<PAGE> 1
Registration No. 333-78261
As filed with the Securities and Exchange Commission on July 8, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------
TAKES.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
-----------------------
<TABLE>
<CAPTION>
Delaware 7373 86-0947454
<S> <C> <C>
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
Joel W. Cohen
President and Chief Executive Officer
Takes.com, Inc.
3655 Nobel Drive, Suite 550
San Diego, California 92122
(858) 677-0500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Susan M. Hermann Joseph P. Richardson
Pedersen & Houpt, P.C. Bryan Cave LLP
161 North Clark Street, Suite 3100 Two North Central Avenue, Suite 2200
Chicago, IL 60601-3224 Phoenix, Arizona 85004-4406
(312) 641-6888 (602) 364-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If the 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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
PRELIMINARY PROSPECTUS DATED _________, 1999
PROSPECTUS
[Warrant cover page]
[LOGO]
Takes.com, Inc.
300,000,000 Warrants to Purchase 10,000,000 Shares of Common Stock
10,000,000 Shares of Common Stock Issuable upon Exercise of the Warrants
We are registering 300,000,000 warrants which will be offered to
individuals who visit and register on our Web site. We are also registering
10,000,000 shares of our common stock that our members will receive when they
exercise their warrants. The warrants may be exercised at any time after 180
days from the closing of our initial public offering and on or before the tenth
business day after the calendar year following the calendar year in which a
member earned the warrants. Initially, our members will be entitled to one share
of our common stock for every 30 warrants they earn and exercise. We reserve the
right to adjust our warrant exercise ratio in the future. Any future exercise
ratio adjustment will only affect warrants issued following notice of the
adjustment and will not change the exercise ratio of warrants then outstanding.
Shares of our common stock are listed on the Nasdaq National Market
under the symbol "TAKE." Our warrants are not publicly traded.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT THE RISKS INHERENT
IN OWNING SHARES IN TAKES.COM.
-----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 3
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
PRELIMINARY PROSPECTUS DATED _________, 1999
PROSPECTUS
[IPO cover page]
[LOGO]
Takes.com, Inc.
2,825,000 Shares of Common Stock
This is our initial public offering of 2,825,000 shares of common
stock. We are also registering 300,000,000 warrants which will be offered to
individuals who visit and register on our Web site and 10,000,000 additional
shares of our common stock which will be available to individuals exercising
their warrants.
Prior to this offering, there has been no public market for our common
stock. We currently estimate that the initial public offering price for our
common stock will be between $7 and $9 per share.
We intend to list our common stock on the Nasdaq National Market under
the symbol "TAKE."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT THE RISKS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
-----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price of common stock $ $
Underwriting discount $ $
Proceeds, before expenses, to Takes.com, Inc. $ $
</TABLE>
We have granted the underwriters the right to purchase up to 423,750
additional shares of common stock at the initial public offering price, less the
underwriting discount, to cover any over-allotments.
The underwriters expect to deliver the shares being offered on________, 1999.
______________________
PARADISE VALLEY SECURITIES, INC.
______________________
The date of this prospectus is _______________, 1999.
<PAGE> 4
[inside cover artwork]
[description to be filed by amendment]
takes.com(sm) is a service mark of Takes.com, Inc. All other trademarks, service
marks or trade names referred to in this prospectus are the property of their
respective owners.
-2-
<PAGE> 5
TABLE OF CONTENTS
PROSPECTUS SUMMARY...................................................... 4
THE OFFERING............................................................ 6
SUMMARY FINANCIAL INFORMATION........................................... 7
RISK FACTORS............................................................ 8
USE OF PROCEEDS......................................................... 18
DIVIDEND POLICY......................................................... 18
CAPITALIZATION.......................................................... 18
DILUTION ............................................................... 20
SELECTED FINANCIAL DATA................................................. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 22
THE COMPANY............................................................. 26
MANAGEMENT.............................................................. 34
PRINCIPAL STOCKHOLDERS.................................................. 37
RELATED PARTY TRANSACTIONS.............................................. 39
DESCRIPTION OF CAPITAL STOCK............................................ 40
FEDERAL INCOME TAX CONSEQUENCES......................................... 42
UNDERWRITING............................................................ 45
LEGAL MATTERS........................................................... 48
EXPERTS ............................................................... 48
AVAILABLE INFORMATION................................................... 48
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THOSE STATEMENTS
INCLUDE INDICATIONS REGARDING OUR INTENT, BELIEF OR CURRENT EXPECTATIONS.
DISCUSSIONS IN THIS PROSPECTUS UNDER THE HEADINGS "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "THE COMPANY" AND ELSEWHERE IN THIS PROSPECTUS INCLUDE
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,
MANY OF WHICH ARE BEYOND OUR CONTROL, WHICH COULD CAUSE OUR ACTUAL FUTURE
RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING
STATEMENTS. IN PARTICULAR, THE RISKS AND UNCERTAINTIES DESCRIBED UNDER "RISK
FACTORS" IN THIS PROSPECTUS COULD CAUSE OUR ACTUAL FUTURE RESULTS TO DIFFER
MATERIALLY FROM WHAT WE CONTEMPLATE. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
OF THIS PROSPECTUS.
-3-
<PAGE> 6
PROSPECTUS SUMMARY
THIS SUMMARY INCLUDES ALL MATERIAL ITEMS RELATING TO THE OFFERING AND
SHOULD BE READ WITH THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
TAKES.COM, INC.
OUR COMPANY: We are an early stage company that has
developed our takes.com Web site to serve as
a unique, useful and customizable portal to
the World Wide Web. We were incorporated in
March 1999 as America's Home Page, Inc. We
changed our name to Takes.com, Inc. in June
1999.
We have not generated any revenue or profits
to date. We currently anticipate four
revenue sources:
- sponsorship and advertising;
- search engine links;
- strategic alliances; and
- electronic commerce.
We presently have agreements in place to
generate revenues based upon our link to the
GoTo.com search engine, our alliance with
InfoSpace.com and links with approximately
80 online retailers and service providers
who will pay us either a commission or a
flat fee for purchases of their products and
services made by persons accessing their Web
sites from our site.
OUR ATTRACTION: We will award a warrant
exercisable for our common stock to Internet
users who register with us as members. The
warrants will be issued pursuant to a
registration statement filed with the
Securities and Exchange Commission. That
registration statement will also cover the
issuance of shares of our common stock upon
exercise of the warrants.
We expect our Web site to develop into a
cooperative environment. We believe that our
co-ownership model is consistent with the
communal philosophy of the Internet.
OUR WARRANTS: Under our membership award program, members
will be awarded a warrant each day they
visit our Web site once they have completed
an online registration form. Members may
earn additional warrants for visiting our
site each day. In the future, we may award
warrants to users who use our Web site for
extended periods of time. Members may earn a
maximum of one warrant per day except if we
offer additional warrants in connection with
special promotions or contests. Initially,
we will award warrants which require that
members accumulate 30 warrants before they
may exchange their warrants for one share of
our common stock. In the future, we may
change the number of warrants which a member
must accumulate in order to obtain shares of
our common stock. Any exercise ratio
adjustment will only affect warrants issued
following notice of the adjustment and will
not change the exercise ratio of warrants
then outstanding.
-4-
<PAGE> 7
Warrant Exercise and Expiration. Warrants
may not be exercised until 180 days after
the closing of our initial public offering.
Thereafter, warrants may be exercised by any
holder that has accumulated the number of
warrants required for a single share of
stock. Fractional shares will not be issued.
If not exercised, warrants will expire ten
business days after the end of the year
following the year in which the warrants are
earned. For example, a warrant earned on
October 1, 1999 will expire on January 16,
2001. However, we reserve the right to
terminate warrants exercisable for less than
one share of our common stock held by any
member who does not access our Web site for
a period of 60 or more consecutive days. We
also reserve the right to stop issuing
warrants at any time. Warrants will not be
transferable under any circumstances except
upon the death of a warrant holder.
FEDERAL TAX CONSEQUENCES: The value of warrants issued to our members
will be includible in the member's gross
income as ordinary income and may be subject
to self-employment tax. However, because the
fair market value of the warrants will not
be readily ascertainable when issued, the
holder will not be required to recognize
income with respect to the warrants until
the holder exercises the warrants. see
"Federal Income Tax Consequences" for
further information.
OUR BUSINESS STRATEGY: By offering our Web site users the
opportunity to earn an equity stake in
Takes.com, we believe we will foster a sense
of ownership and create a home page
environment that our members will regularly
utilize as their Internet gateway. We intend
to use our membership award program to:
- develop and grow our user base;
- provide targeted market
opportunities for sponsors and
advertisers;
- create user loyalty;
- enhance our Web site's features and
functionality; and
- develop extraordinary content.
OUR WEB SITE: Initially, our Web site includes, among
other things:
- search capabilities through
GoTo.com, a search engine;
- content provided through
InfoSpace.com, an aggregator and
integrator of content;
- original editorial commentary or
"takes" on specific subjects;
- content categories allowing our
members and others to obtain
information regarding a broad range
of subjects;
- a customizable personal home page
containing features which allows
users to personalize their page with,
among other things, hyperlinks to Web
sites selected by the member and
information on their holdings of our
warrants and common stock; and
- a frame-based mechanism which
provides our users with the ability
to carry a portion of the
functionality of our Web site with
them as they travel the Web. The
frame will carry our logo, navigation
buttons
-5-
<PAGE> 8
providing links to our site and two
pull down menus, an "Explore the Web"
feature, search engine box and
customizable links to favorite sites.
The frame may also include a banner
advertisement.
OUR OFFICES: We are a Delaware corporation. Our principal
executive office is located at 3655 Nobel
Drive, Suite 550, San Diego, California
92122, and our telephone number is (858)
677-0500. Our Web site address is
HTTP://WWW.TAKES.COM. The information on our
Web site is not part of this prospectus.
THE OFFERING
The following table, and similar information throughout this prospectus
relating to shares to be outstanding after the completion of our initial public
offering, assumes that the underwriters do not exercise the over-allotment
option we granted them to purchase up to 423,750 additional shares and do not
exercise the warrants to purchase 282,500 shares of common stock we granted
them:
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY TAKES.COM............................................. 2,825,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER THE INITIAL PUBLIC OFFERING.............. 15,725,000 shares (1)
USE OF PROCEEDS............................................................... We intend to use the net proceeds
from our initial public offering to
develop and acquire content for our
Web site, for advertising and
marketing expenses, production
hardware and bandwidth, advanced
Web site development and general
corporate purposes, principally
working capital and operating
expenses.
PROPOSED NASDAQ NATIONAL MARKET SYMBOL........................................ TAKE
</TABLE>
(1) Excludes 10,000,000 shares of common stock reserved for issuance upon
exercise of 300,000,000 warrants issuable under our membership award
program. Also excludes 3,100,000 shares of our common stock authorized
for issuance under our stock option plans. We have issued options to
purchase 883,000 shares under our stock option plans as of June 30,
1999.
-6-
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The summary financial information is derived from our financial
statements. The pro forma balance sheet data summarized below reflects the
application of the net proceeds from our sale of 2,825,000 shares of common
stock.
We expect to incur significant non-cash expenses from our issuance of
the 300,000,000 warrants to our users. The effects of issuing the warrants to
our users have not been presented on a pro forma basis because the amounts
cannot be reasonably estimated at this time.
<TABLE>
<CAPTION>
PERIOD FROM MARCH 16, 1999
STATEMENT OF OPERATIONS DATA (INCEPTION) TO MARCH 31, 1999
----------------------------------
<S> <C>
Total revenues $ --
Operating loss (197,520)
-------
Net loss (197,520)
=======
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA AS OF MARCH 31, 1999
-------------------------------------
ACTUAL PRO FORMA
--------------- -----------------
<S> <C> <C>
CASH $ --- $ 20,418,000
WORKING CAPITAL 981,098 21,399,098
TOTAL ASSETS 1,004,228 21,422,228
STOCKHOLDERS' EQUITY 981,098 21,399,098
</TABLE>
-7-
<PAGE> 10
RISK FACTORS
This offering and our business involve various risks and uncertainties.
You should carefully consider the risks and uncertainties described below and
the other information in this prospectus before deciding whether to invest in
our shares of common stock. If any of the following risks actually occur, our
business, financial condition or operating results could be materially adversely
affected. This could cause the market price of our common stock to decline, and
you may lose part or all of your investment.
WE HAVE NOT GENERATED ANY REVENUE OR PROFITS AND WE HAVE FINANCED OUR INITIAL
OPERATIONS BY SELLING COMMON STOCK
We were incorporated on March 16, 1999. To date, we have not generated
any revenue or profits. We have financed our Web site and content development by
exchanging our common stock for services rendered by our founders through March
31, 1999 and subsequently from the proceeds of private sales of our common
stock, and not by cash generated from operations.
OUR UNDERWRITER LACKS EXPERIENCE AS LEAD MANAGER IN FIRM COMMITMENT INITIAL
EQUITY OFFERINGS
Our underwriter has not acted as lead manager of a firm commitment
initial equity offering since the fourth quarter of 1996 when it acted as lead
manager of firm commitment initial equity offerings for two companies. Prior to
that, our underwriter acted as lead manager of a firm commitment initial equity
offering for a company in October 1995.
THE PERCENTAGE OWNERSHIP INTEREST IN OUR COMPANY OF HOLDERS OF OUR COMMON STOCK
WILL DECLINE AS OUR MEMBERS EXERCISE WARRANTS FOR OUR COMMON STOCK
The percentage ownership interest of holders of our common stock will
decline as our members exercise for shares of common stock the warrants they
earn by visiting our Web site. Upon the closing of our initial public offering,
the purchasers of our common stock in that offering will own approximately 18%
of our issued common stock. Assuming all of the 10,000,000 shares underlying the
warrants to be issued in connection with our membership award program are
outstanding, and excluding any other share issuances, purchasers of the shares
offered in our initial public offering would own only approximately 11% of our
issued common stock. We cannot predict how quickly this decline in percentage
ownership will occur.
WE CANNOT PREDICT OUR SUCCESS BECAUSE WE LACK AN OPERATING HISTORY
Since our formation, we have devoted our efforts primarily to
organizational activities, including raising seed capital, and developing and
testing our Web site and database and network capabilities. As a result of our
brief existence and focus on organizational activities, no operating history
exists upon which you can evaluate our performance and an investment in our
common stock. An investor in our common stock must consider the risks and
difficulties frequently encountered by early stage companies in a new, rapidly
evolving and highly competitive industry.
We cannot be certain that our business strategy will be successful or
that we will successfully address any or all of these risks. If we fail to
execute our plans and grow our business either as a result of risks identified
in this section or for any other reason, this failure could have a material
adverse effect on our business, financial condition and results of operation.
WE ANTICIPATE SIGNIFICANT LOSSES AND NEGATIVE CASHFLOW FOR THE FORESEEABLE
FUTURE
We expect operating losses and negative cash flow in the foreseeable
future. We anticipate losses because we expect to incur costs and expenses
related to:
-8-
<PAGE> 11
- the development of our Web site, database systems and network
infrastructure;
- brand development, marketing and other promotional activities;
- ongoing Web site development and the development and expansion
of our Web site content; and
- strategic relationship development.
Our profitability depends on our ability to generate and sustain
revenue from advertisers, sponsors, electronic merchants and other sources while
maintaining reasonable expense levels. At this time, we are focused on
development matters and have established potential revenue generating
relationships and strategic partnerships. While we have entered into
approximately 80 third party arrangements from which we expect to generate
revenue, revenue from these sources is difficult to forecast because they
generally depend on the volume and duration of visits to our Web site. We do not
anticipate that initial revenue from these sources will offset our initial costs
and expenses. If we do achieve profitability, we cannot be certain that we would
be able to sustain or increase profitability on a quarterly or annual basis in
the future.
As of March 31, 1999, we had a deficit accumulated during the
development stage of $197,520 and we anticipate that we will incur net losses
for the foreseeable future. The extent of these losses will be dependent, in
part, on our ability to attract and sustain a user base. We expect our operating
expenses to increase, particularly our sales, marketing and brand promotion
expenses as well as our general and administrative expenses, as we hire
additional employees to develop and expand our business. To the extent that
revenue does not grow at anticipated rates, or that increases in operating
expenses are not followed by commensurate increases in revenue, or that we are
unable to adjust operating expense levels accordingly, our business, results of
operations and financial condition will be materially and adversely affected.
There can be no assurance that our operating losses will not increase in the
future or that we will ever achieve or sustain profitability.
WE CANNOT PREDICT THE EXTENT TO WHICH OUR QUARTERLY EXPENSES RELATED TO OUR
MEMBERSHIP AWARD PROGRAM WILL FLUCTUATE
Under our membership award program, we will award our members a warrant
to receive common stock each day they visit our Web site. In the future, we may
award warrants to users who use our Web site for extended periods of time. We
also intend to hold contests, promotions and other events from time to time
which will permit our members to receive additional warrants. Initially, the
warrants we issue will entitle holders to receive one share of stock for 30
warrants. Under generally accepted accounting principles, we will record a
membership award program expense for daily net warrant issuances in the
approximate amount of 1/30th of the market value of our common stock. This
non-cash expense is incurred because our membership award program essentially
involves our issuing the right to acquire shares as represented by warrants,
without our receipt of the cash value of the shares. If we change the number of
warrants required for exercise into a share of our common stock, the non-cash
charge would be increased or decreased proportionately. For example, assuming a
constant market value of the common stock, if we decreased to 15 the number of
warrants required to receive a share of our common stock, the per warrant
expense would double. Similarly, if we increased to 60 the number of warrants
required, the per warrant expense would decrease by half.
The amount of expense related to issuance of warrants that we will be
required to recognize in a quarter will be determined principally by:
- the market value of our common stock;
- the number of warrants required for exercise into a share of
common stock;
-9-
<PAGE> 12
- the actual and/or estimated warrant expiration rate; and
- the number of users who visit our Web site and earn warrants.
Due to the variable nature of the foregoing factors, we cannot
reasonably estimate the non-cash expense associated with our membership award
program. We expect the expenses related to our membership award program will
increase as traffic on our Web site increases, assuming that visitors to the
site register with us and thus receive a warrant for each qualified visit to the
site. We also expect the expenses to fluctuate based on changes in the daily
closing price of our common stock.
OUR INABILITY TO SUCCESSFULLY MANAGE OUR FUTURE GROWTH MAY PLACE A SIGNIFICANT
STRAIN ON OUR MANAGEMENT, INFRASTRUCTURE, INFORMATION SYSTEMS AND RESOURCES
Our ability to successfully implement our business plan in a rapidly
evolving market requires effective planning and management. If we substantially
outperform our business model's expectations, our operations may be insufficient
to adequately accommodate our increasing need for, among others, improved Web
site features and functionality, expanded sales and marketing resources,
upgraded database systems and upgraded network infrastructure. In addition, the
administration of our Web site, including our award, conversion and distribution
of warrants and compliance with reporting requirements may suffer. We intend to
rapidly increase the scope of our operations and grow our resources
substantially by hiring additional employees, engaging independent contractors
and exploring strategic partnerships as we deem necessary or advisable. Our
anticipated growth and future operations may place a significant strain on our
management, infrastructure, information systems and resources.
