circumstances as it, in its sole discretion, deems appropriate. The
exercise period shall be ten (10) years from the date of the grant of the Option
unless otherwise determined by the Committee; PROVIDED, HOWEVER, that, in the
case of an Incentive Stock Option, such exercise period shall not exceed ten
(10) years from the date of grant of such Option. The exercise period shall be
subject to earlier termination as provided in Sections 6(f) and 6(g) hereof. An
Option may be exercised, as to any or all full Common Shares as to which the
Option has become exercisable, by written notice delivered in person or by mail
to the Secretary of the Company, specifying the number of shares of Common
Shares with respect to which the Option is being exercised. Notwithstanding any
other provision of this Plan, no Option granted hereunder may be exercised prior
to the consummation of an underwritten public offering of the Company's
securities where the gross proceeds from such offering are in excess of $5
million.
(f) TERMINATION. Except as provided in this Section 6(f) and
in Section 6(g) hereof, an Option may not be exercised unless (i) with respect
to an Optionee who is an employee of the Company, the Optionee is then in the
employ of the Company or a Subsidiary (or a company or a Parent or Subsidiary
company of such company issuing or assuming the Option in a transaction to which
Section 424(a) of the Code applies), and unless the Optionee has remained
continuously so employed since the date of grant of the Option and (ii) with
respect to an Optionee who is a Non-employee Director, the Optionee is then
serving as a member of the Board or as a member of a board of directors of a
company or a Parent or Subsidiary company of such company issuing or assuming
the Option. In the event that the employment of an Optionee shall terminate or
the service of an Optionee as a member of the Board shall cease (other than by
reason of death, Disability, Retirement or Cause), all Options of such Optionee
that are exercisable at the time of such termination may, unless earlier
terminated in accordance with their terms, be exercised within ninety (90) days
after the date of such termination or service (or such different period as the
Committee shall prescribe).
(g) DEATH, DISABILITY OR RETIREMENT OF OPTIONEE. If an
Optionee shall die while employed by the Company or a Subsidiary or serving as a
member of the Board, or within ninety (90) days after the date of termination of
such Optionee's employment or cessation of such Optionee's service (or within
such different period as the Committee may have provided pursuant to Section
6(f) hereof), or if the Optionee's employment shall terminate or service shall
cease by reason of Disability or Retirement, all Options theretofore granted to
such Optionee (to the extent otherwise exercisable) may, unless earlier
terminated in accordance with their terms, be exercised by the Optionee or by
his beneficiary, at any time within one year after the death, Disability or
Retirement of the Optionee (or such different period as the Committee shall
prescribe). In the event that an Option granted hereunder shall be exercised by
the legal representatives of a deceased or former Optionee, written notice of
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such exercise shall be accompanied by a certified copy of letters testamentary
or equivalent proof of the right of such legal representative to exercise such
Option. Unless otherwise determined by the Committee, Options not otherwise
exercisable on the date of termination of employment shall be forfeited as of
such date.
(h) OTHER PROVISIONS. The Option Agreements evidencing awards
under the Plan shall contain such other terms and conditions not inconsistent
with the Plan as the Committee may determine, including penalties for the
commission of competitive acts and a provision providing that no option may be
exercised prior to the consummation of an underwritten initial public offering
of the Company's securities pursuant to a registration statement filed pursuant
to the Securities Act of 1933, as amended.
7. NON DISCRETIONARY GRANTS.
Each director of the Company, other than a director who is an officer,
employee or beneficial owner of 10% or more of the Company's Common Shares (or
an officer, director, employee or affiliate thereof), upon first taking office
shall be granted options for 7,000 Common Shares.
8. NONQUALIFIED STOCK OPTIONS.
Options granted pursuant to Section 7 hereof are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 6 hereof.
9. INCENTIVE STOCK OPTIONS.
Options granted pursuant to this Section 9 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms and
conditions, in addition to the general terms and conditions specified in Section
6 hereof. An Incentive Stock Option may not be granted to a Non-employee
Director or a consultant to the Company.
(a) VALUE OF SHARES. The aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the Common
Shares with respect to which Incentive Stock Options granted under this Plan and
all other option plans of any subsidiary become exercisable for the first time
by each Optionee during any calendar year shall not exceed $100,000.
(b) TEN PERCENT STOCKHOLDER. In the case of an Incentive Stock
Option granted to a Ten Percent Stockholder, (i) the Option Price shall not be
less than one hundred ten percent (110%) of the Fair Market Value of the Common
Shares on the date of grant of such Incentive Stock Option, and (ii) the
exercise period shall not exceed five (5) years from the date of grant of such
Incentive Stock Option.
10. EFFECT OF CERTAIN CHANGES.
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(a) In the event of any extraordinary dividend, stock
dividend, recapitalization, merger, consolidation, stock split, warrant or
rights issuance, or combination or exchange of such shares, or other similar
transactions, each of the number of Common Shares available for awards, the
number of such shares covered by outstanding awards, and the price per share of
Options, as appropriate, shall be equitably adjusted by the Committee to reflect
such event and preserve the value of such awards; provided, however, that any
fractional shares resulting from such adjustment shall be eliminated.
(b) Upon the occurrence of a Change in Control, each Option
granted under the Plan and then outstanding but not yet exercisable shall
thereupon become fully exercisable.
11. SURRENDER AND EXCHANGE OF AWARDS.
The Committee may permit the voluntary surrender of all or a portion of
any Option granted under the Plan or any option granted under any other plan,
program or arrangement of the Company or any Subsidiary ("Surrendered Option"),
to be conditioned upon the granting to the Optionee of a new Option for the same
number of Common Shares as the Surrendered Option, or may require such voluntary
surrender as a condition precedent to a grant of a new Option to such Optionee.
Subject to the provisions of the Plan, such new Option may be an Incentive Stock
Option or a Nonqualified Stock Option, and shall be exercisable at the price,
during such period and on such other terms and conditions as are specified by
the Committee at the time the new Option is granted.
12. PERIOD DURING WHICH AWARDS MAY BE GRANTED.
Awards may be granted pursuant to the Plan from time to time within a
period of ten (10) years from the date the Plan is adopted by the Board, or the
date the Plan is approved by the shareholders of the Company, whichever is
earlier, unless the Board shall terminate the Plan at an earlier date.