IF WE DO NOT SUCCESSFULLY COMPETE FOR INTERNET USERS TRAFFIC ON OUR WEB SITE
WILL BE LESS THAN WE EXPECT AND THE VALUE OF TAKES.COM MAY BE REDUCED.
The market for Internet products, services and advertising is new,
rapidly evolving and intensely competitive. We will compete for consumer
attention and advertising expenditures with many other providers of Web content,
directories and search engines such as Yahoo!, Inc., Excite, Inc. and Lycos,
Inc. as well as traditional media companies investing in the Internet such as
NBC's investment in CNET, Inc.'s Snap service and The Walt Disney Company's
investment in Infoseek Corporation. We expect competition to further intensify
in the future. Barriers to entry by potential competitors are low. We believe
that the principal competitive factors for Web sites like ours include:
- quality and quantity of content;
- brand recognition; and
- the number of users, the duration and frequency of user visits
and user demographics.
Many of our existing and potential competitors, including Web
directories and search engines and large traditional media companies, have
longer operating histories in the Internet market, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than we have. As an example, one of these competitors,
Yahoo!, has 30,000,000 unique visitors every month. As of June 30, 1999, we did
not have any users. Competitors are able to undertake more extensive marketing
campaigns for their brands and services, and make more attractive offers to
potential employees, vendor affiliates, commerce companies and third-party
content providers.
WE WILL BE HIGHLY DEPENDENT FOR REVENUE ON ADVERTISING, AFFILIATE RELATIONSHIPS
AND SPONSORSHIP REVENUE AND WE CANNOT PREDICT HOW MUCH OF THIS REVENUE WE WILL
BE ABLE TO GENERATE
In the foreseeable future, we expect to derive a substantial amount of
our revenue from advertising, affiliate relationships and sponsorship.
Advertisers that have traditionally relied upon other advertising media may
-10-
<PAGE> 13
be reluctant to advertise on the Internet. Our ability to generate revenue would
be adversely affected if the market for Internet advertising fails to develop or
develops more slowly than expected.
Different pricing models are used to sell advertising on the Internet.
It is difficult to predict which, if any, will emerge as the industry standard.
This makes it difficult to project our future advertising rates and revenue. For
example, advertising rates based on the number of "click-throughs," or user
requests for additional information made by clicking on the advertisement,
instead of rates based solely on the number of impressions, or times an
advertisement is displayed, could adversely affect our revenue because
impression-based advertising will comprise a substantial majority of our
expected advertising revenue. Our advertising revenue could be adversely
affected if we are unable to adapt to new forms of Internet advertising.
Moreover, software programs that limit or prevent advertising from being
delivered to an Internet user's computer are available. Widespread adoption of
this software could adversely affect the commercial viability of Internet
advertising.
WE MAY BE UNABLE TO ADEQUATELY TRACK AND MEASURE THE DELIVERY AND EFFECTIVENESS
OF ADVERTISEMENTS ON OUR WEB SITE WHICH MAY REDUCE OUR ABILITY TO SELL
ADVERTISING
It is important to our advertisers that we accurately represent the
demographics of our user base and the delivery of advertisements on our Web
site. We depend on third parties to provide these measurement services. Further,
no widely accepted standards exist to measure the effectiveness of Internet
advertising. We are also implementing systems designed to record demographic
data on our users. If we do not develop these systems successfully, we may not
be able to accurately evaluate the demographic characteristics of our users.
Companies may not advertise on our Web site or may pay less for advertising if
they do not perceive our measurements or data collection, or measurements made
by third parties, to be reliable.
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE FOR ADVERTISING AND SPONSORSHIP
REVENUES
We compete with online services, other Web site operators and
advertising networks, as well as traditional offline media such as television,
radio and print for a share of advertisers' total advertising budgets. We
believe that the number of companies selling Web-based advertising and the
available inventory of advertising space has recently increased substantially.
Accordingly, we may face increased pricing pressure for the sale of
advertisements, which could impact our ability to generate advertising revenues.
In addition, our sales may be adversely affected to the extent that our
competitors offer superior advertising services that better target users or
provide better reporting of advertising results.
OUR BUSINESS DEPENDS ON THIRD PARTIES, INCLUDING PROVIDERS OF TECHNOLOGY,
CONTENT AND FEATURES AS WELL AS SYSTEMS DEVELOPERS
We have entered into a non-exclusive agreement with GoTo.com, Inc. to
provide our users with Internet search capabilities. We depend on GoTo.com for
ongoing maintenance and technical support to ensure accurate and rapid
presentation of search results to our users. Termination of our agreement with
GoTo.com or GoTo.com's failure to renew our agreement upon expiration could
result in substantial additional costs to us in developing or replacing
GoTo.com's search technology. We also entered into a non-exclusive agreement
with InfoSpace.com, Inc., an integrator and aggregator of Internet content, to
provide content for our Web site. The term of our agreement with InfoSpace.com
is two years. However, either party may terminate the agreement on 30 days
written notice in the event of a material breach of the agreement by the other
party. Any errors, delays or failures experienced in connection with these
third-party technologies and services could have a negative effect on our
relationship with our users, could materially and adversely effect our brand and
our business and could subject us to liability to third parties for business
negligence such as defamation or libel. We rely on Jedi Group Inc. to assist us
in developing our database capabilities on a fee for services arrangement. Any
termination of our agreements with these third parties could disrupt our service
to users and would adversely affect our business.
-11-
<PAGE> 14
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO DEVELOP, MAINTAIN AND RAPIDLY SCALE
OUR WEB SITE, NETWORK INFRASTRUCTURE AND SYSTEMS WITHOUT ANY INTERRUPTION IN
FEATURES AND SERVICES
We seek to generate a high volume of traffic on our Web site.
Accordingly, the satisfactory performance, reliability and availability of our
Web site, processing systems and network infrastructure are critical to our
reputation and our ability to attract and retain large numbers of users who make
our Web site their Internet home.
Our revenues will depend on the number and duration of visits to our
Web site. Any system interruptions that result in the unavailability of our site
or our ability to offer warrants to acquire our common stock diminish the
attractiveness of our services. We believe it is reasonable to expect periodic
system interruptions. Any substantial increase in the volume of traffic on our
Web site beyond what we have projected will require us to expand and upgrade its
technology, transaction processing systems and network infrastructure. There can
be no assurance that we will be able to accurately project the rate or timing of
increases, if any, in the use of our Web site or expand and upgrade its systems
and infrastructure to accommodate these increases in a timely manner.
We expect to use internally developed systems to operate our Web site.
We will be required to continually enhance and improve these systems to
accommodate the anticipated use of our Web site. Furthermore, in the future, we
may add additional features and functionality to our site's services that would
result in the need to develop or license additional technologies. Our inability
to develop and further upgrade our existing technology and to add new features
and functionality to our Web site may cause unanticipated system disruptions,
slower response times and degradation in levels of customer service or quality
of visits.
Our success, in particular our ability to successfully track and
distribute our warrants, successfully provide online content and services, and
appeal to advertisers, sponsors and other revenue generating partners, is
largely dependent on the efficient and uninterrupted operation of our computer
and communications systems. There can be no assurance that we will be able in a
timely manner to effectively upgrade and expand our systems or to integrate
smoothly any newly developed or purchased technologies with our existing
systems.
WE DEPEND UPON OUR INFORMATION SYSTEMS TO OPERATE OUR BUSINESS. SUBSTANTIALLY
ALL OF OUR SYSTEMS ARE MAINTAINED BY A SINGLE THIRD PARTY. FAILURE OF THESE
SYSTEMS COULD REDUCE OR TEMPORARILY TERMINATE OUR WEB SITE TRAFFIC.
Our success, and in particular our ability to draw high traffic to our
Web site, depends on the efficient and uninterrupted operation of our computer
and communications hardware systems. Substantially all of our computer hardware
for operating our Web site is currently located at the facilities of Verio, Inc.
in Irvine, California. These systems and operations are vulnerable to damage or
interruption from earthquakes, floods, fires, power loss, telecommunication
failures, break-ins, sabotage, viruses, intentional acts of vandalism and
similar events. We do not presently have fully redundant systems, a formal
disaster recovery plan or alternative providers of hosting services and do not
carry sufficient business interruption insurance to compensate us for losses
that may occur. Any damage to, failure of, or compromise of our systems could
result in reductions in, or terminations of, our Web site traffic. In the case
of frequent or persistent system failures, our reputation and name brand could
be materially adversely affected.
IF INTERNET USERS CHOOSE NOT TO PROVIDE US WITH THE INFORMATION WE REQUIRE TO
BECOME WARRANT HOLDERS, OUR USER BASE MAY BE SMALLER THAN EXPECTED AND WE MAY
GENERATE LESS REVENUE
Internet user concerns over the security and privacy of information
transmitted over the Internet may inhibit the growth of the Internet as a whole
and our ability to attract and retain a growing base of users. We cannot predict
whether Internet users will be willing to transmit the confidential information
necessary to identify them with the specificity we are requiring them to provide
to earn warrants. Although we believe that the prospect of receiving equity in
Takes.com is a strong incentive for an Internet user to provide us with the
requisite information, an Internet user may nevertheless refuse to divulge his
name, address, date of birth and/or Social Security number
-12-
<PAGE> 15
and other information over the Internet. If these security and privacy concerns
are widespread, then we may be unable to meet our expectations of rapidly
creating a large base of users.
We have a non-disclosure policy displayed on our Web site. Our policy
is not to willfully disclose any individually identifiable information about any
user to a third party without the user's consent. Despite this policy, if third
persons were able to penetrate our network security or otherwise misappropriate
our users' personal information, we could be subject to liability. These claims
could result in litigation. In addition, the Federal Trade Commission and state
regulatory agencies have been investigating Internet companies regarding their
use of personal information. We could incur additional expenses if new
regulations regarding the use of personal information are introduced or if
regulatory agencies choose to investigate our privacy practices.
To securely transmit confidential information over the Internet, we
expect that we will rely on encryption and authentication technology that we
license from third parties. We cannot predict whether events or developments
will result in a compromise or breach of the methods we intend to use to protect
confidential data transmissions. Moreover, servers used by us may be vulnerable
to computer viruses, physical or electronic break- ins, and similar disruptions.
We may need to expend significant additional capital and other resources to
protect against a security breach or to alleviate problems caused by any
breaches. We cannot assure that we can prevent all security breaches.
ALTHOUGH WE INTEND TO EXPEND SUBSTANTIAL RESOURCES TO ESTABLISH OUR BRAND, WE
MAY FAIL TO ESTABLISH A BRAND IDENTITY
We believe that establishing and maintaining our brand will be critical
to attracting and expanding our user base and Web traffic and commerce
relationships. We also believe that the importance of brand recognition will
increase due to the growing number of Internet sites and the extremely low
barriers to entry. If our users do not perceive our services to be of high
quality, or if we alter or modify our brand image, introduce new services or
enter into new business ventures that are not favorably received by our users,
the value of our brand could be diluted and the attractiveness of our Web site
to our users could be decreased.
WE ANTICIPATE THAT WE MAY NEED TO RAISE ADDITIONAL CAPITAL AND THE TERMS OF ANY
ADDITIONAL FINANCING MAY DILUTE THE VALUE, RIGHTS, PREFERENCES OR PRIVILEGES OF
YOUR COMMON STOCK
We anticipate that we may require substantial working capital to fund
our business. We currently anticipate that the net proceeds of our initial
public offering will be sufficient to meet our expected needs for working
capital and capital expenditures through at least the next 12 months. However,
we may need to raise additional funds prior to the expiration of this period,
and we anticipate that we may need additional capital subsequent to the
expiration of this period. If we raise additional funds through the issuance of
equity, equity- related or debt securities, any or all of these securities may
have rights, preferences or privileges senior to those of the rights of our
common stock and our stockholders may experience additional dilution. We cannot
be certain that additional financing will be available to us on favorable terms
when required, or at all.
OUR BOARD OF DIRECTORS MAY ISSUE PREFERRED STOCK WITH RIGHTS SUPERIOR TO THOSE
OF COMMON STOCK WITHOUT THE CONSENT OF COMMON STOCKHOLDERS
After the closing of our initial public offering, our board of
directors will have the authority to issue up to 20,000,000 shares of preferred
stock without any further vote or action by common stockholders. Our board may
also determine the price, rights, preferences and privileges of preferred stock.
The rights of our common stockholders would be subject to, and may be adversely
affected by, the rights of any preferred stockholders. The issuance of preferred
stock with special voting or other rights could negatively impact the market
value of our common stock.
-13-
<PAGE> 16
OUR REVENUES MAY BE SIGNIFICANTLY LESS THAN WE ANTICIPATE IF OUR USERS FAIL TO
EMBRACE THE MEMBERSHIP AWARD PROGRAM
Our success depends on the acceptance of our business model for
awarding warrants to our users. We expect our membership award program to
generate significant interest in our Web site and to create a large and loyal
user base. If our membership award program is not sufficient to generate traffic
to our Web site, our user base will not be as large as we expect and our
revenues from advertisers, sponsors and others could be significantly less than
expected.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR DEPENDENCE ON THE INTERNET AND
INTERNET INFRASTRUCTURE DEVELOPMENT
Our success will depend in large part on continued growth in, and use
of, the Internet. There are critical issues concerning the use of the Internet
which remain unresolved. The issues concerning the use of the Internet which we
expect to affect the development of the market for our services include:
- security;
- reliability;
- cost;
- ease of access;
- quality of service; and
- increases in bandwidth availability.
If the Internet develops more slowly than we expect, it will adversely
affect our business. In addition, companies that control access to the Internet
through network access or Web browsers could promote our competitors or cause
substantial roadblocks to our entrance and growth within the Internet market.
Either of these developments could adversely affect our business.
OUR INABILITY TO KEEP UP WITH TECHNOLOGICAL CHANGE AND ENHANCE THE FEATURES AND
FUNCTIONALITY OF OUR WEB SITE TO THE SATISFACTION OF OUR USERS COULD DELAY OR
PROHIBIT OUR SUCCESS
To remain competitive, we must continue to enhance and improve the
functionality and features of our Web site. The Internet and the online services
industry are rapidly changing. If competitors introduce new products and
services embodying new technologies, or if new industry standards and practices
emerge, our existing Web site and proprietary technology and systems may become
obsolete. Our future success will depend on our ability to do the following:
- both license and internally develop leading technologies
useful in our business;
- enhance our existing Web site and online informational
services;
- develop new services and technologies that address the
increasingly sophisticated and varied needs of our prospective
users; and
- respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis.
-14-
<PAGE> 17
The development of our Web site and other proprietary technology
entails significant technical and business risks. We may use new technologies
ineffectively or we may fail to adapt our Web site, database systems and network
infrastructure to our users' requirements or emerging industry standards. If we
face material delays in introducing new services, products and enhancements, our
existing and prospective users may forego the use of our services and use those
of our competitors.
OUR STEPS TO PROTECT OUR TRADEMARKS, PROPRIETARY RIGHTS AND DOMAIN NAMES MAY BE
INADEQUATE
We regard our anticipated copyrights, service marks, trademarks, trade
dress, trade secrets and similar intellectual property as critical to our
success. We intend to rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
users, partners and others to protect our proprietary rights. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which we may expand to provide services online.
Therefore, the steps we take to protect our proprietary rights may be
inadequate.
We currently hold various Web domain names relating to our brand,
including the "takes.com" domain name. The acquisition and maintenance of domain
names generally are regulated by governmental agencies and their designees and
this regulation is subject to change. Governing bodies may establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may be unable to acquire
or maintain relevant domain names in all countries in which we intend to conduct
business. Furthermore, the relationship between regulations governing domain
names and laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights.
THE ADOPTION OR MODIFICATION OF LAWS OR REGULATIONS RELATING TO THE INTERNET AND
TO OUR DISTRIBUTION OF EQUITY OVER THE INTERNET COULD ADVERSELY AFFECT OUR
BUSINESS
We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to commerce on
the Internet. However, due to the increasing popularity and use of the Internet,
a number of legislative and regulatory proposals are under consideration by
federal, state, local and foreign governmental organizations. Laws or
regulations may be adopted with respect to the Internet including user privacy,
taxation, infringement, pricing, quality of products and services and
intellectual property ownership. The adoption of any laws or regulations of this
type may decrease the growth in the use of the Internet, which could in turn
decrease the demand for our online services, increase our cost of doing
business, or otherwise negatively affect our business. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, copyright, trademark, trade secret, obscenity, libel and personal
privacy is uncertain and developing. Any new legislation or regulation, or
application or interpretation of existing laws could hamper the growth of the
Internet and decrease its acceptance as a communications and commercial medium.
In addition, a number of proposals have been made at the federal, state and
local level that would impose additional taxes on the sale of goods and services
over the Internet and some states have taken measures to tax Internet-related
activities. Further, our strategy of attracting and building a loyal user
audience based upon equity sharing is new and different. The novelty of this
strategy and its duplication by other online companies may result in heightened
scrutiny of the concept and more stringent regulations concerning its use, the
rights of our users and our obligations to them.
WE COULD GET SUED FOR INFORMATION APPEARING ON OUR WEB SITE. DEFENDING A LAWSUIT
COULD BE EXPENSIVE, TIME CONSUMING AND DAMAGING TO OUR REPUTATION.
We believe that our future success will depend in part upon our ability
to deliver compelling informational content to our users. As a publisher of
online content and because materials may be downloaded by users of our Web site
and subsequently distributed to others, there is a potential that claims will be
made against us for defamation, negligence, copyright or trademark infringement,
personal injury or other theories based on the nature,
-15-
<PAGE> 18
content, publication and advertising of downloaded materials. In the past,
plaintiffs have brought claims based on Web site content and sometimes
successfully litigated them against online services. These claims might include,
among others, that by directly or indirectly providing hyperlink text links to
Web sites operated by third parties or because our users can carry a portion of
our site to another site because of our frame-based technology, we are liable
for copyright or trademark infringement or other wrongful actions by third
parties in their Web sites. It is also possible that if any third-party content
provided on our Web site contains errors, third parties could make claims
against us for losses incurred in reliance on that content. Even to the extent
claims based on third-party content do not result in liability, we could incur
significant costs in investigating and defending against these claims. If we
were found liable for information carried on or disseminated through our Web
site, we may be required to implement measures to reduce our future exposure to
liability, including the expenditure of substantial resources, that may limit
the attractiveness of our services to users. Although we intend to carry general
liability insurance, our insurance may not cover claims of these types or may be
inadequate to indemnify us for all liability that may be imposed on us. If we
face liability, particularly liability that is not covered by our insurance or
is in excess of our insurance coverage, then our reputation and our business may
suffer.
OUR SUCCESS DEPENDS ON THE PERFORMANCE OF EXISTING KEY PERSONNEL AND ON OUR
ABILITY TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL
Our future success depends upon retaining the services of Joel W.
Cohen, our President and Chief Executive Officer, and attracting and retaining
executive officers, information systems personnel and other key sales, marketing
and support personnel, whom we will hire following our initial public offering.
The ability of executive management and these other key personnel, the majority
of whom will be newly hired, to effectively work together is critical to our
success. None of our officers or key employees, including Mr. Cohen, are bound
by an employment agreement for any specific term and we do not expect to bind
officers or key employees in the future. We anticipate that these current and
future officers will have an at-will employment relationship. We do not have
"key person" life insurance policies covering any of our employees.