13. NONTRANSFERABILITY OF AWARDS.
Except as otherwise determined by the Committee, awards granted under
the Plan shall not be transferable otherwise than by will or by the laws of
descent and distribution, and awards may be exercised or otherwise realized,
during the lifetime of the Optionee, only by the Optionee or by his guardian or
legal representative.
14. APPROVAL OF SHAREHOLDERS.
The Plan shall take effect upon its adoption by the Board and shall
terminate on the tenth anniversary of such date, but the Plan (and any grants of
awards made prior to the shareholder approval mentioned herein) shall be subject
to the approval of Company's shareholders, which approval must occur within
twelve months of the date the Plan is adopted by the Board.
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15. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES.
If the Committee shall so require, as a condition of exercise of a
Nonqualified Stock Option (a "Tax Event"), each Optionee who is not a
Non-employee Director shall agree that no later than the date of the Tax Event,
such Optionee will pay to the Company or make arrangements satisfactory to the
Committee regarding payment of any federal, state or local taxes of any kind
required by law to be withheld upon the Tax Event. Alternatively, the Committee
may provide that such an Optionee may elect, to the extent permitted or required
by law, to have the Company deduct federal, state and local taxes of any kind
required by law to be withheld upon the Tax Event from any payment of any kind
due the Optionee. The withholding obligation may be satisfied by the withholding
or delivery of Common Shares. Any decision made by the Committee under this
Section 15 shall be made in its sole discretion.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; PROVIDED, HOWEVER, that, unless otherwise determined
by the Board, an amendment that requires stockholder approval in order for the
Plan to continue to comply with Rule 16b-3, Section 162(m) of the Code or any
other law, regulation or stock exchange requirement shall not be effective
unless approved by the requisite vote of shareholders. Except as provided in
Section 10 (a) hereof, no suspension, termination, modification or amendment of
the Plan may adversely affect any award previously granted, unless the written
consent of the Optionee is obtained.
17. RIGHTS AS A SHAREHOLDER.
An Optionee or a transferee of an award shall have no rights as a
shareholder with respect to any shares covered by the award until the date of
the issuance of a stock certificate to him for such shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distribution of other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 10(a) hereof.
18. NO RIGHTS TO EMPLOYMENT OR SERVICE AS A DIRECTOR.
Nothing in the Plan or in any award granted or Agreement entered into
pursuant hereto shall confer upon any Optionee the right to continue in the
employ of the Company or any Subsidiary or as a member of the Board or to be
entitled to any remuneration or benefits not set forth in the Plan or such
Agreement or to interfere with or limit in any way the right of the Company or
any such Subsidiary to terminate such Optionee's employment or service. Awards
granted under the Plan shall not be affected by any change in duties or position
of an employee Optionee as long as such Optionee continues to be employed by the
Company or any Subsidiary.
19. BENEFICIARY.
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An Optionee may file with the Committee a written designation of a
beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. If no designated beneficiary
survives the Optionee, the executor or administrator of the Optionee's estate
shall be deemed to be the Optionee's beneficiary.
20. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of New York.
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Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the __ day of
March, 1999, between DAG, Media, Inc, a New York corporation (the "Company"),
having its principal place of business at 125-10 Queens Boulevard, Kew Gardens,
New York, 11419, and Assaf Ran (the "Executive"), residing at 111-31 77th
Avenue, Forest Hills, New York 11375.
WITNESSETH:
WHEREAS, the Company believes that it would benefit from the
application of the Executive's particular and unique skill, experience and
background to the management and operation of the Company, and wishes to employ
the Executive as President and Chief Executive Officer ("CEO") of the Company;
and
WHEREAS, the parties desire by this Agreement to set forth the terms
and conditions of the employment relationship between the Company and the
Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants in this Agreement, the Company and the Executive agree as follows:
1. EMPLOYMENT AND DUTIES. The Company hereby employs the Executive as
President and CEO on the terms and conditions provided in this Agreement and
Executive agrees to accept such employment subject to the terms and conditions
of this Agreement. The Executive shall be the senior executive officer of the
Company, shall perform the duties and responsibilities as are customary for the
officer of a corporation in such positions, and shall perform such other duties
and responsibilities as are reasonably determined from time to time by the Board
of Directors of the Company (the "Board"). The Executive shall report to and be
supervised by the Board. The Executive shall be based at the Company's offices
in Kew Gardens, New York or such other place
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that shall constitute the Company's headquarters and, except for business travel
incident to his employment under this Agreement, the Company agrees the
Executive shall not be required to relocate.
2. TERM. The term of this Agreement shall be deemed to have commenced
on February 22, 1999 (the "Commencement Date"), and shall terminate on June 30,
2002, unless extended or earlier terminated in accordance with the terms of this
Agreement (the "Termination Date"). Such term of employment is herein sometimes
referred to as the "Employment Term". The Employment Term shall be extended for
successive one year periods unless either party notifies the other in writing at
least 180 days before the Termination Date or any anniversary of the Termination
Date, as the case may be, that he or it chooses not to extend the Employment
Term.
3. COMPENSATION. As compensation for performing the services required
by this Agreement, and during the term of this Agreement, the Executive shall be
compensated as follows:
(a) BASE COMPENSATION. The Company shall pay to the Executive an
annual salary ("Base Compensation") of $75,000, payable in equal installments
pursuant to the Company's customary payroll procedures in effect for its
executive personnel at the time of payment, but in no event less frequently
than monthly, subject to withholding for applicable federal, state, and local
taxes. The Executive may be entitled to such increases in Base Compensation
with respect to each calendar year during the term of this Agreement, as
shall be determined by the Board, in its sole and absolute discretion, based
on periodic reviews of the Executive's performance .
(b) INCENTIVE COMPENSATION. In addition to Base Compensation,
the Executive may be entitled to receive such additional compensation
("Incentive Compensation") as shall be determined by the Board in its sole
discretion. For purposes of this Agreement, the Executive's "Pro Rata Share"
of Incentive Compensation for any calendar of the Company shall be a fraction
whose
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numerator shall be equal to the number of months (or parts of months) during
which the Executive was actually employed by the Company during any such
calendar year and whose denominator shall be the total number of months in such
calendar year.
4. EMPLOYEE BENEFITS. During the Employment Term and subject to the
limitations set forth in this Section 4, the Executive and his eligible
dependents shall have the right to participate in any retirement plans
(qualified and non-qualified), pension, insurance, health, disability or other
benefit plan or program that has been or is hereafter adopted by the Company (or
in which the Company participates), according to the terms of such plan or
program, on terms no less favorable than the most favorable terms granted to
senior executives of the Company.
5. VACATION AND LEAVES OF ABSENCE. The Executive shall be entitled to
the normal and customary amount of paid vacation provided to senior executive
officers of the Company, but in no event less than 25 days during each 12 month
period, beginning on the Effective Date of this Agreement. Any vacation days
that are not taken in a given 12 month period shall not accrue or carry-over
from year to year. Upon any termination of this Agreement for any reason
whatsoever, accrued and unused vacation for the year in which this Agreement
terminates will be paid to the Executive within 10 days of such termination
based on his annual rate of Base Compensation in effect on the date of such
termination. In addition, the Executive may be granted leaves of absence with or
without pay for such valid and legitimate reasons as the Board in its sole and
absolute discretion may determine, and is entitled to the same sick leave and
holidays provided to other senior Executive Officers of the Company.
3
<PAGE>
6. EXPENSES.
(a) BUSINESS EXPENSES. The Executive shall be promptly reimbursed
against presentation of vouchers or receipts for all reasonable and necessary
expenses incurred by him in connection with the performance of
business-related duties.
(b) AUTOMOBILE EXPENSE. During the Employment Term, in order to
facilitate the performance of the Executive's duties hereunder, and otherwise
for the convenience of the Company, the Company shall provide the Executive
with an automobile, or shall reimburse the Executive for the cost of leasing
an automobile (provided that the lease payments with respect to such
automobile shall not exceed $1,500 per month) and shall pay or reimburse
Executive (upon presentation of vouchers or receipts) for the reasonable cost
of all maintenance, insurance, repairs, gas and other expenses related to
such automobile.
7. INDEMNIFICATION. The Company shall (and is hereby obligated to)
indemnify (including advance payment of expenses, which such expenses shall
include, without limitation, attorneys' fees) the Executive for all actions
taken by Executive as an officer of the Company or the failure of Executive
to take any action in each and every situation where the Company is obligated
to make such indemnification pursuant to applicable law and the relevant
portions of the Company's Certificate of Incorporation and By-laws.
8. TERMINATION AND TERMINATION BENEFITS.
(a) TERMINATION BY THE COMPANY.
(i) FOR CAUSE. Notwithstanding any provision contained
herein, the Company may terminate this Agreement at any time during the
Employment Term for "cause". For purposes of this subsection 8(a)(i), "cause"
shall mean (1) the continuing willful failure by the Executive to
substantially perform his duties hereunder for any reason other than total or
partial
4
<PAGE>
incapacity due to physical or mental illness, (2) gross negligence or gross
malfeasance on the part of the Executive in the performance of his duties
hereunder that causes material harm to the Company, and (3) the conviction of
the Executive, by a court of competent jurisdiction, of a felony or other
serious crime involving moral turpitude. Termination pursuant to this subsection
8(a)(i) shall be effective immediately upon giving the Executive written notice
thereof stating the reason or reasons therefor with respect to clauses (2) and
(3) above, and 15 days after written notice thereof from the Company to the
Executive specifying the acts or omissions constituting the failure and
requesting that they be remedied with respect to clause (1) above, but only if
the Executive has not cured such failure within such 15 day period. In the event
of a termination pursuant to this subsection 8(a)(i), the Executive shall be
entitled to payment of his Base Compensation and the benefits pursuant to
Section 4 hereof up to the effective date of such termination and it is also the
intention and agreement of the Company that Executive shall not be deprived by
reason of termination for cause of any payments, options or benefits which have
been vested or have been earned or to which Executive is entitled as of the
effective date of such termination.
(ii) DISABILITY. If due to illness, physical or mental
disability, or other incapacity, the Executive shall fail, for a total of any
six consecutive months ("Disability"), to substantially perform the principal
duties required by this Agreement, the Company may terminate this Agreement
upon 30 days' written notice to the Executive. In such event, the Executive
shall be (1) paid his Base Compensation until the Termination Date and his
Pro Rata Share of any Incentive Compensation to which he would have been
entitled for the year in which such termination occurs, and (2) provided with
employee benefits pursuant to Section 4, to the extent available, for the
remainder of the Employment Term; PROVIDED, HOWEVER, that any compensation to
be paid to the Executive pursuant to this subsection 8(a)(ii) shall be offset
against any payments received by the
5
<PAGE>
Executive pursuant to any policy of disability insurance the premiums of which
are paid for by the Company.
(b) TERMINATION BY THE EXECUTIVE. The Executive may terminate
this Agreement at any time during the Employment Term for "good reason" upon
60 days' written notice to the Company (during which period the Executive
shall, if requested in writing by the Company, continue to perform his duties
as specified under this Agreement). "Good reason" shall mean: (1) if the
Executive's employment is terminated by the Company without "cause" (as such
term is defined in subsection 8(a)(i) above); (2) the Company's failure to
make any of the payments or provide any of the benefits to the Executive
under this Agreement; (3) the Company's material breach of any provision of
this Agreement; (4) a material reduction in the Executive's responsibilities
(provided, however, "good reason" shall not include a reduction in
Executive's responsibilities if such reduction is a result of Executive's
failure to perform his duties in a manner reasonably satisfactory to the
Company); or (5) a material reduction in the Executive's Base Compensation
(other than a pro rata reduction in Base Compensation applicable to all
senior executives of the Company); provided, however, that the Company has
not cured, or commenced to cure, such failure or breach within the
aforementioned 60 day period.
(c) TERMINATION COMPENSATION. In the event of a termination of
this Agreement by the Executive for "good reason" pursuant to subsection 8(b)
above, the Executive shall be paid (1) his Base Compensation up to the
effective date of such termination; (2) his full share of any Incentive
Compensation payable to him for the year in which the termination occurs; and
(3) a lump sum payment (hereinafter "Termination Compensation") to the
Executive equal to 100% of the average cash compensation (including Base
Compensation and Incentive Compensation) paid to, or accrued for, the
Executive in the two calendar years immediately preceding the calendar year
in
6
<PAGE>
which the termination occurs. Payment of Termination Compensation to the
Executive shall occur no later than 14 days following the effective date of
the Executive's termination. For purposes of this subsection 8(c), the date
of termination of the Executive's employment shall be date on which the
Executive ceases to perform services for the Company.