YEAR 2000 RISKS MAY ADVERSELY AFFECT US AND OUR THIRD-PARTY SERVICE PROVIDERS,
VENDORS AND USERS
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. Our business will be largely dependent on software and computer technology
potentially subject to year 2000 issues including the software we use to create
and provide our Web site's content, our interaction with warrant holders,
database retrieval and processing functions, firewalls, security, monitoring and
back-up capabilities. Because we are a young company still in the process of
developing our systems, we intend to obtain only software, computer technology
and other services from third-party providers that can guarantee year 2000
compliance. However, guarantees of year 2000 compliance may be impossible or too
costly to obtain and we may find it necessary to obtain software or hardware
which could experience a failure due to year 2000 issues. We also anticipate
being dependent on telecommunications vendors to maintain connectivity to our
network and, potentially, traditional third-party carriers to deliver written
communications to our users.
OUR OFFICERS AND DIRECTORS WILL BE ABLE TO SUBSTANTIALLY INFLUENCE MATTERS
REQUIRING STOCKHOLDER APPROVAL
Executive officers, directors and entities affiliated with them will,
in the aggregate, beneficially own approximately 58.1% of our outstanding common
stock following the completion of our initial public offering. These
stockholders, if acting together, would be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions.
-16-
<PAGE> 19
THE OWNERSHIP INTEREST OF A PURCHASER PARTICIPATING IN OUR INITIAL PUBLIC
OFFERING WILL BE IMMEDIATELY AND SUBSTANTIALLY DILUTED
At March 31, 1999, our net tangible book value per share was $0.08. Our net
tangible book value is the value of our assets less our liabilities. Assuming
the initial public offering price of our common stock is $8.00 per share, the
amount purchasers in our initial public offering pay for each share will greatly
exceed our $0.08 per share net tangible book value. Purchasers of common stock
in our initial public offering will suffer immediate and substantial dilution of
$6.64 per share in the net tangible book value per share of our common stock
from the offering price. After the completion of our initial public offering,
purchasers of our common stock will have contributed 95% of our capital, but
will own only 18% of our outstanding common stock. If outstanding warrants or
options to purchase our common stock are exercised, purchasers will be diluted.
-17-
<PAGE> 20
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 2,825,000 shares
of our common stock in our initial public offering will be $20.4 million ($23.6
million if the underwriters exercise their over-allotment option in full),
assuming an initial public offering price of $8 per share and after deducting
the underwriting discount and estimated offering expenses payable by us. We
intend to use the net proceeds from our initial public offering approximately as
follows:
- $6.0 million for developing and acquiring content for our Web
site;
- $4.0 million for advertising and marketing;
- $1.5 million for production hardware and bandwidth;
- $2.0 million for advanced Web site development; and
- the remaining $6.9 million for general corporate purposes,
principally working capital and operating expenses (or $10.1
million if the underwriters exercise their over-allotment
option in full).
We may change the allocation of these amounts if market or competitive factors
change from those that we anticipate.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business, and do not anticipate paying any
cash dividends in the foreseeable future.
CAPITALIZATION
The following table shows our capitalization as of March 31, 1999 on an
actual basis and on an as adjusted basis to reflect the receipt and use of net
proceeds from the sale of 2,825,000 shares of our common stock at an assumed
public offering price of $8 per share:
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------------------
Actual As Adjusted (1)
------------------- ------------------
Stockholders' equity
<S> <C> <C>
Common stock, par value $0.001 per
share, 30,000,000 shares authorized,
12,900,000 issued and outstanding,
actual; 15,725,000 issued and
outstanding pro forma $ 12,900 $ 15,725
Additional paid-in-capital 1,165,718 21,580,893
Deficit accumulated during the (197,520) (197,520)
--------- ---------
development stage
Total stockholders' equity $ 981,098 $ 21,399,098
======= ==========
</TABLE>
(1) The effects of the exercise of the 300,000,000 warrants by our Web site
users, the issuance of the 10,000,000 shares of common stock reserved for
issuance upon exercise of those warrants, the exercise by the underwriters
of their over-allotment option of 423,750 shares of common stock, the
exercise by the underwriters of their
-18-
<PAGE> 21
warrants to purchase 282,500 shares of common stock and the exercise by
our directors, officers and employees of outstanding options to purchase
883,000 shares of common stock have not been presented on a pro forma
basis because these amounts cannot be reasonably estimated.
-19-
<PAGE> 22
DILUTION
Our net tangible book value as of March 31, 1999 was approximately $1.0
million or $0.08 per share. Net tangible book value per share represents the
amount of our total tangible assets reduced by the amount of our total
liabilities and divided by the total number of shares of common stock
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in our initial public offering and the net tangible book value per share
of common stock immediately after the completion of our initial public offering.
After giving effect to the sale of the 2,825,000 shares of common stock offered
by us at an assumed initial public offering price of $8 per share, and after
deducting the underwriting discount and estimated initial public offering
expenses payable by us, our pro forma net tangible book value at March 31, 1999
would have been approximately $21.4 million or $1.36 per share of common stock.
This represents an immediate increase in net tangible book value of $1.28 per
share to existing stockholders and an immediate dilution of $6.64 per share to
new investors of common stock. The following table illustrates this dilution on
a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................................... $ 8.00
Net tangible book value per share before the offering........................... $ 0.08
Increase per share attributable to new investors................................ 1.28
-------
Pro forma net tangible book value per share after the initial public offering (1).... 1.36
-------
Dilution per share to new investors.................................................. $ 6.64
========
</TABLE>
(1) The effects of the exercise of the 300,000,000 warrants by Web site our
users, the issuance of the 10,000,000 shares of common stock reserved
for issuance upon exercise of those warrants, the exercise by the
underwriters of their over-allotment option of 423,750 shares of common
stock, the exercise by the underwriters of their warrants to purchase
282,500 shares of common stock and the exercise by our directors,
officers and employees of outstanding options to purchase 883,000
shares of common stock have not been presented on a pro forma basis
because these amounts cannot be reasonably estimated.
The following table summarizes as of March 31, 1999, on the as adjusted
basis described above, the number of shares of common stock purchased from us by
existing stockholders and investors in our initial public offering, the total
consideration we received and the average price per share paid by existing
stockholders and by investors in our initial public offering (before deducting
the underwriting discount and estimated initial public offering expenses payable
by us):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
------------------------------ -------------------------------
Number Percentage Amount Percentage Per Share
-------------- -------------- --------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Initial Public Offering Investors 2,825,000 18% $22,600,000 95% $8.00
Existing Stockholders 12,900,000 82 1,178,618 5 .09
---------- --- ----------- --
Total 15,725,000 100% $23,778,618 100%
========== ==== =========== ====
</TABLE>
-20-
<PAGE> 23
SELECTED FINANCIAL DATA
In the table below, we provide you with selected financial data of
Takes.com. We have prepared this information using our historical financial
statements for the period from March 16, 1999 (inception) through March 31,
1999.
When you read this selected financial data, it is important that you
read along with it the historical financial statements and related notes
included in this prospectus, as well as the section of this prospectus titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Historical results are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
PERIOD FROM MARCH 16,
1999 (INCEPTION) THROUGH
MARCH 31, 1999
------------------------
<S> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ --
Costs and expenses:
Selling, general and administrative $ 18,902
Research and development 178,618
-------------
197,520
-------------
Net loss $ (197,520)
============
Basic and diluted net loss per share $ (0.02)
============
Weighted average shares used in calculating
basic and diluted net loss per share 11,784,470
============
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
--------------
<S> <C>
BALANCE SHEET DATA
Cash $ --
Working capital 981,098
Total assets 1,004,228
Stockholders' equity 981,098
</TABLE>
-21-
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a newly formed development stage company poised to launch a
gateway to the Web with a strategy for attracting and sustaining a broad and
loyal base of Internet users. Our strategy is to award Internet users one
warrant exercisable for our common stock when they register with us. After
registering with us, members will receive one warrant each day they visit our
Web site. In the future, we may award warrants to members who use our Web site
for extended periods of time. Initially, we will award warrants exercisable for
our common stock on a 30 for one basis. By awarding our members an equity
interest in Takes.com, we expect to foster a strong sense of personal loyalty
and corporate ownership among our members. Although our Web site is available to
users, we will not offer or issue warrants until our registration statement is
declared effective.
In January 1999, our founders began developing the business concept
for Takes.com. Our founders subsequently contacted Silvervision Entertainment
Group, LLC to assist in developing our infrastructure and Web site. Since
January 1999, our operating activities have focused primarily on the
development, acquisition and configuration of the necessary software and
computer infrastructure. We have also focused on initial planning and
development of our Web site, operations and capital raising activities. In March
1999, we formally incorporated and our founders contributed all of their
intellectual property rights relating to our business concept as well as the
value of their services to us. Effective as of March 31, 1999, Silvervision
transferred to us all of its right, title and interest in our Web site and the
technology associated with it. Although we had contracted with them to develop
the Web site on our behalf, until the rights to the site are formally assigned
to us, the rights to the site could be claimed by Silvervision as the Web site
developer. Two of Silvervision's principals also granted us an option to
purchase their collective 33.4% interest in Illusion Networks, LLC which owns
interactive video technology for Internet applications that could be of value to
us in the future. The grant of this option is subject to the consent of
Silvervision, the third member of Illusion Networks. These principals of
Silvervision received 900,000 shares of our common stock in exchange for their
grant of the Illusion Networks option and Silvervision's development of, and
transfer of its interest in, our Web site. See "Related Party Transactions." For
the month of April 1999, we paid Silvervision in cash for their continuing
development services. Beginning on May 1, 1999, the individual employees of
Silvervision working on our site development became our employees and were no
longer employees of Silvervision. We have also engaged the Jedi Group to develop
our database architecture pursuant to a fee for services arrangement. Our Web
site will be available July 15, 1999. However, we will not offer or issue
warrants to users until our registration statement is declared effective. To
date, we have not generated any revenues.
We have funded our activities to date primarily from exchanges of our
common stock for services performed for us by our principals and through service
arrangements with Silvervision and private sales of our common stock. We sold
3,000,000 shares of our common stock for a total of $1.0 million in a private
placement in March 1999.
We may require substantial capital to continue development activities,
to deliver our concept and to commence sales and marketing efforts. While we
believe that the net proceeds from our initial public offering will be
sufficient to develop and deliver our product to Internet users, the continued
development and expansion of our Web site as well as the ongoing costs
associated with development of our computer systems and software, future
research, sales and marketing, funding of acquisitions or other strategic
arrangements, and the cost of attracting qualified personnel may require
additional funding. The costs associated with our continued expansion and
development are significant and may be in excess of our expectations. Our
continued expansion and development may be predicated upon our ability to access
additional capital or other strategic arrangements to fund our expansion and
development activities.
We expect our future revenues to be generated primarily from
arrangements and agreements with advertisers, sponsors and content providers. We
have entered into an agreement with GoTo.com to provide our
-22-
<PAGE> 25
users with Internet search capabilities. Our relationship with GoTo.com is
non-exclusive. We have also entered into an agreement with InfoSpace.com, an
integrator and aggregator of Internet content, to provide us with content. In
addition, we have entered into affiliate relationships with approximately 80
online retailers and service providers who will pay us either a commission or a
flat fee for purchases of their products and services made by persons accessing
their Web sites from our site. We expect to initially rely upon a third party to
sell advertising space on our Web site. We believe that our strategy for
attracting new and repeat users to our Web site, combined with data gathered
about these users, will provide attractive marketing opportunities for
advertisers, sponsors, content providers and electronic merchants. We base our
business model on our ability to attract and retain a loyal user base, and the
generation of revenue from sources whose sponsorship of our business is
predicated upon user traffic. We believe we will need to constantly expand and
improve the content of and features offered by our Web site to continue to
attract users, and we will need to develop a significant marketing and sales
effort to reach our potential revenue sources. We anticipate that revenue will
not be sufficient to cover our operating costs in the near future and we expect
to incur significant losses. While we are cautious of developing a corporate
overhead structure in advance of generating any revenue to cover costs, we
believe the installation of a minimum level of infrastructure components is
necessary for our early stage growth. We can offer no assurance that our
business model will succeed or that sufficient revenue can be generated to cover
our costs of operations.
As of March 31, 1999, we had a deficit accumulated during the
development stage of $197,520 and we anticipate that we will incur net losses
for the foreseeable future. The extent of these losses will depend, in part, on
the amount and rates of growth in our revenue from advertisers, sponsors,
content providers and electronic merchants. We expect our operating expenses to
increase significantly, especially in the areas of sales and marketing and brand
promotion. As a result, we will need to generate significant revenue if
profitability is to be achieved. We believe that our operating results since
inception are not meaningful and that the results for any period should not be
relied upon as an indication of future performance. To the extent that revenue
does not grow at anticipated rates or that increases in our operating expenses
precede or are not subsequently followed by commensurate increases in revenue,
or that we are unable to adjust operating expense levels accordingly, our
business, results of operations and financial condition will be materially and
adversely affected. There can be no assurance that our operating losses will not
increase in the future or that we will ever achieve or sustain profitability.
See "Risk Factors--We Cannot Predict Our Success Because We Lack an Operating
History" and "--We Anticipate Significant Losses and Negative Cashflow in the
Foreseeable Future."
RESULTS OF OPERATIONS
We have a limited operating history on which to base an evaluation of
our business and prospects. You must consider our prospects in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development, particularly companies dependent upon the relatively
new and rapidly evolving Internet environment. Our risks include, but are not
limited to, an evolving and unpredictable business model and proper management
of growth. To address these risks, we must, among other things, maintain and
expand our user base, implement and successfully execute our business and
marketing strategy, continue to develop and upgrade our technology and our Web
site, provide superior customer service and convenience, respond to competitive
developments, and attract, retain and motivate qualified personnel. We cannot
assure anyone that we will be successful in addressing these risks, and our
failure to do so could have a material adverse effect on our business, financial
condition and results of operations.
Our losses from inception include $178,618 of costs incurred by our
founding stockholders in the form of direct expenses paid by them prior to our
inception through March 31, 1999. The $178,618 of direct expenses incurred by
our founding stockholders consisted primarily of payroll costs to begin the
development of our Web site and content based on the actual amounts that were
paid by our founders at their historic cost basis. Services provided to the
Company through March 31, 1999 were provided by the founding stockholders or by
Silvervision Entertainment Group, LLC, a multimedia entertainment company.
Messrs. Sokolov and Bellino, two of our officers, collectively own approximately
38% of the membership interests of Silvervision.
-23-
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
To date, we have raised capital amounting to approximately $1,000,000
through a private placement of our common stock and received the benefit of cash
payments made by our founding stockholders amounting to approximately $178,618.
We do not expect to incur significant capital commitments until we have
successfully completed our initial public offering. We currently anticipate that
the net proceeds of our initial public offering will be sufficient to meet our
anticipated needs for working capital and capital expenditures through at least
the next 12 months. However, additional capital could be required in the next 12
months if unexpected costs arise or if we pursue ventures that enhance or
accelerate our business development such as acquisitions of content providers,
search engines or other businesses. If additional capital requirements arise, we
may need to raise additional funds sooner than expected. If we raise additional
funds through the issuance of equity, equity-related or debt securities, these
securities may have rights, preferences or privileges senior to those of the
rights of our common stock holders, who would then experience dilution. We
cannot be certain that additional financing will be available to us on favorable
terms when required, or at all. We may require additional capital following the
12 months after our initial public offering.
Concurrently with the closing of our initial public offering of our
common stock, we will begin issuing our members warrants to receive shares of
our common stock. The warrants will be issued under our membership award
program, and the warrants will first be exercisable at any time after 180 days
from the closing of our initial public offering. We estimate that the shares
underlying the warrants we have registered are sufficient to last at least 12
months from the closing of our initial public offering. Unexpectedly high
volumes of users visiting our site could materially alter our projections of the
sufficiency of the number of shares we have reserved for the conversion of
warrants. We anticipate registering additional warrants and shares of common
stock in the future to meet the needs of our model for issuing equity to users.
Registration of additional warrants and common stock will have a dilutive effect
on existing stockholders. We reserve the right to issue, or not to issue,
additional warrants and common stock, determine future conversion ratios of
warrants, or to abandon our membership award program.
WE DEPEND ON OUR MANAGEMENT INFORMATION SYSTEM; YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. Our business will be largely dependent on software and computer technology
potentially subject to year 2000 issues including the software we use to create
and provide our Web site's content, our interaction with warrant holders,
database retrieval and processing functions, firewalls, security, monitoring and
back-up capabilities. Because we are a young company still in the process of
developing our systems, we intend to obtain only software, computer technology
and other services from third-party providers that can guarantee year 2000
compliance. However, guarantees of year 2000 compliance may be impossible or too
costly to obtain and we may find it necessary to obtain software or hardware
which could experience a failure due to year 2000 issues. We also anticipate
being dependent on telecommunications vendors to maintain connectivity to our
network and, potentially, traditional third-party carriers to deliver written
communications to our users.
As we develop our Web site and our corporate infrastructure, we intend
to ensure that all software, hardware and proprietary operating code we develop
is year 2000 compliant. Substantially all of our hardware and software was
purchased subsequent to March 31, 1999. Prior to March 31, 1999, we used
hardware and software owned by one of our founding stockholders to begin the
development of our Web site. Our servers and their operating systems are
certified by their manufacturer, Sun Microsystems, as Tier 1 compliant, or year
2000 compliant at the time of their release. In addition, we have reasonable
assurances from the manufacturers that the software we used to develop our Web
site and database engine, including Oracle 8 and Apache Web Server, is year 2000
compliant. We will continue to pursue assurances of year 2000 compliance from
manufacturers of the hardware and software used to develop our site and
infrastructure. In addition, Verio, the third-party host of our network servers,
has provided us with reasonable assurances of its year 2000 compliance. We also
believe the
-24-
<PAGE> 27
proprietary operating code we developed is year 2000 compliant. We do not
anticipate spending material amounts on year 2000 compliance.
We will conduct a formal audit of our internal systems in August 1999
once they are more fully developed. After our internal year 2000 compliance
audit, we may be required to modify or replace significant portions of our
software so that our systems will function properly with respect to dates in
2000 and beyond. We may experience potential systems interruptions or delays in
services if we are unable to make required modifications or conversions in a
timely and cost-effective manner or if there is a malfunction in our systems.
Further, if we fail to successfully resolve these issues, some or all of our
operations may shut down, which would have a material adverse affect on our
business.
We have not yet fully developed a comprehensive contingency plan to
address situations that may result if we are unable to achieve year 2000
readiness for our critical operations. We are developing a detailed contingency
plan which we expect to be completed and expanded as necessary during the second
half of 1999. However, our contingency plan may not adequately address all year
2000 issues we may face. Our failure to develop and implement, if necessary, an
appropriate contingency plan could materially adversely affect our business and
results of operations.