(d) STOCK OPTIONS AND OTHER BENEFITS. In the event that the
Executive is terminated for reasons other than for "cause" or in the event
the Executive terminates this Agreement for "good reason", any stock options
then held by the Executive and/or any other benefits subject to specified
vesting criteria, shall immediately vest in the Executive; provided, however,
all stock options then held by the Executive and/or any other benefits
subject to specified vesting criteria shall expire and/or terminate 90 days
after the date this Agreement is terminated pursuant to subsections 8(a)(i)
or 8(b). The Company agrees to take such steps and to execute such documents
as shall be necessary to effectuate the foregoing.
(e) DEATH BENEFIT. Notwithstanding any other provision of this
Agreement, this Agreement shall terminate on the date of the Executive's
death. In such event the Company shall continue to pay Executive's Base
Salary to his wife, if she survives him, or, if she does not survive him, in
equal shares to his children who survive him, through the end of the third
month following the month in which such death occurs. In addition, the
Company shall pay to Executive's wife, if she survives him, or, if she does
not survive him, in equal shares to his children who survive him, the Pro
Rata Share of any Incentive Compensation which Executive would have been
entitled to for the year in which such death occurs.
(f) NO MITIGATION. The Executive shall not be required to
mitigate the amount of any payments provided for by this Agreement by seeking
employment or otherwise, nor shall the
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<PAGE>
amount of any payment or benefit provided in this Agreement be reduced by any
compensation or benefit earned by the Executive after termination of his
employment.
9. COMPANY PROPERTY. All advertising, promotional, sales, suppliers,
manufacturers and other materials or articles or information, including without
limitation data processing reports, customer lists, customer sales analyses,
invoices, product lists, price lists or information, samples, or any other
materials or data of any kind furnished to the Executive by the Company or
developed by the Executive on behalf of the Company or at the Company's
direction or for the Company's use or otherwise in connection with the
Executive's employment hereunder, are and shall remain the sole and confidential
property of the Company; if the Company requests the return of such materials at
any time during or at or after the termination of the Executive's employment,
the Executive shall immediately deliver the same to the Company.
10. COVENANT NOT TO COMPETE.
(a) NO SOLICITATION OR COMPETITION. Except as otherwise provided
herein, during the term of this Agreement and for a period of one year after
termination of the Executive's employment with the Company for any reason,
the Executive shall not, directly or indirectly, solicit, induce, encourage
or attempt to influence any client, customer, employee, consultant,
independent contractor, salesman or supplier of the Company to cease to do
business or terminate his employment with the Company, and shall not engage
in (as a principal, partner, director, officer, agent, employee, consultant
or otherwise) or be financially interested in any business competing with the
Company anywhere in the United States where it is doing business. The first
sentence of this Section 10(a) shall not apply if the Executive's employment
is terminated by the Company without "cause" (as defined in Section 8(a)(i))
or the Executive terminates his employment for "good reason" (as defined in
Section 8(b)). Nothing contained in this Section 10 shall prevent the
8
<PAGE>
Executive from holding for investment not more than five percent (5%) of any
class of equity securities of a company whose securities are publicly traded or
from engaging in any activities that are not in competition with the business
activities of the Company.
(b) CONFIDENTIALITY OF COMPANY PROPERTY. During the
effectiveness of this Agreement and at all times thereafter, the Executive
shall not use for his personal benefit, or disclose, communicate or divulge
to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
Section 9 above unless such material has become otherwise publicly available.
(c) SAVING CLAUSE. If the period of time or the area specified
in subsection (a) above should be adjudged unreasonable in any proceeding,
then the period of time shall be reduced by such number of months or the area
shall be reduced by the elimination of such portion thereof or both so that
such restrictions may be enforced in such area and for such time as is
adjudged to be reasonable. If the Executive violates any of the restrictions
contained in the foregoing subsection (a), the restrictive period shall not
run in favor of the Executive from the time of the commencement of any such
violation until such time as such violation shall be cured by the Executive
to the satisfaction of Company.
11. EXECUTIVE'S REPRESENTATION AND WARRANTIES. Executive represents and
warrants that he has the full right and authority to enter into this Agreement
and fully perform his obligations hereunder, that he is not subject to any
non-competition agreement other than with the Company, and that his past,
present and anticipated future activities have not and will not infringe on the
proprietary rights of others. Executive further represents and warrants that he
is not obligated under any contract (including, but not limited to, licenses,
covenants or commitments of any nature) or other agreement or subject to any
judgment, decree or order of any court or administrative agency
9
<PAGE>
which would conflict with his obligation to use his best efforts to perform his
duties hereunder or which would conflict with the Company's business and
operations as presently conducted or proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business as officer and employee by Executive will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument to which Executive is currently a party.
12. MISCELLANEOUS.
(a) INTEGRATION; AMENDMENT. This Agreement constitutes the
entire agreement between the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties.
(b) SEVERABILITY. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be
invalid and shall be given full force and effect so far as possible.
(c) WAIVERS. The failure or delay of any party at any time to
require performance by the other party of any provision of this Agreement,
even if known, shall not affect the right of such party to require
performance of that provision or to exercise any right, power, or remedy
hereunder, and any waiver by any party of any breach of any provision of this
Agreement shall not be construed as a waiver of any continuing or succeeding
breach of such provision, a waiver of the provision itself, or a waiver of
any right, power, or remedy under this Agreement. No notice to or
10
<PAGE>
demand on any party in any case shall, of itself, entitle such party to other or
further notice or demand in similar or other circumstances.
(d) POWER AND AUTHORITY. The Company represents and warrants to
the Executive that it has the requisite corporate power to enter into this
Agreement and perform the terms hereof; that the execution, delivery and
performance of this Agreement by it has been duly authorized by all
appropriate corporate action; and that this Agreement represents the valid
and legally binding obligation of the Company and is enforceable against it
in accordance with its terms.
(e) BURDEN AND BENEFIT; SURVIVAL. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, personal and legal representatives, successors
and assigns. In addition to, and not in limitation of anything contained in
this Agreement, it is expressly understood and agreed that the Company's
obligation to pay Termination Compensation as set forth herein shall survive
any termination of this Agreement.