-25-
<PAGE> 28
THE COMPANY
Takes.com is an early stage company that has developed the takes.com
Web site to serve as a portal to the World Wide Web. We believe we have
developed a portal which is unique, useful and customizable and for which we
have initiated our membership award program as a strategy for attracting and
sustaining a broad and loyal user base. Under our membership award program,
visitors to our Web site earn equity in Takes.com for accessing and using our
takes.com Web site. Upon registering on our Web site, users will become members
and will be issued a warrant which is exchangeable for our common stock.
Subsequently, members may earn additional warrants each day that they visit
takes.com. In the future, we may award warrants to users who use our Web site
for extended periods of time. We also intend to hold periodic contests,
promotions and other events which will permit our members to receive additional
warrants. Warrants will initially be exercisable on the basis of 30 warrants for
one share of stock. We believe that by combining equity ownership in Takes.com
with a high quality, content-rich portal site, we will build and sustain a large
cooperative community of users whose interests will be uniquely aligned with
ours and those of our advertisers, sponsors and other revenue generating
partners. We intend to encourage development of a cooperative community among
our users in the future by providing forums for moderated discussions of current
issues, soliciting content from our users and providing members-only promotions.
Although our Web site is available to users, we will not offer or issue
warrants until our registration statement is declared effective. Users may
access any Internet site from takes.com including leading sites and search
engines such as Yahoo!, Excite, Lycos and others. The initial roll out of the
takes.com Web site will serve as a platform for us to further expand our content
and service offerings, which we believe will further enhance our site. We
believe the takes.com Web site will become the home page of choice for our
users. The takes.com Web site includes, among other things, search capabilities,
useful and in-depth content and a customizable personal home page feature. Our
frame-based mechanism allows our users to carry a portion of our site's features
with them as they travel the Internet.
By issuing our users equity in Takes.com, we expect to rapidly build
and sustain a large and loyal cooperative community of users and to develop
brand recognition around takes.com. We intend to educate our members that the
value of Takes.com, and therefore their warrants, is largely dependent upon our
ability to generate advertising revenues and override revenues generated by
electronic commerce. We believe that by aligning our interests with those of our
members, we will be able to deliver a large audience to our advertisers,
sponsors and other revenue generating partners. Delivering a large audience is
essential to attracting advertising and sponsorship revenues. If we are
successful in creating a large and loyal user base with our membership award
program, we expect to be required to spend significantly less on advertising and
sales expenses related to promotion of our Web site.
GROWTH OF THE INTERNET
The Internet enables millions of people worldwide to interact, share
and access information, conduct business and be entertained electronically. The
online company eMarketer estimates that at year-end 1998, the number of
Americans using the Internet was approximately 47 million, and that
approximately 24.4 million, or 24.2%, of U.S. households were connected to the
Internet. Further, eMarketer estimates that the number of Americans using the
Internet will grow to approximately 85 million by the end of 2002 and that the
number of U.S. households connected to the Internet will increase to
approximately 43% of all U.S. households, or a total of approximately 44 million
households. According to eMarketer, the U.S. represented approximately 62% of
the estimated worldwide Internet users at mid-year 1998.
INTERNET AS AN ADVERTISING MEDIUM
The rapidly increasing popularity and acceptance of the Internet
represents an enormous opportunity for businesses to reach consumers and conduct
commerce over the Internet. The commercial potential of the Internet has
resulted in a proliferation of Web sites through which businesses, communities,
media companies, news services, affinity groups and individuals seek to inform,
entertain, communicate and conduct business with Internet
-26-
<PAGE> 29
users worldwide. According to eMarketer, there were approximately 2.2 million
registered domain names, or Web pages, registered at year-end 1998 and eMarketer
estimates that by the year 2000 there will be approximately 3.95 million
registered domain names. This rapid growth in the number of Web sites and the
wide array of content associated with them has caused the emergence of numerous
portals, integrated online services through which users can access a wide range
of information and service providers and Internet search engines and
directories.
The Internet provides a medium in which advertisers can develop
one-to-one relationships with potential customers worldwide without making
significant investments in traditional infrastructure such as retail outlets,
vendor networks and sales personnel. The Internet is distinguished from
traditional media outlets because of a lack of geographic or temporal
limitations, real-time access to dynamic and interactive content, and
instantaneous communication with a single individual or with groups of
individuals. To market their products and services, advertisers seek outlets
where they may obtain demographic information about the users and which provide
a large number of users who spend at least a minimum amount of time at a
particular site. According to eMarketer, online advertising spending exceeded
$1.5 billion in 1998 and is projected to rise to approximately $8.0 billion in
2002.
BUSINESS STRATEGY
By offering our Web site users an equity stake in Takes.com, we believe
we will foster a sense of ownership and community and create a home page
environment that our members will regularly utilize as their Internet gateway.
With our membership award program allowing users to become owners of Takes.com,
we intend to:
DEVELOP AND GROW OUR USER BASE. We believe that building awareness of
Takes.com and the ability to become a stockholder in our company are critical to
our success. We intend to build our user base and, correspondingly, our brand
value aggressively. We will initially market our site with promotions including
traditional advertisement and press exposure. We also believe that our user base
will grow significantly by word-of-mouth. We believe that our membership award
program will generate a substantial amount of repeat traffic and new users.
PROVIDE TARGETED MARKET OPPORTUNITIES FOR SPONSORS AND ADVERTISERS. To
become a member and receive warrants, a visitor must register in our membership
award program and provide his or her name, address and other demographic
information. We expect this information to be valuable to us and to prospective
advertisers and sponsors in developing targeted marketing opportunities. In
addition, users may be asked for additional information each day prior to
receiving their warrant. As the number of our users grows, we believe we will be
able refine and categorize the data we collect about our users. We believe the
data will enable us to attract advertisers wishing to reach a large member base
to whom they can effectively target products and services. We also intend to
build a team of specialists experienced in sales and marketing to advertisers,
sponsors, electronic merchants and other revenue generating sources and we
believe we will be offering a large and loyal user base to these sources.
CREATE USER LOYALTY. We believe that the concept of earning equity in
Takes.com for visiting our site will provide a powerful platform for developing
user loyalty. We intend to educate our users that the value of Takes.com and,
therefore, their equity ownership, is largely dependent upon revenue generated
from advertisers, sponsors, content providers and others seeking our users'
audience and, thus, the advertising revenues they can provide. In addition, we
expect to generate significant revenue from fees generated pursuant to
arrangements with electronic shopping and fulfillment sites. The following are
necessary to attract revenue sources:
- high Web site traffic volume;
- a large base of registered members;
- growth in user base;
- repeat usage of Web site;
-27-
<PAGE> 30
- high volume of Web pages viewed;
- extended Web site visits;
- information about and preferences of our members; and
- information on results generated from advertising at our Web
site.
By educating our members of the importance of attracting revenue
sources and the factors important to those sources, we believe that we will
encourage our members to make our customizable home page site their gateway to
the Internet. Through their understanding of the importance of revenue
generation to the value of their interest in Takes.com, we believe that we will
foster a sense of ownership and create a user community that will patronize our
advertisers and electronic commerce partners and maximize time spent at our
site. We expect our membership award program to be the initial draw which will
cause our users to use takes.com as a portal to the Internet. We expect our
future content and strategic partnerships to cause our users to use takes.com as
their home page of choice.
ENHANCE OUR WEB SITE'S FEATURES AND FUNCTIONALITY. We believe that a
combination of highly advanced functionality and performance and depth of
commercially available content is critical to the commercial success of our
takes.com site. We are committed to site reliability and accessibility, and
intend to make continuous enhancements to our technology, such as upgrading and
expanding server and networking infrastructure, increasing fault tolerance,
maintaining backup and storage capacity and improving Internet connections. We
believe our frame-based technology is a key feature of our site. In addition, we
intend to increase the efficiency of our database processing and the
sophistication of the marketing-specific information within our databases.
DEVELOP EXTRAORDINARY CONTENT. Initially, much of the content of
takes.com will be provided by third parties. Following the completion of our
initial public offering, we intend to develop and offer additional content and
to integrate this content with additional third-party content and services. We
intend to develop unique, extraordinary content which will further enhance the
appeal of takes.com, attract additional users and enhance the development of our
brand. This content will be designed with our user demographics in mind and we
expect that our users, in fostering the cooperative spirit of takes.com, will
contribute to this additional content. We expect to establish editorial boards
to review member contributed content.
USE BUSINESS MODEL FOR COMPANY EXPANSION. We believe that our business
model, making our members equity owners in Takes.com, provides a number of
competitive advantages over other Internet sites and portals. We believe that we
can use this model to expand our business and our member base. We believe
possibilities for acquisition or development of content, services, search
capabilities, strategic partnerships and other avenues of growth are
significant, will further enhance the value of our Web site to our members and
will contribute to the development of our brand name and our member base. We
intend to immediately and aggressively pursue growth opportunities.
THE TAKES.COM SITE
Our takes.com Web site is designed to be a user friendly, content-rich,
customizable Internet portal. Portals are online sites from which Internet users
can access a wide range of information and services without having to navigate
through numerous other sites. Our site will offer traditional portal service
offerings including aggregated third-party content, search capabilities and
links to other Web sites. Initially, our Web site will include, among other
things:
- search capabilities through GoTo.com, a search engine, as part of
our "Explore the Web" section;
- content provided through InfoSpace.com, a third party aggregator
and integrator of content;
-28-
<PAGE> 31
- original editorial commentary or "takes" on specific subjects;
- content categories allowing our members and others to obtain
information regarding a broad range of subjects;
- a customizable personal home page containing features which will
allow members to personalize their page by using, among other
things, hyperlinks to Web sites selected by the member and
information on their holdings of our warrants and common stock;
and
- a frame-based mechanism which provides our users with the ability
to carry a portion of the functionality of our Web site with them
as they travel the Web. The frame will carry our logo, navigation
buttons providing links to our site and two pull down menus,
"Explore the Web" feature, search engine box and customizable
links to favorite sites. The frame may also include a banner
advertisement.
Immediately following the closing of our initial public offering, the
content on our site will consist largely of information from InfoSpace.com, a
third-party provider of content, and will contain graphics and links pertinent
to the content categories. We intend to co-brand a portion of our Web site with
InfoSpace.com by including the InfoSpace.com logo and advertising secured by or
on behalf of InfoSpace.com on our site. Under the terms of our agreement, we
will begin sharing advertising revenue with InfoSpace.com once our users have
provided InfoSpace.com with 10,000 viewer impressions per day to co-branded
pages for 30 consecutive days. After this initial threshold is met, we will
receive 35% of the advertising revenue generated by InfoSpace.com and
InfoSpace.com will receive 35% of the advertising revenue generated by us on
co-branded pages. Once our user base has provided InfoSpace.com with one million
viewer impressions to co-branded pages, we will receive 40% of the advertising
revenue generated by InfoSpace.com and InfoSpace.com will receive 30% of the
advertising revenue generated by us on co-branded pages. In addition, we will
pay InfoSpace.com a monthly fee in the amount of $5,000.
We expect to develop an electronic magazine, or "e-zine," and to allow
our members and others to provide original editorial commentary or "takes" on
specific subjects. This commentary will be screened and edited by an editorial
staff that we intend to establish. Following the closing of our initial public
offering, the content for these areas will consist of links to other Web sites.
Initially, our Web site e-zine will include:
- Take of the Day - Users' opinions on current headlines and
articles pertaining to national and world events, finance,
entertainment, technology, sports and other topics.
- Life's Cutting Edge - Content focused on technology and creative
and innovative ideas including games, toys and interactive
television.
- Money Matters - Business and financial news and information
including stock quotes.
- Culture Club - Information on culture, art and literature from
around the world, including the visual and performing arts,
festivals, events and exhibits and galleries.
- The Human Machine - Content focused on health and fitness,
medicine, nutrition, psychology, herbal and natural health,
education and psychic/tarot readings.
- Going in Style - Content focused on fashion trends, travel and
leisure, food and wine and social graces.
- Screening Room - Information on movies, television, radio,
theatre and music with additional information regarding
musicians, actors, directors, writers and producers.
-29-
<PAGE> 32
- Short Takes - Information for our younger users including
children's stories, games and toys and what's cool and popular
among teens.
The takes.com Web site will have two other main sections: a
customizable "My Personal Page" and an "Explore the Web" section. "My Personal
Page" will include such features as a personal information management section,
with calendar, address book, reminders and similar features, a photo gallery on
which a user may load photos of their choice from the hard drive of the user's
computer, a drop down window with links to Web pages of the user's choice, news
and weather information, warrant information and "I Want To . . .," another
means of linking to Web sites. The "Explore the Web" section will include quick
links to research and news information, "Our Takes - Best of the Web" which will
include our choice of interesting sites covering various topics, public resource
information, current news and shopping links as well as "I Want to . . ."
COOPERATIVE ENVIRONMENT. We intend to evolve our site into a
cooperative environment as our user community expands. Through our membership
award program, we expect to build a loyal and expanding user base, which we
believe we can use to:
- command purchasing discounts at retailers, leading merchants and
electronic commerce sites interested in targeting our members;
- create a community atmosphere where members participate in an
interactive format to share information and contribute ideas and
opinions, or "takes," on specific topics of discussion such as
current events, sports, arts and culture, and others; and
- provide member-only promotions and services.
Within our cooperative environment, we intend to foster a sense of
community and ownership similar to traditional retail or other business
cooperative models. We intend to disseminate current information about Takes.com
to our members, as we view our members as owners of our cooperative. We believe
that our members will develop a strong sense of ownership and will, therefore,
make use of our site, patronize our sponsors and advertisers, and will
participate in and contribute, provide their "Takes", to the available online
editorial areas related to our content section.
Anyone visiting the takes.com Web site may view and use our site as a
guest, but must register with us as a member to earn and accumulate our
warrants. Once users become members, they will begin to accumulate warrants
daily upon visiting the site. Members may earn a maximum of one warrant per day
except if we offer additional warrants in connection with special promotions or
contests. In the future, we may award additional warrants to users who use our
Web site for extended periods of time. Once users have registered as members,
they will gain access to features of our Web site designated for members only.
Membership is free, but is a formality which is necessary to track and register
users as stock and warrant holders as well as to provide us with demographic
information about our users.
REGISTRATION PROCESS. Non-members can register and existing members
will sign in each time they access our Web site. Upon clicking "New Member," a
registration page will be displayed, where new members will fill in all of their
pertinent information. Membership will be limited to United States residents who
have Social Security numbers. The database and questionnaire process will be
also be designed to gathering pertinent data which will be useful for attracting
targeted advertising and sponsorship opportunities. A registered member will
merely sign in with a user name and password to access the site and earn
warrants.
REVENUE SOURCES
SPONSORSHIP AND ADVERTISING. We intend to aggressively pursue and
generate revenue from the sale of sponsorships and advertisements. Our strategy
is focused in part on generating a significant portion of our revenue from
advertisers and sponsors who seek a cost effective means to reach our targeted
user base. Revenue from
-30-
<PAGE> 33
advertisers and sponsors will be generated from advertisements that are
prominently displayed at the top of pages throughout the takes.com site along
with other advertising displays throughout the site. From these advertisements,
we expect members to be able to hyperlink directly to the advertiser's own Web
site, thus providing the advertiser the opportunity to directly interact with an
interested customer. While we will seek advertising and sponsorship agreements
through third-party consolidator sources, we also intend to hire an internal
sales force to sell advertising. We expect revenue from these sources to be
generated based on a cost per thousand impressions, or CPM's, and we expect that
the advertising rates will be dependent on whether the impressions are from
general rotation throughout our Web site or from targeted audiences and
properties within specific areas of our Web site.
Sponsorship and advertising revenues may also include barter revenues,
which represent our exchange of advertising space on our takes.com Web site for
reciprocal advertising space or traffic on other Web sites.
SEARCH ENGINE. We have signed an agreement with GoTo.com under which we
will receive $0.02 each time one of our visitors or members uses GoTo.com via
hyperlinks from our pages to conduct an Internet search. We will be paid
quarterly by GoTo.com if our visitors and members have executed a minimum number
of searches during the quarter using GoTo.com. This agreement, which is
non-exclusive, may be canceled by us or GoTo.com at any time.
STRATEGIC ALLIANCES. We plan to increase traffic and market share
through strategic alliances with content providers or other sites characterized
by high user traffic and retention statistics. We will also seek strategic
alliances with other companies that will allow us to leverage our brand while
incorporating content that is consistent with our Web site. We may also seek to
expand our revenue opportunities through alliances with electronic retailers,
online service and content providers, and advertisers.
GENERATE ELECTRONIC COMMERCE REVENUE. We plan to identify new commerce,
revenue and acquisition opportunities that enhance the takes.com Web site by
offering transaction services that are consistent with and complement our Web
site. We intend to generate electronic commerce revenue through agreements with
leading merchants interested in targeting our members. These merchants will
receive exposure through banner advertising and the integration of advertising
with promotional offers. We expect most of our electronic commerce revenues to
result from fixed fees collected per transaction or from a share of the revenues
from sales to our members. Currently, we have agreements with approximately 80
online retailers and service providers. Our agreements with these retailers and
service providers provide that they will pay us:
- a flat fee per sale, generally ranging from $1.00 to $5.00 per
transaction;
- a percentage of a sale, generally ranging from 10% to 20% for
transactions originating from our site; or
- a fixed amount for each "click-through" or visit to a Web site
which originates from our Web site.
We expect the number of online retailers and service providers with
whom we have agreements to grow. Through our cooperative environment, we intend
to use existing relationships and form additional relationships with major
retailers and merchants to offer our members discounts and other values on goods
and services.
TECHNOLOGY AND INFRASTRUCTURE
We anticipate high user traffic at our Web site as a result of our
membership award program. Our operating infrastructure has been designed and
implemented to accommodate the large traffic volumes we are expecting to
generate initially as well as the increased traffic volumes we expect in the
future as our user base grows. We also expect our infrastructure to be capable
of supporting the delivery of millions of page views per day. In addition, we
intend to develop our capacity to significantly enhance the features, pages and
content within our site. Key attributes of our infrastructure include
scalability, performance and service availability. See "Risk Factors--Our
Success is Dependent on Our Ability to Develop, Maintain and Rapidly Scale Our
Web Site, Network
-31-
<PAGE> 34
Infrastructure and Systems Without any Interruption in Features and Services."
Because we are a young company and only recently purchased our hardware and
software systems, we benefitted by obtaining advanced systems at a lower cost
than was available in prior years.
Our site will require integrated database and Web serving capabilities.
Therefore, our system's hardware framework will consist of separate but
integrated servers; one designed for the database functions and one designed for
the Web serving environment. We have chosen to use Sun Sparc servers using the
Sun Solaris operating system. Our database servers will use Oracle 8 data and
query engine software and our Web server will use Apache Web Server software.
Because we expect to have a very large database of user information to maintain,
particularly regarding the warrants held by our members, our database system
will employ Secure Socket Layer protocol to provide the required security, and
all of our servers will have firewalls designed to restrict outside access at
the operating level except via special secure channels. We also intend to employ
third-party computer security personnel from time to time to address security
risks and vulnerabilities.
Verio, Inc. is our data center host and we have co-located our
equipment on their premises. Verio's national data centers are state-of-the-art
facilities providing comprehensive facilities management services including
human and technical monitoring of our production servers 24 hours per day, seven
days per week. Verio provides connectivity services which link our servers to
end-users via the Internet through multiple connections. The facility is powered
by multiple uninterruptible power supplies and Verio observes strict physical
security measures and password access management. Verio's customers include
America Online, Inc., The Boeing Company, Microsoft Corporation, the National
Football League and Netscape Communications Corporation.