(f) GOVERNING LAW; HEADINGS. This Agreement and its
construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the State of New Jersey. Headings
and titles herein are included solely for convenience and shall not affect,
or be used in connection with, the interpretation of this Agreement.
(g) NOTICES. All notices called for under this Agreement shall
be in writing and shall be deemed given upon receipt if delivered personally
or by confirmed facsimile transmission and followed promptly by mail, or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at their respective addresses (or at such other
address for a party as shall be specified by like notice; provided that
notices of a change of address shall be effective only upon receipt thereof)
as set forth in the preamble to this Agreement or to any other address or
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<PAGE>
addressee as any party entitled to receive notice under this Agreement shall
designate, from time to time, to others in the manner provided in this
subsection 11(g) for the service of Notices.
Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the day it was
received; PROVIDED, HOWEVER, that if such day is not a business day then the
notice shall be deemed to have been given and received on the business day next
following such day. Any notice sent by facsimile transmission shall be deemed to
have been given and received on the business day next following the day of
transmission.
(h) NUMBER OF DAYS. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; PROVIDED, HOWEVER, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
THIS AGREEEMENT CONTAINS VERY IMPORTANT TERMS GOVERNING YOUR EMPLOYMENT. IN
PARTICULAR, PARAGRAPH 10 AFFECTS YOUR ABILITY TO TAKE CERTAIN ACTIONS FOLLOWING
THE TERMINATION OF THIS AGREEMENT. YOU SHOULD SEEK ADVICE FROM YOUR ATTORNEY
REGARDING ANY MATTER RELATING TO THIS AGREEMENT. BY EXECUTING THIS AGREEMENT,
YOU ARE AFFIRMING THAT YOU HAVE HAD THE OPPORTUNITY TO REVIEW THIS AGREEMENT AND
TO CONSULT WITH YOUR ATTORNEY IF YOU SO DESIRED, THAT YOU UNDERSTAND THE MEANING
AND SIGNIFICANCE OF ALL OF ITS PROVISIONS, THAT NO REPRESENTATIONS OR PROMISES
HAVE BEEN MADE TO YOU REGARDING YOUR EMPLOYMENT WHICH ARE NOT SET FORTH IN THIS
12
<PAGE>
AGREEMENT, AND THAT YOU ARE FREELY SIGNING THIS AGREEMENT TO OBTAIN EMPLOYMENT
WITH THE COMPANY.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
------------------------------------
ASSAF RAN
DAG MEDIA, INC.,
A NEW YORK CORPORATION
by:
--------------------------------
Hanan Goldenthal, Secretary
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Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the __ day of
March, 1999, between DAG, Media, Inc, a New York corporation (the "Company"),
having its principal place of business at 125-10 Queens Boulevard, Kew Gardens,
New York, 11419, and Dvir Langer (the "Executive"), residing at 66 Overlook
Terrace, Apt. 3A, New York, NY 10040.
WITNESSETH:
WHEREAS, the Company believes that it would benefit from the
application of the Executive's particular and unique skill, experience and
background to the management and operation of the Company, and wishes to employ
the Executive as Vice President-Sales and Corporate Development; and
WHEREAS, the parties desire by this Agreement to set forth the terms
and conditions of the employment relationship between the Company and the
Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants in this Agreement, the Company and the Executive agree as follows:
1. EMPLOYMENT AND DUTIES. The Company hereby employs the Executive as
Vice President-Sales and Corporate Development on the terms and conditions
provided in this Agreement and Executive agrees to accept such employment
subject to the terms and conditions of this Agreement. Executive agrees that (i)
on or before the Commencement Date (as defined in Section 2 below) he will
terminate all of his existing employment relationships which he may have and
(ii) he will not accept or enter into any other employment relationships during
the Employment Term (as defined in Section 2). Executive shall use his best
efforts to promote the Company's
<PAGE>
directories, to increase the volume of the Company's advertising sales and,
generally, advance the interests of the Company. Until such time as Executive is
promoted to sales manager, Executive shall be employed as a salesperson working
out of the Company's offices in Kew Gardens, New York and shall be supervised by
the sales manager of that office. Executive shall be required to participate in
such training programs and to perform the duties and responsibilities required
of the Company's sales staff. Executive shall be required to work from Monday
through and including Friday, from 9:00 a.m. until 7:00 p.m.; provided, however,
in the event Executive shall be required to keep appointments made after 7:00
p.m. In the sole discretion of the President of the Company, Executive may be
promoted to Sales Manager in which case Executive shall be based in such office
as shall be determined by the Company's President. As Sales Manager, executive
shall be required to hire, train and supervise a sales force in accordance with
the Company's policies and procedures and to perform the duties and
responsibilities required of the Company's sales staff. Executive shall be
required to work from Monday through and including Friday, from 9:00 a.m. until
8:00 p.m.; provided, however, in the event Executive shall be required to keep
appointments made for him after 8:00 p.m. In addition, Executive shall be
required to work on Sundays at the Company's offices in Kew Gardens, New York.
2. TERM. The term of this Agreement shall commence on the closing date
of the Company's initial public offering (the "Commencement Date"), and shall
terminate on the first anniversary thereof (the "Termination Date"), unless
extended or earlier terminated in accordance with the terms of this Agreement.
Such term of employment is herein sometimes referred to as the "Employment
Term". The Employment Term shall be extended for successive one year periods
unless either party notifies the other in writing at least 14 days before the
Termination
2
<PAGE>
Date or any anniversary of the Termination Date, as the case may be, that he or
it chooses to terminate this Agreement.