All of our data will be copied to backup tapes each night and stored at
a third-party, off-site storage facility and will facilitate data recovery and
mirroring capabilities. We intend to keep all of our production servers behind
firewalls for security purposes and will not allow outside access at the
operating level, except via special secure channels. Strict password management
and physical security measures will be followed. We intend to deploy computer
security personnel and consultants to address and take action towards security
risks and vulnerabilities.
COMPETITION
The market for Internet products, services and advertising is new,
rapidly evolving and intensely competitive. We will compete for consumer
attention and advertising expenditures with other portals and other providers of
Web content, directories and search engines such as Yahoo!, Excite and Lycos as
well as traditional media companies investing in the Internet such as NBC's
investment in CNET's Snap service and Disney's investment in Infoseek. We expect
competition to further intensify in the future. Barriers to entry are low. We
believe that the principal competitive factors for Web sites like ours include
the quality and quantity of content, brand recognition, a unique business model,
strategic partnerships and, with respect to advertisers and sponsors, the number
of users, the duration and frequency of user visits and user demographics. There
can be no assurance that our Web site will be equal or superior to our
competitors and potential competitors' sites or even that our Web site will
achieve market acceptance.
Nearly all of our existing and potential competitors, including Web
directories and search engines and large traditional media companies, have
longer operating histories in the Internet market, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than we have. Existing established competitors are able to
undertake more extensive marketing campaigns for their brands and services, and
make more attractive offers to potential employees, vendor affiliates, commerce
companies and third-party content providers. Many large media companies have
announced that they are contemplating developing Internet navigation services
and are attempting to become gateways or portals to the Internet. In the event
these companies develop portal sites, we could lose a substantial portion of our
user traffic. Further, entities that sponsor or maintain high-traffic Internet
sites or Internet service providers, such as America Online, provide an initial
point of entry for Internet users that may be competitive with takes.com. There
can also be no assurance that we will be able to compete successfully against
our current or future competitors or that competition will not have a material
adverse effect on our business, financial condition and results of operations.
See "Risk Factors--We May Not Be Able to
-32-
<PAGE> 35
Successfully Compete for Internet Users Resulting in Less Than Expected Traffic
On Our Web Site and Reduced Value of Takes.com."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our technology as proprietary and attempt to protect it by
relying on trademark, service mark, copyright and trade secret laws,
restrictions on disclosure and transferring title, and other methods. Currently,
we do not have patents and we do not anticipate that patents will become a
significant part of our intellectual property in the foreseeable future. We have
entered into and will continue to enter into confidentiality or license
agreements with our employees and consultants, and we will attempt to limit
vendor access to our proprietary information. Despite these precautions, it may
be possible for a third party to copy or otherwise obtain and use our
proprietary information without authorization or to develop similar technology
independently. Policing unauthorized use of our proprietary information is
difficult. Legal standards relating to the validity, enforceability and scope of
protection of some proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any of our proprietary rights.
EMPLOYEES
As of June 30, 1999, we had 13 full time employees, three part time
employee and several independent contractors. Four of our independent
contractors are employed by the Jedi Group, with whom we have an arrangement to
assist us in developing our database architecture. [COMPANY, UPDATE NUMBERS.]
[DIGITARIA?] Our future success will largely depend on our ability to continue
to attract, retain and motivate highly qualified technical and management
personnel in an intensely competitive employment market. From time to time, we
may also employ independent contractors to support our research and development,
marketing, sales, and support and administrative organizations. Our employees
are not covered by any collective bargaining agreement, and we have never
experienced a work stoppage. We believe our relations with our employees are
good.
FACILITIES
Our headquarters are located in a leased facility at 3655 Nobel Drive,
Suite 550, San Diego, California 92122. Our servers are located at Verio in
Irvine, California.
-33-
<PAGE> 36
MANAGEMENT
The following table sets forth information regarding our executive
officers and directors as of June 30, 1999. Shortly following the closing of our
initial public offering, we intend to increase the size of our board of
directors to seven, including at least two independent directors. We expect to
add one board member prior to the closing of our initial public offering.
NAME AGE POSITION
- ---- --- --------
Peter L. Ax 40 Chairman of the Board
Joel W. Cohen 54 President, Chief Executive Officer and Director
David S. Bellino 36 Vice President of Production
Dale L. Sokolov 38 Vice President of Business Development
Todd D. Sims 29 Director
Donald R. Diamond 71 Director
PETER L. AX co-founded Takes.com and has been Chairman of our board of
directors since inception. Mr. Ax has been chief executive officer of SpinCycle,
Inc. since January 1998 and chairman of SpinCycle's board of directors since
March 1998. From December 1996 to January 1998, Mr. Ax was chief financial
officer and until March 1998 was vice chairman of SpinCycle's board of
directors. From March 1995 to December 1996, Mr. Ax served as head of the
private equity division and senior vice president of Lehman Brothers. From March
1994 to March 1995, Mr. Ax was responsible for the private placement of fixed
income securities on the fixed income syndicate desk at Lehman Brothers. Mr. Ax
received an M.B.A. from The Wharton School at the University of Pennsylvania and
a J.D. and B.S. from the University of Arizona. Mr. Cohen is Mr. Ax's first
cousin.
JOEL W. COHEN co-founded Takes.com and has been President, Chief
Executive Officer and a director since inception. From 1992 to April 1999, Mr.
Cohen was chief executive officer of MicroWorks, Inc., a systems integration
concern involved in the development of custom information systems. In 1976, Mr.
Cohen founded Micrognosis Inc., a seller of turnkey information distribution
systems for Wall Street trading operations. Mr. Cohen was chief executive
officer and controlling stockholder of Micrognosis until he sold it to Control
Data Corporation in 1987. Mr. Cohen subsequently served as a consultant to, and
a board member of, Micrognosis through 1990. Prior to founding Micrognosis, Mr.
Cohen spent four years as a field applications engineer for Intel Corporation.
Mr. Cohen received a BSEE from City College of New York and a Masters in
Computer Science from Brooklyn Polytechnic Institute. Mr. Ax is Mr. Cohen's
first cousin.
DAVID S. BELLINO has been our Vice President of Production since April
1999. From September 1997 to April 1999, Mr. Bellino was president and chief
executive officer of Silvervision Entertainment Group, LLC, a multimedia
entertainment company. From 1987 through August 1997, Mr. Bellino was self
employed at DSB Entertainment. While at Silvervision and DSB Entertainment, Mr.
Bellino used his knowledge of high technology, computer engineering and film
production to complete an award winning short film and to produce and direct
several videos and interactive CD-ROM titles for BMG Music, Universal
Pictures/Bubble Factory, MCA Records, Virgin Records, EMI-Capitol Entertainment
Properties and Hasbro Interactive. Some of Mr. Bellino's projects included the
"Flipper" enhanced CD, "The Rolling Stone's Voodoo Lounge" CD-ROM, and 3-D
"Yahtzee" and "Boggle" interactive CD-ROMs. Mr. Bellino received a B. S. in
Electrical Engineering from the University of Rhode Island and has attended
programs at the University of California at Los Angeles and American Film
Institute.
DALE L. SOKOLOV has been our Vice President of Business Development
since April 1999. As chief operating officer of Silvervision from November 1997
to April 1999, Mr. Sokolov oversaw the management and financial operations of
Silvervision's multimedia, film and video projects for music companies, game
developers and Fortune 500 corporations. From May 1989 to November 1997, Mr.
Sokolov was the managing partner of Lakme Partnership, a venture capital and
real estate investment partnership. Mr. Sokolov is involved with numerous
charitable organizations and is a published author in the field of data
communications. Mr. Sokolov
-34-
<PAGE> 37
received a Masters of Science with a concentration in Management Information
Systems and a B.S. in Accounting and Finance from the University of Arizona.
TODD D. SIMS has been a director of Takes.com since June 1999. Since
May 1998, Mr. Sims has been director of league sites for ESPN Internet Ventures,
responsible for production and programming of the official Web sites of the
National Football League, National Basketball Association, Women's Basketball
Association and National Association of Stock Car Automobile Racing. From
October 1995 until May 1998, Mr. Sims was employed by Starwave Corp., most
recently as manager of business development for technology and the advertising
producer for ESPN.com, NFL.com, NBA.com, ABCnews.com, and NASCAR Online. From
November 1994 until October 1995, Mr. Sims was the general manager and a
co-founder of Sun Valley Internet. From July 1994 through October 1995, Mr. Sims
was the marketing director of The Environmental News Network. Mr. Sims has also
been involved in Internet advertising industry groups, including acting as
chairman of the Audit Bureau of Circulations' Interactive Committee from August
1996 until August 1997 and as a member of the Internet Advertising Bureau from
May 1996 until July 1997. Mr. Sims has been a panelist at numerous
Internet-related conferences. Mr. Sims is a graduate of The Colorado College.
DONALD R. DIAMOND has been a director of Takes.com since June 1999.
Since August 1998, Mr. Diamond has been chairman of Diamond Ventures, Inc., an
investment and real estate development company. Prior to becoming chairman, Mr.
Diamond was a director of Diamond Ventures and its predecessor Diamond
Management, Inc. Mr. Diamond was a founder, vice president and owner of the
Phoenix Suns Professional Basketball Club from 1968 to 1987 and is currently a
general partner of the Arizona Diamondbacks. From 1971 to 1982, Mr. Diamond was
owner and president of the KVOA television station, the NBC affiliate in Tucson,
Arizona. Mr. Diamond is a director of the Sonoran Institute, the Rincon
Institute and numerous charitable organizations.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors will have an audit committee and a compensation
committee. We expect to appoint members of our audit committee at the time of
the closing of our initial public offering. A majority of the members of our
audit committee will be independent directors. The audit committee will be
responsible for reviewing the scope of our independent auditors' examinations of
our financial statements and receiving and reviewing the auditors' reports. Our
audit committee will meet with our independent auditors, receive recommendations
or suggestions for changes in accounting procedures, and initiate and supervise
any special investigations it may choose to undertake. We expect to appoint
members of our compensation committee at the time of the closing of our initial
public offering. The compensation committee will determine our policies with
respect to the nature and amount of compensation we pay our executive officers
and employees and administer our employee and independent contractor stock
option plans, including determining the persons who are to receive options and
the number of shares included in each option.
DIRECTOR COMPENSATION
Our directors do not currently receive cash compensation for serving on
our board of directors. However, we do reimburse directors for expenses
reasonably incurred in connection with their service as directors. In addition,
our non-employee directors are entitled to receive options to purchase our
common stock under our Non-Employee Director Stock Option Plan.
AMENDED AND RESTATED 1999 EMPLOYEE STOCK OPTION PLAN
Our Amended and Restated Employee Stock Option Plan was adopted by our
board of directors in June 1999, subject to approval by our stockholders, to
attract, retain and motivate selected employees and officers. We currently have
2,340,000 shares of common stock reserved for issuance upon the exercise of
options granted under this plan. As of the date of this prospectus, options to
purchase 793,000 shares of common stock at a weighted average exercise price of
$4.02 per share were outstanding under the plan. Options granted under the plan
are not
-35-
<PAGE> 38
"incentive stock options," as that term is defined in Section 422(b) of the
Internal Revenue Code. Our compensation committee will determine the per share
exercise price of the options issued under the plan.
AMENDED AND RESTATED NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Our Amended and Restated Non-Employee Director Stock Option Plan was
adopted by our board of directors in June 1999, subject to approval by our
stockholders, to attract and compensate our non-employee directors. We currently
have 360,000 shares of common stock reserved for issuance upon the exercise of
options granted under the plan. As of the date of this prospectus, options to
purchase 90,000 shares of common stock at a weighted average exercise price of
$5 per share were outstanding under the plan. Under the plan, each non-employee
director was granted an option to purchase 30,000 shares of common stock at $5
per share in June 1999, subject to approval of the amended and restated plan by
our stockholders. These initial grants to directors will vest on the six month
anniversary of the closing of our initial public offering. Each non-employee
director that becomes a member of our board within six months after our initial
public offering will be granted an option to purchase 30,000 shares of our
common stock as of the date the person joins the board with an exercise price
equal to the fair market value of our common stock on the grant date. These
grants to directors will vest over three years on each anniversary of the grant
date. Beginning in 2000, we will grant our eligible non-employee directors
serving as directors as of the date of the adjournment of our annual
stockholders meeting an option to purchase 10,000 shares of common stock. These
options will also vest over three years on each anniversary of the grant date
and will have an exercise price equal to the fair market value of our common
stock on the grant date. All grants make as of the date of an adjournment of an
annual stockholders meeting will be subject to forfeiture in the event that a
director fails to attend at least 50% of the board meetings held in the period
between the grant date and the next annual stockholders meeting. Options granted
under the plan are not incentive stock options.
AMENDED AND RESTATED INDEPENDENT CONTRACTOR STOCK OPTION PLAN
Our Amended and Restated Independent Contractor Stock Option Plan was
adopted by our board of directors in June 1999, subject to approval by our
stockholders, to provide us with a non-cash alternative for compensating our
third-party service providers. We currently have 400,000 shares of common stock
reserved for issuance upon the exercise of options granted under the plan. As of
June 30, 1999, no options were outstanding under the plan. Options granted under
the plan are not incentive stock options. Our compensation committee will
determine the per share exercise price of the options issued under the plan.
-36-
<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
the beneficial ownership of the 12,900,000 shares of our common stock
outstanding as of the date of this prospectus, and as adjusted to reflect the
sale 2,825,000 shares of common stock in our initial public offering, by:
- each stockholder known by us to own beneficially more than 5% of
our common stock;
- each of our directors and named executive officers; and
- all directors and executive officers as a group.
Beneficial ownership is determined under the rules of the Securities
and Exchange Commission. Except as indicated in the footnotes to this table and
as provided by applicable community property laws, the stockholders named in the
table have sole voting and investment power with respect to the shares shown
opposite each stockholder's name. Unless otherwise indicated, the address of our
directors, officers and 5% stockholders is 3655 Nobel Drive, Suite 550, San
Diego, California 92122.
<TABLE>
<CAPTION>
Percent of Shares
Beneficially Owned
---------------------------------
Shares Prior to the After the
Beneficially Initial Public Initial Public
Name and Address Owned Offering Offering
- ---------------- ------------ -------------- --------------
<S> <C> <C> <C>
Directors and Executive Officers:
Peter L. Ax (1) ....................................... 4,500,000 34.9% 28.6%
Joel W. Cohen ......................................... 2,100,000 16.3 13.4
Todd D. Sims (2) ...................................... * * *
Donald R. Diamond (3) ................................. * * *
David S. Bellino (4) .................................. 600,000 4.7 3.8
Dale L. Sokolov (5) ................................... 600,000 4.7 3.8
Total for directors and executive officers (6 persons): 7,500,000 58.1 47.7
Other Beneficial Owners:
SpinCycle, Inc. (6) ................................... 3,000,000 23.3 19.1
Canfield Corporation (7) .............................. 2,848,485 22.1 18.1
Peter L. Ax Gift Trust (8) ............................ 1,500,000 11.6 9.5
Michael Cohen ......................................... 900,000 7.0 5.7
</TABLE>
- ----------
*Less than 1%
(1) Includes 1,500,000 shares of common stock held by Mr. Ax. Also includes
3,000,000 shares of common stock owned by SpinCycle, Inc., of which Mr.
Ax is chairman and chief executive officer. Mr. Ax disclaims beneficial
ownership with respect to the shares owned by SpinCycle.
(2) Mr. Sims' address is 13810 SE Eastgate Way, Suite 400, Bellevue,
Washington 98005.
(3) Mr. Diamond's address is 2200 East River Road, Suite 115, Tucson,
Arizona 85718.
(4) Includes 300,000 shares owned jointly by Mr. Bellino and his spouse.
Also includes 300,000 shares of common stock owned by Silvervision
Entertainment Group, LLC, of which Mr. Bellino owns 18.6% of the
membership interests. Mr. Bellino disclaims beneficial ownership with
respect to the shares owned by Silvervision.
-37-
<PAGE> 40
(5) Includes 300,000 shares of common stock owned by Silvervision, of which
Mr. Sokolov owns 19.5% of the membership interests. Mr. Sokolov
disclaims beneficial ownership with respect to the shares owned by
Silvervision.
(6) SpinCycle's address is 15990 North Greenway-Hayden Loop, Suite 400,
Scottsdale, Arizona 85260. Mr. Ax is the chairman and chief executive
officer of SpinCycle. SpinCycle is not a publicly traded company. There
are approximately 170 stockholders of SpinCycle including Messrs. Dean
Buntrock, William Farley, Peer Pedersen and Howard Warren. The shares
of Takes.com common stock owned by SpinCycle will be voted in
accordance with the decisions of SpinCycle's board of directors.
(7) Canfield Corporation's address is Road Town, Tortola, British Virgin
Islands. Ms. Yolanda Hellmund is the owner of Canfield.
(8) The Peter L. Ax Gift Trust is for the benefit of Mr. Ax's spouse and
their children. Mr. Ax does not possess voting or investment power with
respect to the Ax Gift Trust.
-38-
<PAGE> 41
RELATED PARTY TRANSACTIONS
In March 1999, we issued 3,000,000 shares of our common stock to Mr.
Peter L. Ax, the Chairman of our board of directors, and 2,100,000 shares of our
common stock to Mr. Joel W. Cohen, our Chief Executive Officer, for founding
Takes.com and for services rendered, amounts expended and costs incurred by them
prior to our incorporation. Mr. Cohen directed that 900,000 additional shares
which he was entitled to receive be issued to his son, Mr. Michael Cohen.
In March 1999, we issued 3,000,000 shares of our common stock to
SpinCycle for services rendered by its employees on our behalf and for
relinquishing any and all right, title or interest in the business concept for
Takes.com. Mr. Ax is the chairman and chief executive officer of SpinCycle.
In March 1999, we issued a total of 900,000 shares of our common stock
to two principals of Silvervision, 600,000 to David S. Bellino and 300,000 to
Dale L. Sokolov, for Web site development services rendered by Silvervision
through March 31, 1999. Mr. Bellino is our Vice President of Production and Mr.
Sokolov is our Vice President of Business Development. Silvervision agreed to
assign to us all of its right, title and interest in our Web site as of March
31, 1999. Messrs. Bellino and Sokolov also granted us an option to purchase, for
no cash consideration, an option to acquire their collective 33.4% interest in
Illusion Networks, LLC which owns interactive video technology for Internet
applications. The grant of this option is subject to the consent of
Silvervision, the third member of Illusion Networks. Mr. Bellino was the
president and chief executive officer of Silvervision and Illusion Networks.
Under an arrangement with the stockholders of Silvervision, Mr. Sokolov
transferred to them 300,000 shares of our common stock in June 1999.
In March 1999, we assumed Silvervision's lease of office space which
currently serves as our principal office. This assumption is subject to the
landlord's consent, which we have not yet received in writing. Under the terms
of the lease, we pay monthly rent of approximately $5,500. The lease expires on
March 31, 2000.
In March 1999, we sold a total of 3,000,000 shares for $1 million to
two investors in our private offering. Canfield purchased 2,848,485 of those
shares for $950,000.
In our opinion, the transactions described above were on terms no less
favorable than those which could have been obtained from unaffiliated third
parties.
-39-
<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
As of June 30, 1999, we had 12,900,000 shares of common stock
outstanding and no shares of preferred stock are outstanding. As of the closing
of our initial public offering, our authorized capital stock will consist of
60,000,000 shares of common stock having a par value of $0.001 per share and
20,000,000 shares of preferred stock having a par value of $0.001 per share.
The following summary describes our capital stock and related
provisions of our certificate of incorporation and bylaws as they will be in
effect as of the date of this prospectus, but does not purport to be complete
and is subject to, and qualified in its entirety by, the provisions of our
certificate of incorporation as amended through the closing date of the initial
public offering, bylaws and applicable law.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share
held on all matters submitted to a vote of our stockholders and do not have
cumulative voting rights. Thus, the owners of a majority of our common stock
outstanding may elect all of the directors if they choose to do so, and the
owners of the balance of our common stock would not be able to elect any
directors. Subject to the rights of holders of any future series of preferred
stock that may be designated, each share of outstanding common stock is entitled
to participate equally in any distribution of net assets made to our
stockholders in a liquidation, dissolution or winding up of Takes.com and is
entitled to participate equally in dividends if, as and when declared by our
board of directors. Holders of our common stock have no preemptive,
subscription, redemption or conversion rights. All outstanding shares of common
stock are fully paid and nonassessable. The rights, preferences and privileges
of holders of common stock are subject to, and may be adversely affected by,
shares of preferred stock which we may issue in the future.
PREFERRED STOCK
Our board of directors is authorized, subject to limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
20,000,000 shares of preferred stock and to determine the price, rights,
preferences and privileges of those shares. The terms of our preferred stock and
the rights of our holders of preferred stock may adversely affect the rights of
our common stockholders. While we have no present intention to issue shares of
preferred stock, an issuance of preferred stock with special voting or other
rights could have the effect of making it more difficult for a third party to
acquire a majority of our outstanding voting stock. In addition, preferred stock
may have other rights that could negatively impact the market value of our
common stock.
WARRANTS
We have reserved 10,000,000 shares of common stock to be issued upon
the exercise of warrants we will award to members through our membership award
program. Warrant holders, as such, are not entitled to vote on matters submitted
to a vote of our stockholders or to receive notice as stockholders in connection
with any stockholders meeting. Further, warrant holders are not entitled to any
distribution of net assets made to the stockholders in a liquidation,
dissolution or winding up of Takes.com or in any distribution of dividends.
Finally, warrant holders have no preemptive, subscription or redemption rights.
ISSUANCE. We intend to issue warrants to persons in exchange for
visiting our Web site. All persons visiting our Web site will be given the
opportunity to register with us as members. New members will receive one warrant
for registering with us. After registering with us, members will receive one
warrant each day that they visit our Web site. From time to time, members may be
required to answer a question or give an opinion in order to earn their daily
warrant for visiting our site. In addition, we may award warrants to users who
use our Web site for extended periods of time. Currently, members may earn a
maximum of one warrant per day. In addition, we intend to hold periodic contests
and other events which will permit our members to earn additional warrants.
Warrants earned in contests, promotions and other events will not be included in
the one warrant per day limit.
-40-
<PAGE> 43
Warrants will exist in book entry form only and will not be
certificated. Members will be able to verify the number of warrants they have
accumulated on our Web site. We will only issue warrants to individuals that are
United States residents possessing Social Security numbers. We reserve the right
to cease issuing warrants to users at any time.
TERMS OF EXERCISE. The warrants that we initially issue may be
exercised for one share of our common stock once a holder has accumulated at
least 30 warrants. We may alter the exercise ratio from time to time in the
future. However, any change in the exercise ratio will affect only warrants
issued following notice of the change and will not affect any warrants then
outstanding. To exercise their warrants, holders will be required to tender a
request to us. Warrants may not be exercised for common stock until 180 days
after the closing of our initial public offering and may only be exercised once
a holder has accumulated the number of warrants required for a single share of
stock. Fractional shares of common stock will not be issued upon exercise of our
warrants and tenders of other than round lots will be rounded down to the
nearest whole share.
EXPIRATION. Warrants will have a term which expires on the tenth
business day of the calendar year following the calendar year after the calendar
year in which the warrants were earned. At our election, we may terminate
warrants prior to that date if a member has not accessed our Web site at least
once during any period of 60 consecutive days and if the member has earned less
than 30 warrants. Warrants not exercised prior to expiration will be canceled
and may be reissued under our membership award program.
TRANSFER. Our warrants will not be publicly traded and are not
transferable under any circumstances except upon the death of a warrant holder.
TRANSFER AGENT
The transfer agent for our common stock is Norwest Shareowner Services,
Minneapolis, Minnesota.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (1) any
breach of their duty of loyalty to the corporation or its stockholders, (2) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) unlawful payments of dividends or unlawful stock
repurchases or redemptions or (4) any transaction from which the director
derived an improper personal benefit. This limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission. Our certificate of incorporation and bylaws provide that we shall
indemnify our directors and executive officers and may indemnify our other
officers and employees and other agents to the fullest extent permitted by law.
We believe that indemnification under our bylaws covers at least negligence and
gross negligence on the part of indemnified parties. Our bylaws also permit us
to secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in that capacity, regardless
of whether the bylaws would permit indemnification. We believe that these
provisions are necessary to attract and retain qualified persons as directors
and executive officers. At present, we are not aware of any pending or
threatened litigation or proceeding involving a director, officer, employee or
agent in which indemnification would be required or permitted.
-41-
<PAGE> 44
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of material U.S. federal income
tax considerations applicable to holders of warrants issued under our membership
award program and those who acquire common stock upon exercise of warrants. This
summary is based on provisions of the Internal Revenue Code of 1986, Treasury
Regulations, including temporary and proposed Regulations, rulings and decisions
currently in effect, all of which may be changed with possible retroactive
effect. This discussion does not encompass all of the aspects of federal
taxation that may be relevant to our investors in light of their personal
investment circumstances, nor does it discuss federal income tax considerations
applicable to investors receiving special treatment under the federal income tax
laws. Investors receiving special treatment may include life insurance
companies, tax exempt organizations and financial institutions. Further, this
discussion does not consider the effect of any foreign, state, local, gift,
estate or other tax laws that may be applicable to a particular investor. Our
discussion assumes that investors will hold our warrants and common stock as
capital assets within the meaning of Section 1221 of the Code. Prospective
investors are strongly urged to consult their tax advisors regarding the
particular tax consequences that may apply to them as a result of purchasing,
holding and disposing of our warrants and common stock.
We will only offer and issue our warrants to individuals that are U.S.
Holders. A "U.S. Holder" means a citizen or resident of the United States or
individuals otherwise subject to U.S. federal income taxation on a net income
basis with respect to our warrants. This discussion does not consider the tax
consequences applicable to non-U.S. Holders. Holders may not sell our warrants
and the warrants are not transferable except upon the death of a holder. In
addition, our warrants are not redeemable by us.
TAX TREATMENT OF WARRANTS
CHARACTERIZATION OF OUR WARRANTS. We expect the warrants that holders
receive when they register with us to be characterized as warrants or options,
and not as equity, for federal income tax purposes. It is possible, however,
that the warrants will be characterized for federal income tax purposes as
shares of equity due to, among other things, their nominal (zero) exercise price
and lack of any meaningful contingency regarding issuance of the underlying
shares. The following discussion assumes that the warrants we are offering will
be properly characterized as warrants but also describes, as appropriate, any
differing federal income tax treatment if the warrants are treated as common
stock.
ISSUANCE. We will issue each holder one warrant for registering with us
on our Web site in exchange for personal information provided by the holder. The
value of these warrants will be includible in the holder's gross income as an
item of ordinary income under Code Sections 61 and 1221(3). This income will not
be subject to self-employment taxes under Code Section 1401. After their initial
registration with us, we will issue to holders one warrant for each day they
visit our Web site. In the future, we may award warrants to holders who use our
Web site for extended periods of time. We will issue these warrants to holders
in exchange for the services they are providing to us, specifically, logging
onto, and remaining on, our Web site. The value of the warrants received by
holders for their services will be includible in their gross income as an item
of ordinary income under Code Section 61(a)(1). This income will be subject to
self-employment taxes under Code Section 1401. In addition, we may issue
warrants to users of our Web site in contests, promotions, or other events. The
value of these warrants will be includible in the holder's gross income as an
item of ordinary income under Code Sections 61 and 74(a). This income will not
be subject to self-employment taxes under Code Section 1401. Because the fair
market value of the warrants will not be readily ascertainable when issued, the
holder will not be required to recognize income as it relates to any of the
warrants until the warrants are exercised and a value can be assigned to them.
EXERCISE. Initially, we will be offering to members warrants which may
be exercised for shares of our common stock on a 30 for one basis. Upon
exercise, a holder's warrants will have a readily ascertainable fair market
value equal to 1/30th of the value of one share of our common stock on the
exercise date. With respect to each warrant, holders will recognize ordinary
income equal to the value of 1/30th of one share of our common stock on the
exercise date. The fair market value of our common stock on the exercise date
will be determined by the closing price for the shares on the Nasdaq National
Market or other applicable trading market on that date. For tax
-42-
<PAGE> 45
purposes, the holding period of the common stock acquired upon a holder's
exercise of warrants will not include the holding period of the warrants. Upon a
sale of the common stock by the holder, the holding period determines whether
long or short term capital gain treatment is applicable.
CONSTRUCTIVE EXERCISE. Because, among other things, the exercise price
of each warrant issued is nominal (zero), the Internal Revenue Service could
consider the warrants to be constructively exercised for federal income tax
purposes on the day they become exercisable. If the warrants are deemed
constructively exercised,
- the holder will recognize ordinary income equal to the value of
1/30th of the fair market value of one share of our common stock
on the date of constructive exercise;
- the adjusted tax basis of the common stock deemed to be received
will equal the fair market value of the common stock on the date
of constructive exercise;
- the holding period of the common stock will begin on the day
after the warrant becomes exercisable; and
- the federal income tax consequences of the ownership and
disposition of the warrant will be the same as if the warrant
was actually common stock.
TAX BASIS IN OUR COMMON STOCK. When a warrant is exercised, a holder
will acquire basis in our common stock equal to the amount of income the holder
is required to recognize upon exercise of the warrant.
LAPSE. If a warrant received is not exercised and is allowed to expire,
the holder will not recognize any gain or loss in connection with the expiration
of the warrant.
TAX TREATMENT TO TAKES.COM OF WARRANT ISSUANCE AND EXERCISE. We will
not recognize a taxable gain or loss upon the issuance or exercise of warrants
issued upon registration. Likewise, we will not recognize a taxable gain or loss
upon the issuance or exercise of warrants issued in contests, promotions or
other events. Upon exercise of warrants issued for services, we expect to be
allowed a deduction for ordinary and necessary business expenses under Code
Section 162(a)(1) in an amount equal to the amount of income recognized by
holders on their exercise of the warrants. We will not recognize a gain or loss
upon the expiration of any of our warrants.
Because, among other things, each issuance of a warrant may require the
holder to answer questions of personal preference, the IRS could characterize
the issuance of warrants for logging onto and remaining on our Web site as an
exchange for personal information. If the issuance of these warrants is
characterized as an exchange for personal information, the issuance of the
warrants will be taxable to both the holders and to us in the same manner as the
warrants issued to holders for initially registering with us. The holders would
not be subject to self-employment taxes under Code Section 1401 on the value of
the warrants. We would not be allowed a deduction equal to the value of the
warrants under Code Section 162(a)(1).
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under federal income tax law, a holder of warrants or common stock may,
under some circumstances, be subject to "backup withholding" unless the holder
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. The withholding rate is 31% of
"reportable payments," which include dividends or proceeds from a sale or
redemption. In the event any holder exercises warrants received for visiting and
remaining on our Web site or warrants received in contests, promotions, or other
events with a cumulative value of $600 or more at the time of exercise during
any calendar year, we will issue the holder a Form 1099-Misc reporting the value
of these warrants.
-43-
<PAGE> 46
REFUNDS
Any amounts withheld under the backup withholding rules from a payment
to a holder will be allowed as a refund or a credit against the holder's United
States federal income tax liability, provided that the required information is
furnished to the IRS.
OTHER TAX CONSIDERATIONS
There may be other federal, state, local or foreign tax considerations
applicable to a particular holder or prospective purchaser of our warrants and
common stock. ACCORDINGLY, EACH HOLDER OR PROSPECTIVE PURCHASER OF OUR WARRANTS
AND COMMON STOCK SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO THE HOLDER OR PROSPECTIVE PURCHASER OF PURCHASING, HOLDING
AND DISPOSING OF OUR WARRANTS AND COMMON STOCK.
-44-
<PAGE> 47
UNDERWRITING
Subject to the terms and conditions of our underwriting agreement, the
underwriters named below have agreed to purchase from us the number of shares of
common stock shown opposite their names below.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Paradise Valley Securities, Inc.
----------------
Total 2,825,000
================
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus are subject to approval of legal matters by their
counsel and to other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares of common stock offered by us for cash (other
than those shares covered by the over-allotment option described below) if any
are purchased.
Our lead underwriter, Paradise Valley Securities, acted as co-manager
of a firm commitment initial equity offering in August 1997. Prior to that,
Paradise Valley Securities, acted as lead manager of firm commitment initial
equity offerings for two companies in the fourth quarter of 1996 and for one
company in October 1995.
The underwriters initially propose to offer the shares of common stock
offered by Takes.com for cash in part directly to the public at the initial
public offering price shown on the cover page of this prospectus and in part to
some dealers (including the underwriters) at this price less a concession not in
excess of $____ per share. The underwriters may allow, and these dealers may
re-allow, to other dealers a concession not in excess of $____ per share. After
the initial public offering of the common stock, the public offering price and
other selling terms may be changed by the representative of the underwriters at
any time without notice. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable within 45
days after the date of this prospectus, to purchase, from time to time, in whole
or in part, up to an aggregate of 423,750 additional shares of common stock at
the initial public offering price less underwriting discounts and commissions.
The underwriters may exercise their option solely to cover over-allotments, if
any, made in connection with the initial public offering. To the extent that the
underwriters exercise their option, each underwriter will become obligated,
subject to conditions contained in the underwriting agreement, to purchase its
pro rata portion of the additional shares based on the underwriter's percentage
of the underwriting commitment as indicated above.
We have agreed to indemnify the underwriters against some liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments that the underwriters may be required to make in connection with these
liabilities.
The following table summarizes the compensation to be paid to the
underwriters by Takes.com.
<TABLE>
<CAPTION>
Total
-------------------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
paid by Takes.com........................
Non-accountable expense allowance..........
</TABLE>
-45-
<PAGE> 48
We will also grant the underwriters warrants to purchase up to 282,500
shares of our common stock at an exercise price per share equal to 165% of the
initial per share public offering price. The underwriters' warrants are
exercisable for a period of four years beginning one year from the close of our
initial public offering.
The holders of the underwriters' warrants will have no voting, dividend
or other stockholder rights until the underwriters' warrants are exercised. The
terms of the underwriters' warrants were established as the result of
negotiations between the representative of the underwriter and us. If the
underwriters' warrants are exercised, the underwriters may realize additional
compensation. By their terms, the underwriters' warrants will be restricted from
sale, transfer, assignment or hypothecation, except to persons that are officers
of the underwriters. The number of shares covered by the underwriters' warrants
and the exercise price may be adjusted to prevent dilution. In addition, we have
granted rights to the holders of the underwriters' warrants to register the
underwriters' warrants and the common stock underlying the warrants under the
Securities Act.
We estimate that the total expenses of our offering will be
approximately $600,000, excluding underwriting discounts and commissions and the
non-accountable expense allowance payable to the underwriters.
Our directors and officers have entered into lock-up agreements with
the underwriter which provide that they will not offer, sell or otherwise
dispose of any common stock for a period of 180 days after the commencement of
the offering without the prior written consent of Paradise Valley Securities.
Paradise Valley Securities has no present intention to release the locked-up
shares prior to expiration of the 180-day period although Paradise Valley
Securities may release the locked-up shares prior to the expiration of this
period. The granting of any release would be conditioned, in the judgment of
Paradise Valley Securities, on the sale not materially adversely impacting the
prevailing trading market for the common stock on the Nasdaq National Market.
Specifically, factors including average trading volume, recent price trends, and
the need for additional public float in the market for the common stock would be
considered in evaluating a request to sell securities prior to the end of the
lock-up period.
Prior to the initial public offering, there has been no established
trading market for our common stock. The initial public offering price for the
shares of common stock offered by us for cash will be determined by negotiation
among us and the representative of the underwriters. Among the factors to be
considered in determining the initial public offering price will be:
- the history of and the prospects for the industry in which we
compete;
- our limited prior operations;
- our lack of historical results of operations;
- our prospects for future earnings;
- the recent market prices of securities of generally comparable
companies; and
- the general condition of the securities markets at the time of
the initial public offering.
Other than in the United States, no action has been taken by Takes.com
or the underwriters that would permit a public offering of the shares of common
stock offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any shares of common
stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
the offering of the common stock and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of any offer to buy any
shares of common stock included in the offering in any jurisdiction where that
would not be permitted or legal.
-46-
<PAGE> 49
The underwriters have advised us that, under Regulation M of the
Securities Act, some persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A "stabilizing bid" is a bid
for or the purchase of shares of common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or purchase of common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representative to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by that underwriter or syndicate member was purchased by
the representative in a syndicate covering transaction and has therefore not
been effectively placed by the underwriter or syndicate member. The
representative has advised us that the transactions described above may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
The underwriting agreement provides that we will indemnify the
underwriters and their controlling persons against liabilities under the
Securities Act or will contribute to payments the underwriters and their
controlling persons may be required to make with respect to these liabilities.
-47-
<PAGE> 50
LEGAL MATTERS
The validity of the common stock and warrants offered by this
prospectus will be passed upon for us by Pedersen & Houpt, P.C., Chicago,
Illinois. Legal matters specified by the underwriters in connection with our
initial public offering will be passed upon by Bryan Cave LLP, Phoenix, Arizona.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial
statements of Takes.com, Inc., as of March 31, 1999 and for the period from
March 16, 1999 (inception) through March 31, 1999, as described in their report.
We have included our financial statements in this prospectus and registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock and warrants we are offering. This prospectus does not contain all
of the information contained in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
Takes.com and the common stock and warrants we are offering , reference is made
to the registration statement and to the attached exhibits and schedules.
Statements made in this prospectus concerning the contents of any document are
not necessarily complete. With respect to each document filed as an exhibit to
the registration statement, reference is made to the exhibit for a more complete
description of the matter involved. The registration statement and the attached
exhibits and schedules may be inspected without charge at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any part of the
registration statement may be obtained from the SEC upon payment of prescribed
fees. Reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission may also be inspected
without charge at a Web site maintained by the SEC at http://www.sec.gov.