3. COMPENSATION. As compensation for performing the services required
by this Agreement, and during the term of this Agreement, the Executive shall be
compensated as follows:
(a) COMMISSION. Until such time as Executive is promoted to
Sales Manager, the Company shall pay Executive a commission equal to 12% of the
Total Weekly Sales (as defined below) generated by Executive from sales of ads
for the Company's directories. At such time as Executive is promoted to Sales
Manager, the Company shall pay Executive commissions based on the Total Weekly
Sales of the sales staff supervised by Executive in accordance with the
following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------- -----------------------------------------------------
TOTAL WEEKLY SALES COMMISSION
- ---------------------------------------------------------------- -----------------------------------------------------
<S> <C>
$100,000 or less 4% of Total Weekly Sales
- ---------------------------------------------------------------- -----------------------------------------------------
More than $100,000 but not more than $200,000 5% of Total Weekly Sales
- ---------------------------------------------------------------- -----------------------------------------------------
More than $200,000 6% of Total Weekly Sales
- ---------------------------------------------------------------- -----------------------------------------------------
</TABLE>
Total Weekly Sales means the total sum of all collected checks and post-dated
checks received during the Current Week (as defined below) plus the amount
charged during the Current Week by any customer's chargeable credit cards which
were approved by the Company less the sum of any bounced checks from previous
weeks. Current week shall mean a week that begins on Sunday and ends on
Saturday.
(b) MINIMUM SALARY. Notwithstanding anything contained herein
to the contrary, in no event shall the commissions payable to Executive during
the Employment Term be less than $5,000.00 per month before deductions for
income and employment taxes.
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<PAGE>
(c) TAXES AND WITHHOLDING. All amounts payable to Executive
pursuant to this Section 3 shall be payable pursuant to the Company's customary
payroll procedures in effect for its personnel at the time of payment, but in no
event less frequently than monthly, subject to withholding for applicable
federal, state, and local taxes.
4. EMPLOYEE BENEFITS. During the Employment Term and subject to the
limitations set forth in this Section 4, Executive and his eligible dependents
shall have the right to participate in any health and major medical insurance
plan or program maintained by the Company in accordance with the terms of such
plan or program and on terms that are no less favorable than the terms granted
to other employees of the Company.
5. VACATION AND LEAVES OF ABSENCE. Executive shall be entitled to
vacation on such terms and conditions as are applicable to other employees of
the Company in comparable positions.
6. EXPENSES.
(a) BUSINESS EXPENSES. Executive shall be promptly reimbursed
against presentation of vouchers or receipts for all reasonable and necessary
expenses incurred by him in connection with the performance of business-related
duties.
(b) AUTOMOBILE EXPENSE. During the Employment Term, in order
to facilitate the performance of Executive's duties hereunder, and otherwise for
the convenience of the Company, the Company shall provide the Executive with an
automobile, or shall reimburse the Executive for the cost of leasing an
automobile (provided that the lease payments with respect to such automobile
shall not exceed $300 per month).
4
<PAGE>
(c) MOBILE PHONE. In order to facilitate the performance of
the Executive's duties hereunder, and otherwise for the convenience of the
Company, the Company shall provide the Executive with a mobile phone.
7. TERMINATION AND TERMINATION BENEFITS. The Company may terminate this
Agreement at any time upon 14 days prior written notice to Executive. In the
event of a termination pursuant to this subsection 7, Executive shall be
entitled to payment of his Commissions pursuant to Section 4 hereof up to the
effective date of such termination and health and major medical insurance
coverage for Executive and his dependents for up to six months following the
effective date of such termination.
8. COMPANY PROPERTY. Upon termination of this Agreement, Executive
shall immediately deliver to the Company all of the Company's property then in
the possession of Executive including, but not limited to, automobiles,
computers, telephones, all advertising, promotional, sales, suppliers,
manufacturers and other materials or articles or information, including without
limitation data processing reports, customer lists, customer sales analyses,
invoices, product lists, price lists or information, samples, or any other
materials or data of any kind furnished to Executive by the Company or developed
by Executive on behalf of the Company or at the Company's direction or for the
Company's use.
9. COVENANT NOT TO COMPETE.
(a) CONFIDENTIALITY AND NONCOMPETITION.
(i) Executive understands that the Company has made a
substantial investment in developing its know-how, customers, distribution
points, sales methods and any other knowledge related to the business of the
Company, as well as training Executive for his
5
<PAGE>
position. It is therefore proper for the Company to be protected against the
disclosure of its confidential matters and against unfair competition.
(ii) Executive agrees that during the term of his
employment and for a period of twenty-four (24) months immediately following
termination, he will not:
(A) Make known to any firm, person, or
corporation, the names or addresses of any of the Company's customers, the
Company's financial information, distribution points or any other information
which is pertaining to any of them.
(B) Call on, solicit or take away or attempt
to call on, solicit or take away any of the customers of the Company.
(C) Call on, solicit or take away or attempt
to call on, solicit or take away any customer who's address or place of business
is in a radius of 50 miles from any of the Company's offices.
(iii) Executive agrees that upon employment's
termination for any reason, for a period of twenty four (24) months immediately
afterwards, he will not become employed by, directly or indirectly, whether as
an employee, or as independent contractor, nor associated with nor own any part
of any firm, person or corporation which:
(A) Sells or services any directory,
newspaper or magazine; or
(B) Is competitive with the Company; or
(C) Which distributes or markets products or
services which are similar to the products or services of the Company or to
which Executive sold during the term of his employment with the Company.
6
<PAGE>
(b) EXECUTIVE'S ACKNOWLEDGMENTS. Executive hereby acknowledges
that:
(i) He is fully familiar with the restrictions,
restraints and limitations imposed upon him in Section 9(a) of this Agreement
(hereinafter the "Restraints").
(ii) The Company would not continue to employ the
employee without the imposition of the Restraints and Executive agreement to
abide by such Restraints.
(iii) The imposition upon Executive of the Restraints
is necessary for the reasonable and adequate protection of the business of the
Company.
(iv) Each and every Restraint is reasonable with
respect to its subject matter, geographic area, and length of time.
(v) The monetary damages alone will not adequately
compensate the Company in the event of a breach by him of the Restraints,
therefor, in addition to all remedies available to the Company at law or in
equity, the Company shall be entitled to interim restraints and permanent
injunctive relief for the enforcement thereof, and to an accounting and payment
of all receipts realized by Executive as a result of such breach.
(vi) In the event that Executive shall be in
violation of any Restraints, then the time limitation thereof shall be extended
for a period of time equal to the period of time during which such breach or
breaches occurred.
(vii) In the event the Company shall be required to
seek relief in any court or other tribunal, then the Restraints shall be
extended for a period of time equal to the pendency of such proceedings,
including appeals, and excluding any periods during which the court or other
tribunal has ordered Executive to honor the Restraints and Executive has
complied with such order.
7
<PAGE>
(c) CONFIDENTIALITY OF COMPANY PROPERTY. During the
effectiveness of this Agreement and at all times thereafter, Executive shall not
use for his personal benefit, or disclose, communicate or divulge to, or use for
the direct or indirect benefit of any person, firm, association or company other
than the Company, any material referred to in Section 9 above unless such
material has become otherwise publicly available.
(d) SAVING CLAUSE. If the period of time or the area specified
in subsection (a) above should be adjudged unreasonable in any proceeding, then
the period of time shall be reduced by such number of months or the area shall
be reduced by the elimination of such portion thereof or both so that such
restrictions may be enforced in such area and for such time as is adjudged to be
reasonable. If Executive violates any of the restrictions contained in the
foregoing subsection (a), the restrictive period shall not run in favor of
Executive from the time of the commencement of any such violation until such
time as such violation shall be cured by Executive to the satisfaction of
Company.
10. EXECUTIVE'S REPRESENTATION AND WARRANTIES. Executive represents and
warrants that he has the full right and authority to enter into this Agreement
and fully perform his obligations hereunder, that he is not subject to any
non-competition agreement other than with the Company, and that his past,
present and anticipated future activities have not and will not infringe on the
proprietary rights of others. Executive further represents and warrants that he
is not obligated under any contract (including, but not limited to, licenses,
covenants or commitments of any nature) or other agreement or subject to any
judgment, decree or order of any court or administrative agency which would
conflict with his obligation to use his best efforts to perform his duties
hereunder or which would conflict with the Company's business and operations as
presently conducted or proposed to be conducted. Neither the execution nor
delivery of this
8
<PAGE>
Agreement, nor the carrying on of the Company's business as officer and
employee by Executive will conflict with or result in a breach of the
terms, conditions or provisions of or constitute a default under any contract,
covenant or instrument to which Executive is currently a party.
11. MISCELLANEOUS.
(a) INTEGRATION; AMENDMENT. This Agreement constitutes the
entire agreement between the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.
(b) SEVERABILITY. If any part of this Agreement is contrary
to, prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be invalid
and shall be given full force and effect so far as possible.
(c) WAIVERS. The failure or delay of any party at any time to
require performance by the other party of any provision of this Agreement, even
if known, shall not affect the right of such party to require performance of
that provision or to exercise any right, power, or remedy hereunder, and any
waiver by any party of any breach of any provision of this Agreement shall not
be construed as a waiver of any continuing or succeeding breach of such
provision, a waiver of the provision itself, or a waiver of any right, power, or
remedy under this Agreement. No notice to or demand on any party in any case
shall, of itself, entitle such party to other or further notice or demand in
similar or other circumstances.
(d) POWER AND AUTHORITY. The Company represents and warrants
to the Executive that it has the requisite corporate power to enter into this
Agreement and perform the
9
<PAGE>
terms hereof; that the execution, delivery and performance of this Agreement by
it has been duly authorized by all appropriate corporate action; and that this
Agreement represents the valid and legally binding obligation of the Company and
is enforceable against it in accordance with its terms.
(e) BURDEN AND BENEFIT; SURVIVAL. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, personal and legal representatives, successors and assigns. In
addition to, and not in limitation of anything contained in this Agreement, it
is expressly understood and agreed that the Company's obligation to pay
Termination Compensation as set forth herein shall survive any termination of
this Agreement.
(f) GOVERNING LAW; HEADINGS. This Agreement and its
construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the State of New Jersey. Headings and
titles herein are included solely for convenience and shall not affect, or be
used in connection with, the interpretation of this Agreement.
(g) NOTICES. All notices called for under this Agreement shall
be in writing and shall be deemed given upon receipt if delivered personally or
by confirmed facsimile transmission and followed promptly by mail, or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at their respective addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof) as set forth in the preamble to
this Agreement or to any other address or addressee as any party entitled to
receive notice under this Agreement shall designate, from time to time, to
others in the manner provided in this subsection 10(g) for the service of
Notices.
Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the day it was
received; PROVIDED, HOWEVER, that if such day
10
<PAGE>
is not a business day then the notice shall be deemed to have been given and
received on the business day next following such day. Any notice sent by
facsimile transmission shall be deemed to have been given and received on the
business day next following the day of transmission.
(h) NUMBER OF DAYS. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; PROVIDED, HOWEVER, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
THIS AGREEMENT CONTAINS VERY IMPORTANT TERMS GOVERNING YOUR EMPLOYMENT. IN
PARTICULAR, PARAGRAPH 9 AFFECTS YOUR ABILITY TO TAKE CERTAIN ACTIONS FOLLOWING
THE TERMINATION OF THIS AGREEMENT. YOU SHOULD SEEK ADVICE FROM YOUR ATTORNEY
REGARDING ANY MATTER RELATING TO THIS AGREEMENT. BY EXECUTING THIS AGREEMENT,
YOU ARE AFFIRMING THAT YOU HAVE HAD THE OPPORTUNITY TO REVIEW THIS AGREEMENT AND
TO CONSULT WITH YOUR ATTORNEY IF YOU SO DESIRED, THAT YOU UNDERSTAND THE MEANING
AND SIGNIFICANCE OF ALL OF ITS PROVISIONS, THAT NO REPRESENTATIONS OR PROMISES
HAVE BEEN MADE TO YOU REGARDING YOUR EMPLOYMENT WHICH ARE NOT SET FORTH IN THIS
AGREEMENT, AND THAT YOU ARE FREELY SIGNING THIS AGREEMENT TO OBTAIN EMPLOYMENT
WITH THE COMPANY.
11
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
------------------------------------
DVIR LANGER
DAG MEDIA, INC.,
A NEW YORK CORPORATION
by:
--------------------------------
Assaf Ran, President
12
<PAGE>
Exhibit 10.6
PROMISSORY NOTE
THIS NOTE IS NON-NEGOTIABLE
$295,262.00 Queens, New York
March 1, 1999
ASSAF RAN ("Ran"), residing at 111-31 77th Avenue, Forest Hills, new York
11375, FOR VALUE RECEIVED, hereby promises to pay to DAG MEDIA INC., a New York
corporation ("Noteholder"), at the offices of the Noteholder at 599 125-10
Queens Boulevard, Kew Gardens, New York 11415 (or such other address as is
designated in writing by the Noteholder) on March 1, 2004 (or such sooner time
as provided below) the principal amount of Two Hundred Ninety Five Thousand Two
Hundred Sixty Two and 00/100 ($295,262.00) Dollars, together with all accrued
but unpaid interest thereon, in lawful money of the United States of America.