-48-
<PAGE> 51
TAKES.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF TAKES.COM, INC.
Report of Ernst & Young LLP, Independent Auditors............................................................. F-2
Balance Sheet as of March 31, 1999............................................................................ F-3
Statement of Operations for the period from March 16, 1999 (inception)
through March 31, 1999.................................................................................. F-4
Statement of Changes in Stockholders' Equity for the period from March 16, 1999 (inception)
through March 31, 1999.................................................................................. F-5
Statement of Cash Flows for the period from March 16, 1999 (inception)
through March 31, 1999.................................................................................. F-6
Notes to Financial Statements................................................................................. F-7
</TABLE>
F-1
<PAGE> 52
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Takes.com, Inc.
We have audited the accompanying balance sheet of Takes.com, Inc. (a development
stage company) and the related statements of operations, changes in
stockholders' equity and cash flows for the period from March 16, 1999
(inception) through March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America's Home Page, Inc. at
March 31, 1999 and the results of its operations and its cash flows for the
period from March 16, 1999 (inception) through March 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Phoenix, Arizona
May 5, 1999
except for Note 6
as to which
the date is
July 7, 1999
F-2
<PAGE> 53
TAKES.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Receivable from stockholder $ 1,000,000
Prepaid offering costs 4,228
-----------
Total current assets 1,004,228
Other assets -
-----------
Total assets $ 1,004,228
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,130
-----------
Total current liabilities 23,130
Stockholders' equity:
Common stock, par value $0.001:
Authorized shares - 30,000,000
Issued and outstanding shares - 12,900,000 12,900
Additional paid-in capital 1,165,718
Deficit accumulated during the development stage (197,520)
-----------
Total stockholders' equity 981,098
-----------
Total liabilities and stockholders' equity $ 1,004,228
===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 54
TAKES.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
PERIOD FROM MARCH 16, 1999 (INCEPTION) TO MARCH 31, 1999
<TABLE>
<S> <C>
Net revenues $ --
Costs and expenses:
Selling, general and administrative 18,902
Research and development 178,618
------------
197,520
------------
Net loss $ (197,520)
============
Net loss per share-basic and diluted $ (0.02)
============
Number of shares used in per share calculation-basic and diluted 11,784,470
============
</TABLE>
See accompanying notes.
F-4
<PAGE> 55
TAKES.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
MARCH 31, 1999
<TABLE>
<CAPTION>
Deficit Accum-
Common Stock Additional ulated During Total
----------------------------- Paid-In the Development Stockholders'
Date Shares Amount Capital Stage Equity
-------------- ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance - $ - $ - $ - $ -
Issuance of
common stock to
founders for 9,900 168,718 - 178,618
services March 16, 1999 9,900,000
Sale of common
stock for cash March 21, 1999 151,515 152 49,848 - 50,000
Sale of common
stock for cash March 22, 1999 2,848,485 2,848 947,152 - 950,000
Net loss - - - (197,520) (197,520)
----------- ----------- ----------- ----------- -----------
Balance at March 31, 1999 12,900,000 $ 12,900 $ 1,165,718 $ (197,520) $ 981,098
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 56
TAKES.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 16, 1999 (INCEPTION) TO MARCH 31, 1999
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss $ (197,520)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase in accounts payable 18,902
Expenses paid by stockholders 178,618
-----------
Net cash provided by operating activities -
INVESTING ACTIVITIES -
FINANCING ACTIVITIES
-----------
Net increase in cash -
Cash at beginning of period -
-----------
Cash at end of period $ -
===========
NON-CASH ACTIVITY
Stock subscribed by stockholders $ 1,000,000
Prepaid offering costs in accounts payable 4,228
</TABLE>
See accompanying notes.
F-6
<PAGE> 57
TAKES.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
March 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Takes.com, Inc. (the "Company") is a development stage company formed
on March 16, 1999. The Company's fiscal year ends on December 31 of
each year. The Company plans to launch a gateway to the World Wide Web
which management expects to attract and sustain a broad and loyal base
of Internet users by giving these users warrants that when accumulated
are convertible into a share of common stock in exchange for qualifying
activity at the Company's Web site.
BASIS OF PRESENTATION
To date, the Company's operations have consisted primarily of the
development of an Internet Web site. To be successful, the Company
needs to develop and test its Web site as well as its database and
network capabilities to meet the demands of its anticipated future
users. The Company may also need to raise additional capital to carry
out its business plans. In addition, there is some uncertainty about
whether the Company's business model will be accepted by potential
users as well as future advertisers and business partners. The Company
has not generated any revenue to date. To achieve viability, the
Company must ultimately generate sufficient revenue from its Web site
to cover its expenses.
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ
significantly from those estimates.
RECEIVABLE FROM STOCKHOLDER
Receivable from stockholder represents two subscriptions to purchase
3,000,000 shares of the Company's common stock for $1,000,000. These
subscriptions were collected on April 6, 1999 and accordingly, the
receivable is classified as a current asset. The subscribers are not
related to the Company other than as stockholders.
MEMBERSHIP AWARD PROGRAM
The Company expects to incur non-cash costs with respect to warrants to
be issued as incentives to qualifying users of its Web site. Users of
the Web site are issued warrants that are exercisable for shares of the
Company's common stock as is described in Note 2. Expense will be
recognized at the time of warrant issuance for the estimated fair value
of the number of warrants issued that the Company expects will
ultimately be converted into shares of common stock. Until the Company
establishes reasonably predictable information with which to estimate
the number of warrants issued that will ultimately be converted, it
will only reduce warrant issuance expenses for the actual expense
previously recorded for warrants issued that have expired.
F-7
<PAGE> 58
TAKES.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs include expenses incurred by the Company
to develop, enhance, manage, monitor and operate the Company's Web
site. Such costs are expensed as incurred. Costs incurred for the
development of internal use software are accounted for in accordance
with SOP 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use."
INTERIM FINANCIAL INFORMATION
Operating results for the period from March 16, 1999 (inception) to
March 31, 1999 are not necessarily indicative of results that may be
expected for any future periods.
RECIPROCAL ADVERTISING ARRANGEMENTS
The Company expects to enter into arrangements whereby it provides a
presence on its Web site for a third party in exchange for reciprocal
treatment on that party's Web site. The Company records advertising
revenue and offsetting advertising expense with respect to such
arrangements only when an objective basis upon which it can measure
such amounts is available.
2. WARRANT ISSUANCE, CONVERSION AND VALUATION
The Company has reserved 10 million shares of common stock for issuance
under its membership award program. Under the present program, the
Company plans to issue warrants to users of its Web site that are
initially convertible into common stock on the basis of 30 warrants
being convertible into one share of common stock for no additional
consideration. Once an Internet user registers with the Company, the
user will earn one warrant each day they visit the Company's Web site.
Warrants may also be earned in connection with contests and other
events periodically held by the Company. In the future, warrants may be
awarded to users who use the Company's Web site for extended periods of
time.
Warrants held by users will be maintained by the Company on its books
in uncertificated form and will be displayed on the user's individual
home page. Warrants expire at the earlier of the tenth business day of
the calendar year following the calendar year after the warrants were
earned or at the end of 60 days if the site has not been accessed for
60 days and the user has earned fewer than 30 warrants.
The Company estimates that the fair value of the warrants will be the
trading price of one share of common stock into which they may be
converted, adjusted for the conversion ratio, initially set at 30 for
one. Accordingly, the related costs for the issuance of warrants by the
Company will be based upon the estimated fair value of the total
warrants issued each day based upon the closing market price of the
underlying common stock on the date the warrants are awarded. As is
discussed in Note 1, the Company may change the number of issued
warrants upon which expense will be computed when it has developed
information from which it can reasonably estimate the number of
warrants which will be ultimately converted.
The Company will not permit warrants to be exercised until 180 days
after its initial public offering.
F-8
<PAGE> 59
TAKES.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY
On March 16, 1999, the Company issued 9,900,000 shares of common stock
to the founding stockholders of the Company in consideration for
services provided on behalf of the Company substantially all of which
was prior to its formation. The founding stockholders' historic cost
basis in the consideration given was $178,618 which related principally
to previously performed research and development activities relating to
the development of the Company's Web site and content. The amounts were
determined based upon the respective stockholders' actual costs
incurred through March 31, 1999.
On March 16, 1999, the Company issued 3,000,000 shares of common stock
to Mr. Peter L. Ax, the Chairman of its board of directors, and
2,100,000 shares of its common stock to Mr. Joel W. Cohen, its Chief
Executive Officer for services rendered, including their efforts and
expertise in founding the Company and for amounts expended and costs
incurred by them prior to our incorporation. In accordance with Staff
Accounting Bulletin No. 48, no value was ascribed to the services
provided as neither stockholder had any basis in such services. Mr.
Cohen directed that 900,000 additional shares which he was entitled to
receive be issued to his son, Mr. Michael Cohen.
On March 16, 1999, the Company issued 3,000,000 shares of common stock
to SpinCycle for services rendered by its employees on our behalf and
for relinquishing any and all right, title or interest in the business
concept for Takes.com. The services provided include administrative
support for Mr. Ax, as well as any time spent by Mr. Ax in founding
Takes.com or raising funds for Takes.com while working for SpinCycle.
In accordance with Staff Accounting Bulletin No. 48, no value was
ascribed to the services provided as SpinCycle had no basis in such
services. Mr. Ax is the chairman and chief executive officer of
SpinCycle.
Silvervision Entertainment Group, LLC ("Silvervision") developed the
Company's Web site. On March 16, 1999, the Company issued a total of
900,000 shares of common stock to two principals of Silvervision,
600,000 to David S. Bellino and 300,000 to Dale L. Sokolov, for Web
site development services rendered by Silvervision through March 31,
1999. Silvervision agreed to assign to the Company all of its right,
title and interest in the Company's Web site as of March 31, 1999. As
the site developer, Silvervision had certain rights to the site, until
such rights were assigned to the Company. In accordance with Staff
Accounting Bulletin No. 48, the Web site development services provided
by Sokolov, Bellino and Silvervision were measured based on the actual
cash costs incurred in the development of the Company's Web site.
4. LEASES
The Company assumed a lease for office space from Silvervision. The
Company conducts its primary business operations from this leased
space. Under the terms of the lease, the Company must pay monthly rent
of $5,500 through March 31, 2000.
5. INCOME TAXES
The Company has not yet determined whether the expense it will record
through the warrant issuance program will be deductible for federal
income tax purposes. Until such time as it obtains a favorable ruling
F-9
<PAGE> 60
TAKES.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
from the Internal Revenue Service, or otherwise determines that such
amounts will be deductible for income tax purposes, the Company does
not intend to account for such amounts as tax deductible.
At March 31, 1999, the Company had no net operating loss carryforwards
since its initial operating expenses are presently expected to be
capitalized for income tax purposes as start-up costs. Such start-up
costs generated approximately $70,000 of deferred tax assets which are
fully reserved for financial reporting purposes based on the Company's
initial losses.
The Company's income tax provision differs from the federal statutory
rate by such rate given that the Company incurred operating losses and
any related deferred tax benefits are fully reserved.
6. SUBSEQUENT EVENTS
STOCK OPTION PLANS
The Amended and Restated 1999 Employee Stock Option Plan was adopted by
the Board of Directors in June 1999, subject to stockholder approval.
The plan was established to attract, retain and motivate selected
employees and officers. The Company has reserved 2,340,000 shares of
common stock for issuance under this plan.
The Amended and Restated Non-Employee Director Stock Option Plan was
adopted by the Board of Directors in June 1999, subject to stockholder
approval. The plan was established to attract and compensate the
Company's non-employee directors. The Company has reserved 360,000
shares of common stock for future issuance under this plan. It is
presently anticipated that options to purchase shares will be granted
with an exercise price equal to the fair value of the related common
stock. Under present accounting rules, there would be no expense
recorded relating to such options. However, there are proposed changes
in accounting rules covering non-employee directors that, if adopted,
could result in future charges to expense under this plan.
The Amended and Restated Independent Contractor Stock Option Plan was
adopted by the Board of Directors in June 1999, subject to stockholder
approval. The plan was established to provide the Company with a
non-cash alternative for compensating third-party service providers to
the Company. The Company has reserved 400,000 shares of common stock
for issuance under this plan. The Company will record expense with
respect to options granted under this plan in accordance with Statement
of Financial Accounting Standards Number 123.
As of June 30, 1999, the Company had issued 793,000 non-qualified stock
options to various employees. The options vest over three years. The
exercise price for the options to purchase 775,000 of the shares is $4
per share and the exercise price for the remaining 18,000 shares is $5
per share. The Company will record deferred compensation for the
difference between the exercise price and $7.00, the estimated fair
value of the Company's stock on the date of grant and amortize it to
expense over the vesting period.
On June 30, 1999, the Company's non-employee directors also received
options to purchase a total of 90,000 shares of the Company's common
stock pursuant to the Company's Amended and Restated Non-Employee
Director Stock Option Plan. The options will vest upon the six month
anniversary of the closing of the Company's initial public offering,
and have an exercise price of $5 per share.
THIRD PARTY ARRANGEMENTS
Subsequent to March 31, 1999, the Company has entered into various
arrangements with other companies doing business on the Internet. These
arrangements range from formal contracts to registration as an
affiliate on the Web site of the other party. The arrangements
generally may be terminated by either party upon minimal notice.
On May 19, 1999, the Company entered into an Internet content
distribution agreement with Infospace.com, Inc. ("Infospace").
Infospace maintains and makes available to Internet users certain
content, resources, archives, indices, catalogs, and collections of
information. Under the terms of the agreement, the Company's
subscribers will have the right to access Infospace Web sites. The
Company will pay a monthly co-branding fee to Infospace. Initially,
either party may sell banner advertising on co-branded pages, with the
seller receiving 65% of the advertising revenue and the co-branding
partner receiving the remaining 35%. Once the Company's user base has
provided InfoSpace with a certain number of viewer impressions, the
Company will receive 40% of the advertising revenue generated by
InfoSpace and InfoSpace will receive 30% of the advertising revenue
generated by the Company on co-branded pages. The net advertising
revenue will be recognized when the advertising has been delivered and
collectibility is deemed probable.
F-10
<PAGE> 61
TAKES.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On May 25, 1999, the Company was approved as an affiliate of GoTo.com,
Inc. ("GoTo"). Under the terms of the affiliation, GoTo will provide
the Company with access to their search engine and will pay the Company
$0.02 for each click-through generated from its site. Revenue will be
recognized in the period the click-through occurs once collectibility
is deemed probable.
The Company has entered into arrangements with various companies,
including barnesandnoble.com, Staples.com, and Dell.com, whereby the
Company earns a percentage commission for each sale generated through
its Web site. The majority of the Company's affiliate arrangements
provide for commission-based revenue. Commission rates are as low as 1%
and as high as 50%, but they generally range from 10%-20%. Commission
revenue will be recognized in the period the related sale occurs once
collectibility is deemed probable.
The Company has also entered into agreements with various companies,
including Travelocity.com and Priceline.com, whereby the Company earns
a flat fee for each transaction executed at these sites through its Web
site. These fees generally range from $1.00 to $5.00 per sales
transaction and will be recognized in the period the related
transaction occurs once collectibility is deemed probable.
The Company also has arrangements with companies, including
ae-outfitters.com and WebTickets.com, whereby it receives a fixed
amount for each visit to a contracted Web site which originates from
the Company's Web site ("click-throughs"). Fees generally range from
$0.02 to $0.04 per click-through. Revenue will be recognized in the
period the click-through occurs once collectibility is deemed probable.
NAME CHANGE
On June 17, 1999, the Company's stockholders agreed to change the
Company's name to takes.com, inc. On June 23, 1999, the Company's
stockholders agreed to change the Company's name to Takes.com, Inc.
F-11
<PAGE> 62
[LOGO]
Until _______, 1999, all dealers that effect transactions in these securities,
whether or not participating in our initial public offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by
the Company in connection with the registration, issuance and distribution of
the securities to be registered by this registration statement, other than
underwriting discounts and commissions. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq application fee.
<TABLE>
<S> <C>
SEC registration fee $ 8,129
NASD filing fee 3,424
Nasdaq application fee 95,000
Accounting fees 75,000
Printing and engraving expenses 125,000
Legal fees and expenses 250,000
Transfer agent fees 20,000
Miscellaneous expenses 23,447
--------
Total $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "Delaware
Act") authorizes indemnification of directors, officers, employees and agents of
the Company; allows the advancement of costs of defending against litigation;
and permits companies incorporated in Delaware to purchase insurance on behalf
of directors, officers, employees and agents against liabilities whether or not
in the circumstances such companies would have the power to indemnify against
such liabilities under the provisions of the statute.
The Company's certificate of incorporation provides for indemnification
of the Company's officers and directors to the fullest extent permitted by
Section 145 of the Delaware Act. The Company intends to obtain directors and
officers insurance covering its executive officers and directors.
The certificate eliminates, to the fullest extent permitted by Delaware
law, liability of a director to the Company of its stockholders for monetary
damages for a breach of such director's fiduciary duty of care except for
liability where a director: (a) breaches his or her duty of loyalty to the
Company or its stockholders; (b) fails to act in good faith or engages in
intentional misconduct or knowing violation of law; (c) authorizes payment of an
illegal dividend or stock repurchase; or (d) obtains an improper personal
benefit. While liability for monetary damages has been eliminated, equitable
remedies such as injunctive relief or rescission remain available. In addition,
a director is not relieved of his or her responsibilities under any other law,
including the federal securities laws.
Insofar as indemnification by the Company for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, the Company has
been advised that in the opinion of the Securities and Exchange Commission ,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1999, we issued 100 shares of our common stock, par value
$.001 per share, to our co-founder, Peter L. Ax, in connection with our
incorporation. On March 16, 1999, we issued 2,999,900 shares of common stock to
Mr. Ax and 2,100,000 shares of common stock to Joel W. Cohen for founding the
Company and for services rendered, amounts expended and costs incurred by them
prior to the Company's incorporation. Mr. Cohen directed that 900,000 additional
shares which he was entitled to receive be issued to his son, Mr. Michael Cohen.
II-1
<PAGE> 64
On March 16, 1999, we also issued 3,000,000 shares of common stock to SpinCycle,
Inc. for services rendered by its employees on our behalf and for relinquishing
its interest in the business concept for Takes.com.
In March 1999, we issued a total of 900,000 shares of our common stock
to two principals of Silvervision Entertainment Group, LLC, 300,000 to David S.
Bellino and 600,000 to Dale L. Sokolov, for Web site development services
rendered by Silvervision through March 31, 1999. Mr. Bellino is our Vice
President of Production and Mr. Sokolov is our Vice President of Business
Development. Silvervision agreed to assign to us all of its right, title and
interest in our Web site as of March 31, 1999. Messrs. Bellino and Sokolov also
granted us an option to purchase, for no cash consideration, an option to
acquire their collective 33.4% interest in Illusion Networks, LLC which owns
interactive video technology for Internet applications. The grant of this option
is subject to the consent of Silvervision, the third member of Illusion
Networks. Mr. Bellino was the president and chief executive officer of
Silvervision and Illusion Networks. Under an arrangement with the stockholders
of Silvervision, Mr. Sokolov transferred to them 300,000 shares of our common
stock in June 1999.