The unpaid principal balance of this Promissory Note shall bear interest at
the rate of 4.74% per annum, compounded quarterly, until paid in full. Interest
and principal on this Note shall be payable as follows:
(i) $7,039.17 on July 1, 1999 (representing interest only from January 1,
1999 through June 30, 1999);
(ii) $3,498.85 on each of October 1, 1999, January 1, 2000, April 1, 2000,
July 1, 2000, October 1, 2000 and January 1, 2001 (representing
interest only); and
(iii) $34,781.22 on each of April 1, July 1 and October 1, 2001, January 1,
April 1, July 1 and October 1, 2002, January 1, April 1, July 1 and
October 1, 2003 and January 1, 2004 (each payment representing
interest and principal).
All payments shall be made at the offices of the Noteholder as set forth
above by check or money order payable directly to Noteholder. In the event of an
Event of Default (as defined below) the rate of interest from and after the date
of such Event of Default shall be 10% per annum until such Event of Default
shall no longer be continuing.
If this Promissory Note, or any payment hereunder, falls due on a Saturday,
Sunday or a State of New Jersey public holiday, this Promissory Note shall fall
due or such payment shall be made on the next succeeding business day.
This Promissory Note may be prepaid in whole or in part at any time.
Ran waives presentment for payment, demand, notice of nonpayment, notice of
protest and protest of this Promissory Note, and all of the notices not
expressly provided for herein in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Promissory Note.
<PAGE>
This Promissory Note is not subject to setoff.
Upon the occurrence of any of the following specified Events of Default
(each an "Event of Default"):
1. The failure to make any payment of interest or principal on the due
date therefor or within five (5) business days of receipt of written
notice of such nonpayment;
2. Ran, pursuant to or within the meaning of Title 11, U.S. Code or any
similar federal or state law for the relief of debtors (a "Bankruptcy
Law"):
A. commences a voluntary case or proceeding;
B. consents to the entry of an order for relief against it in an
involuntary case proceeding;
C. consents to the appointment of a custodian, receiver or other
similar official for it or for all or substantially all of its
property; or
D. makes a general assignment for the benefit of its creditors;
THEN, AND IN ANY SUCH EVENT, AND AT ANY TIME THEREAFTER IF ANY EVENT OF
DEFAULT SHALL THEN BE CONTINUING, THE NOTEHOLDER BY WRITTEN NOTICE TO RAN MAY
DECLARE THE ENTIRE PRINCIPAL BALANCE OF THIS NOTE AND ALL ACCRUED BUT UNPAID
INTEREST THEREON TO BE DUE, WHEREUPON THE SAME SHALL FORTHWITH BECOME DUE AND
PAYABLE. If an Event of Default occurs, Ran shall pay all of the Noteholder's
costs and expenses relating to the enforcement of this Promissory Note,
including, but not limited to, reasonable attorneys' fees.
In the event that Ran's employment by DAG Media, Inc. is terminated,
voluntarily or involuntarily and with or without cause, the entire unpaid
principal amount of this Note may be declared due and payable by the
Noteholder upon one-hundred eighty (180) days notice to Ran.
All notices provided for herein shall be deemed given if sent by certified
mail, return receipt requested, to the address of the party set forth above, or
to such other address as designated in writing to the other party.
--------------------
Assaf Ran
2
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 10, 1999 included in this registration statement Form SB-2 and to
all references to our firm included in this registration statement.
ARTHUR ANDERSEN LLP
New York, New York
March 10, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001080340
<NAME> DAG MEDIA INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 310,185
<SECURITIES> 0
<RECEIVABLES> 2,104,350
<ALLOWANCES> 451,378
<INVENTORY> 623,335
<CURRENT-ASSETS> 2,607,492
<PP&E> 108,424
<DEPRECIATION> 18,041
<TOTAL-ASSETS> 2,970,190
<CURRENT-LIABILITIES> 2,445,451
<BONDS> 0
0
0
<COMMON> 1,250
<OTHER-SE> 523,489
<TOTAL-LIABILITY-AND-EQUITY> 2,970,190
<SALES> 2,759,092
<TOTAL-REVENUES> 2,759,092
<CGS> 377,983
<TOTAL-COSTS> 2,089,531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 686,596
<INCOME-TAX> 329,000
<INCOME-CONTINUING> 357,596
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 357,596
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
<PAGE>
Exhibit 99.1
Officer and Director Nominee Consent
The undersigned, being advised that he has been appointed as Vice
President-Corporate Development and nominated as a Director of DAG Media, Inc.,
a New York corporation (the " Company"), and is take office upon completion of
the offering of Common Shares of the Company, hereby consents to the use of his
name as an officer and a Director-Nominee of the Company in the registration
statement pursuant to which such Common Shares will be offered and any
registration statement filed pursuant to Rule 462(b) under the Securities Act as
amended.
/s/ Dvir Langer
-----------------------
Dvir Langer
Dated: March 9, 1999
<PAGE>
Exhibit 99.2
Director Nominee Consent
The undersigned, being advised that he has been nominated as a Director
of DAG Media, Inc., a New York corporation (the " Company"), and is take office
upon completion of the offering of Common Shares of the Company, hereby consents
to the use of his name as a Director Nominee of the Company in the registration
statement pursuant to which such Common Shares will be offered and any
registration statement filed pursuant to Rule 462(b) under the Securities Act as
amended.
/s/ Phillip Michals
-----------------------
Phillip Michals
Dated: March 9, 1999
<PAGE>
Exhibit 99.3
Director Nominee Consent
The undersigned, being advised that he has been nominated as a Director
of DAG Media, Inc., a New York corporation (the " Company"), and is take office
upon completion of the offering of Common Shares of the Company, hereby consents
to the use of his name as a Director Nominee of the Company in the registration
statement pursuant to which such Common Shares will be offered and any
registration statement filed pursuant to Rule 462(b) under the Securities Act as
amended.
/s/ Eran Goldshmid
-----------------------
Eran Goldshmid
Dated: March 9, 1999