In March 1999, we commenced an offering of up to $1,500,000 of our
common stock at an offering price of approximately $.33 per share. We sold
3,000,000 shares of our common stock for an aggregate purchase price of
$1,000,000. We offered our common stock to "accredited investors" only. In
connection with our private offering of common stock, we rely upon the
exemptions from the Section 5 registration requirements contained in Section
4(2) of the Securities Act and the safe harbor provided in Rule 506 of
Regulation D. Our offering was conducted without any general solicitation and
the investors were required to represent that they were purchasing for
investment and not with a view toward resale.
On June 23, 1999, our board of directors granted options to purchase
775,000 shares of our common stock pursuant to the amended and restated employee
stock option plan. The options will vest over three years, one third on each
anniversary of the date of grant, and have an exercise price of $4 per share.
Pursuant to the terms of the amended and restated non-employee director option
stock plan, on June 23, 1999, Messrs. Donald R. Diamond and Todd D. Sims each
received options to purchase 30,000 shares of our common stock pursuant to the
amended and restated non-employee director option plan. The options with vest on
the six month anniversary of our initial public offering, and have an exercise
price of $4 per share. On June 30, 1999, the Company's board of directors also
granted options to purchase 18,000 shares of the Company's common stock pursuant
to the Company's employee stock option plan. The options will vest over three
years, one-third on each anniversary of the date of grant, and have an exercise
price of $5 per share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits to the Registration Statement are listed in the Exhibit
Index which appears elsewhere in this Registration Statement and is incorporated
herein by this reference.
All schedules are omitted because of the absence of the condition under
which they are required or because the information is included in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
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 of 1933;
(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. Notwithstanding the foregoing, any
II-2
<PAGE> 65
increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(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 of 1933, 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) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 421(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities
Act of 1933, 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.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment no. 2 to its registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Diego, in the State of California, on July 8, 1999.
Takes.com, Inc.
By: /s/ JOEL W. COHEN
--------------------------------
Joel W. Cohen
Chief Executive Officer
II-4
<PAGE> 67
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Peter L. Ax, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
to act, for him and in his name, place and stead, in any and all capacities, to
sign any or all amendments (including 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 attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and 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
attorney-in-fact and agent, or his substitute may lawfully do or cause to be
done by virtue hereof. Pursuant to the requirements of the Securities Act of
1933, this registration statement has been signed by the following persons in
the capacities indicated on July 8, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ JOEL W. COHEN President and Chief Executive Officer
- ------------------------------ (Principal Executive, Financial and
Joel W. Cohen Accounting Officer)
/s/ PETER L. AX Chairman of the Board
- ------------------------------
Peter L. Ax
/s/ TODD D. SIMS Director
- ------------------------------
Todd D. Sims
/s/ DONALD R. DIAMOND Director
- ------------------------------
Donald R. Diamond
</TABLE>
II-5
<PAGE> 68
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Warrant Agreement between Underwriters and Takes.com, Inc. (the "Company")
3.1 Certificate of Incorporation of the Company as filed on March 16, 1999*
3.2(a) Certificate of Amendment to the Certificate of Incorporation of the Company as
filed on June 17, 1999
3.2(b) Certificate of Amendment to the Certificate of Incorporation of the Company as
filed on June 23, 1999
3.3 Form of Amended and Restated Certificate of Incorporation of the Company*
3.4 Bylaws of the Company*
4.1 Form of Warrant Agreement between the Company and Members*
5.1 Form of Legal Opinion of Pedersen & Houpt, P.C.
5.2 Form of Tax Opinion of Pedersen & Houpt, P.C.
10.1 Agreement with GoTo.com, Inc.*
10.2 Agreement with Verio, Inc.*
10.3 Contractor Work Agreement dated April 7, 1999 between the Company and Jedi
Group, Inc.*
10.4 Amended and Restated 1999 Employee Stock Option Plan
10.5 Amended and Restated Non-Employee Director Stock Option Plan
10.6 Amended and Restated Independent Contractor Stock Option Plan
10.7 Content Distribution Agreement dated May 19, 1999 between the Company and
InfoSpace.com, Inc.*
23.1 Consent of Pedersen & Houpt, P.C.
23.2 Consent of Ernst & Young LLP
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule*
</TABLE>
- ----------
* Previously filed.
II-6
<PAGE> 1
Exhibit 1.1
TAKES.COM, INC.
__________ SHARES
FORM OF
COMMON STOCK
UNDERWRITING AGREEMENT
[DATE], 1999
PARADISE VALLEY SECURITIES, INC.,
as Representative of the several Underwriters
11811 North Tatum Boulevard
Suite 4040
Phoenix, Arizona 85028
The undersigned, TAKES.COM, INC., a Delaware corporation (the
"Company") hereby addresses you as the representative (the "Representative") of
each of the firms listed on Schedule I hereto (collectively, the "Underwriters")
and hereby confirm its agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and
sell to the Underwriters 2,825,000 shares of its Common Stock (the "Firm
Shares"). Solely for the purpose of covering over-allotments in the sale of the
Firm Shares, the Company further proposes to grant the right to the Underwriters
to purchase up to an additional 423,750 shares of its Common Stock (the "Option
Shares"), as provided in Section 3 of this Agreement. The Firm Shares and the
Option Shares are herein sometimes referred to as the Shares and are more fully
described in the Prospectus hereinafter defined.
2. PURCHASE, SALE AND DELIVERY OF FIRM SHARES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters the Firm Shares, and each such Underwriter agrees, severally and
not jointly, (i) to purchase from the Company, at a purchase price of $ per
share, the number of Firm Shares set forth opposite its name in Schedule I
hereto and (ii) to purchase from the Company any additional number of Option
Shares which such Underwriter may become obligated to purchase pursuant to
Section 3 hereof.
The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as you may request upon at least forty-eight hours' prior notice to the
Company shall be delivered by or on behalf of the Company to you, through the
facilities of the Depository Trust Company ("DTC"), for the account of such
<PAGE> 2
Underwriter, against payment by or on behalf of such Underwriter of the purchase
price therefor by wire transfer of Clearinghouse (next-day) funds to the account
specified by the Company to you at least forty-eight hours in advance. The
Company will cause the certificates representing the Shares to be made available
for checking and packaging at least twenty-four hours prior to the Time of
Delivery (as defined below) with respect thereto at the office of DTC or its
designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m.,
Phoenix, Arizona time, on , 1999 or such other time and date as you and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., Phoenix, Arizona time, on the ate specified by you in the written
notice given by you of the Underwriters' election to purchase such Optional
shares, or such other time and date as you and the Company may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery," such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery," and each such time and date for delivery is herein called a "Time of
Delivery."
The documents to be delivered at each Time of Delivery by or
on behalf of the parties hereto pursuant to Section 6 hereof, including the
cross receipt for the Shares will be delivered at the offices of Bryan Cave LLP,
Two North Central Avenue, Suite 2200, Phoenix, Arizona 85004 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at 3:00
p.m., Phoenix, Arizona time, on the Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 2, "Business Day" shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
3. PURCHASE, SALE AND DELIVERY OF THE OPTION SHARES. The
Company hereby grants an option to the Underwriters to purchase from it up to
423,750 Option Shares on the same terms and conditions as the Firm Shares;
provided, however, that such option may be exercised only for the purpose of
covering any over-allotments which may be made by the Underwriters in the sale
of the Firm Shares. No Option Shares shall be sold or delivered unless all of
the Firm Shares previously have been, or simultaneously are, sold and delivered.
The option is exercisable on behalf of the several
Underwriters by you, as Representative, at any time, and from time to time,
before the expiration of 45 days from the date of this Agreement, for the
purchase of all or part of the Option Shares covered thereby, by notice given by
you to the Company in the manner provided in Section 13 hereof (the "Option
Notice"), setting forth the number of Option Shares as to which the Underwriters
are exercising the option, and the date of delivery of said Option Shares, which
date shall not be less than two business days after such Option Notice unless
otherwise agreed to by the parties. You may terminate the option at any time, as
to any unexercised portion thereof, by giving written notice to the Company to
such effect.
You, as Representative, shall make such allocation of the
Option Shares among the Underwriters as may be required to eliminate purchases
of fractional Shares.
2
<PAGE> 3
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
(a) The Company represents and warrants to and agrees
with each Underwriter that:
(i) The Company meets the requirements for
use of Form S-1 under the Securities Act of 1933, as amended
(the "Act"). A registration statement on Form S-1
(Registration No. 333-78261) in respect to the Shares,
including a preliminary prospectus, and such amendments to
such registration statement as may have been required to the
date of this Agreement, has been prepared by the Company
pursuant to and in conformity with the requirements of the
Act, and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") promulgated thereunder and has been filed with
the Commission under the Act. Copies of such registration
statement, including any amendments thereto, each related
preliminary prospectus (meeting the requirements of Rule 430
or 430A of the Rules and Regulations) contained therein, the
exhibits, financial statements and schedules have heretofore
been delivered by the Company to you. If such registration
statement has not become effective under the Act, a further
amendment to such registration statement, including a form of
final prospectus, necessary to permit such registration
statement to become effective will be filed promptly by the
Company with the Commission. If such registration statement
has become effective under the Act, a final prospectus
containing information permitted to be omitted at the time of
effectiveness by Rule 430A of the Rules and Regulations will
be filed promptly by the Company with the Commission in
accordance with Rule 424(b) of the Rules and Regulations. The
term Registration Statement as used herein means the
registration statement as amended at the time it becomes or
became effective under the Act (the "Effective Date") and, in
the event any post-effective amendment thereto becomes
effective prior to the First Time of Delivery, the
registration statement as so amended, including financial
statements and all exhibits and all documents incorporated by
reference therein and, if applicable, the information deemed
to be included by Rule 430A of the Rules and Regulations. The
term Prospectus as used herein means the prospectus as first
filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations or, if no such filing is required, the form of
final prospectus included in the Registration Statement at the
Effective Date, except that if the prospectus provided to the
Underwriters by the Company for use in connection with the
offering of Shares differs from the Prospectus on file with
the Commission at the time the Registration Statement becomes
effective (whether or not the Company is required to file with
the Commission such revised Prospectus pursuant to Rule 424(b)
of the Rules and Regulations), the term Prospectus shall refer
to such revised Prospectus from and after the time it is first
provided to the Underwriters for such use. The term
Preliminary Prospectus as used herein shall mean a preliminary
prospectus as contemplated by Rule 430 or 430A of the Rules
and Regulations included at any time in the Registration
Statement. All references in this Agreement to financial
statements and schedules and other information which is
contained, included, stated
3
<PAGE> 4
or described in the Registration Statement, Preliminary
Prospectus or the Prospectus shall be deemed to mean and
include all such financial statements and schedules and other
information which is incorporated by reference in, or deemed
to be a part of, the Registration Statement, Preliminary
Prospectus or Prospectus, as the case may be.
(ii) The Commission has not issued, and is
not to the best knowledge of the Company threatening to issue,
an order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus nor instituted proceedings for
that purpose. Each Preliminary Prospectus at its date of
issue, the Registration Statement and the Prospectus and any
amendments or supplements thereto contains or will contain, as
the case may be, all statements which are required to be
stated therein by, and in all material respects conforms or
will conform, as the case may be, to the requirements of, the
Act and the Rules and Regulations. Neither the Registration
Statement nor any amendment thereto, as of the applicable
effective date, contains or will contain, as the case may be,
any untrue statement of a material fact or omits or will omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and
neither the Prospectus nor any supplement thereto contains or
will contain, as the case may be, any untrue statement of a
material fact or omits or will omit to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the
Company makes no representation, warranty or agreement as to
information contained in or omitted from the Registration
Statement, the Preliminary Prospectus 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 the Underwriters specifically for use in
the preparation of: (i) the statements therein regarding
over-allotment, stabilization or passive market making by the
Underwriters, or (ii) the section thereof under the caption
Underwriting.
(iii) The documents, if any, incorporated by
reference in the Prospectus, at the time they were filed with
the Commission, complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the rules and regulations
adopted by the Commission thereunder (the "1934 Act Rules and
Regulations"), and, when read together and with the other
information contained in the Prospectus, at the time the
Registration Statement became effective and at the First Time
of Delivery, did not or will not, as the case may be, contain
an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading.
(iv) The Company has been duly incorporated
and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with full corporate
power and authority to own, lease and operate its properties
and
4
<PAGE> 5
conduct its business as described in the Registration
Statement; the Company is duly qualified to transact business
as a foreign corporation in good standing in each state or
other jurisdiction in which its ownership or leasing of
property or conduct of business requires such qualification,
except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse
effect on the ability of the Company to conduct its business
as described in the Registration Statement. The Company does
not own or control, directly or indirectly, any corporation,
association or other entity. The Company has no subsidiaries
(as defined in Rule 405 of the Rules and Regulations).
(v) The Company has full right and corporate
power and authority to enter into this Agreement and to
perform the transactions contemplated hereby. The filing of
the Registration Statement and the execution and delivery of
this Agreement have been duly authorized by the Board of
Directors of the Company. This Agreement constitutes a valid
and legally binding obligation of the Company enforceable in
accordance with its terms (except to the extent the
enforceability of the indemnification, exculpation and
contribution provisions of Section 7 hereof may be limited by
applicable law, and except as enforceability of this Agreement
may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other laws affecting
creditors' rights generally and by general principles of
equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law). The issue and
sale of the Shares by the Company and the performance of this
Agreement by the Company and the consummation of the
transactions herein contemplated will not result in a
violation of the Company's articles of incorporation or bylaws
or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any properties or assets of the Company under, any statute
which is applicable to it, or under any indenture, mortgage,
deed of trust, note, loan agreement, sale and leaseback
arrangement or other agreement or instrument to which the
Company is a party or by which they are bound or to which any
of the properties or assets of the Company is subject, or any
order, rule or regulation applicable to the Company of any
court or public, regulatory or governmental agency or body
having jurisdiction over the Company or its properties, other
than any such breach, violation, default, lien, charge or
encumbrance, as the case may be, which does not individually
or in the aggregate materially adversely affect the business
of the Company. No consent, approval, authorization, order,
registration or qualification of or with any court or public,
regulatory or governmental agency or body is required for the
consummation of the transactions herein contemplated, except
such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or under the Act or the
Rules and Regulations or any state securities laws.
(vi) Except as described in the Prospectus,
the Company has not sustained since the date of the latest
audited financial statements included in the Prospectus any
material loss or interference with its business from fire,
explosion,
5
<PAGE> 6
flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action,
order or decree. Except as contemplated in the Prospectus,
subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the
Company has not incurred any material liabilities or material
obligations, direct or contingent, other than in the ordinary
course of business, or entered into any material transactions
not in the ordinary course of business, and there has not been
any material change in the capital stock or long-term debt of
the Company or any material adverse change in the financial
condition, net worth, business, management, or results of
operations of the Company. The Company has filed all necessary
federal, state and foreign income and franchise tax returns
and paid all taxes shown as due thereon, except as are being
contested by the Company in good faith. All tax liabilities,
including those being contested by the Company, are adequately
provided for on the books of the Company. The Company has made
all necessary payroll tax payments and is current and
up-to-date as of the date of this Agreement to the extent
necessary to avoid a material adverse effect on the business
of the Company. The Company has no knowledge of any tax
proceeding or action pending or threatened against the
Company.
(vii) Except as described in the Prospectus,
there is no action, suit, arbitration, investigation or
governmental proceeding, domestic or foreign, pending or, to
the best of the Company's knowledge, threatened or involving
the properties or business of the Company which challenges the
validity of this Agreement or any action taken or required to
be taken by the Company pursuant to or in connection with this
Agreement or which could reasonably be expected to materially
and adversely affect the financial condition, operation,
properties, business or results of operations of the Company.
The Company is not a party and is not subject to the
provisions of any injunction, judgment, decree or order of any
court or any public, regulatory or governmental agency or
body. There are no contracts or documents to which the Company
is a party which would be required to be filed as exhibits to
the Registration Statement by the Act or by the Rules and
Regulations which have not been filed as exhibits to the
Registration Statement; the contracts and documents to which
the Company is a party which are so described in the
Registration Statement are in full force and effect on the
date hereof; and the Company does not have notice that any
other party is in breach of or default under any of such
contracts to a material extent.
(viii) The Company has duly and validly
authorized capital stock as described in the Prospectus.
Except as disclosed in or contemplated by the Prospectus and
the financial statements of the Company and the related notes
thereto included in the Prospectus, the Company does not have
outstanding any options to purchase or any preemptive rights
or other rights to subscribe or to purchase, any securities or
obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The
description of outstanding warrants to
6
<PAGE> 7
purchase Common Stock and the Company's stock option plans and
the options or other rights granted and exercised thereunder
set forth in the Prospectus accurately presents in all
material respects the information required to be shown with
respect to such warrants, plans, options and rights. All
outstanding shares of Common Stock of the Company conform, and
the Shares when issued will conform, in all material respects
to the description thereof in the Registration Statement and
the Prospectus and have been, or, when issued and paid for
will be, duly authorized, validly issued, fully paid and
nonassessable, issued in material compliance with all
applicable Federal and state securities laws and not issued in
violation of or subject to any preemptive rights or other
rights to purchase or subscribe for securities of the Company.
No shareholder of the Company has any right to require the
Company to register the sales of any shares or other
securities owned by such shareholder under the Act in the
public offering contemplated by this Agreement. Upon delivery
of the Shares to be sold by the Company and full payment
therefor pursuant to this Agreement, good and valid title to
such Shares, free and clear of all liens, encumbrances,
security interests, restrictions on transfer, equities or
claims whatsoever, will pass to the Underwriters.
(ix) The Company owns no real property and
the Company has good and marketable title to personal property
owned by it, subject to no lien, charge, defect or
encumbrances of any kind except such as are described in the
Prospectus, such as not materially interfere with the use made
and proposed to be made of such property by the Company.
Except as disclosed in the Prospectus, the Company owns or
leases all such assets as are materially necessary to its
operations as now conducted.
(x) Ernst & Young, LLP, the accounting firm
which has certified the financial statements filed with the
Commission as a part of the Registration Statement, is an
independent public accounting firm within the meaning of the
Act and the Rules and Regulations.
(xi) The financial statements and schedules
of the Company, including the notes thereto, filed with and as
a part of the Registration Statement, are accurate in all
material respects and present fairly the financial position of
the Company as of the respective dates thereof and the results
of operations and statements of cash flow for the respective
periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved except as otherwise disclosed
in the Prospectus. The selected financial data included in the
Registration Statement and Prospectus present fairly the
information shown therein and have been compiled on a basis
consistent with that of the audited financial statements
included in the Registration Statement and Prospectus.
(xii) The Company is not in default with
respect to any contract or agreement to which it is a party;
provided that this representation shall not apply to
7
<PAGE> 8
defaults which in the aggregate could not materially adversely
affect the financial condition or the business of the Company.
(xiii) The Company is not in breach or
violation of any provision of its articles of incorporation or
bylaws or any laws, ordinances or governmental rules or
regulations to which it is subject, and the Company has not
failed to obtain, maintain or comply with the terms of any of
the material licenses, certificates, permits, franchises,
easements, consents, or other governmental authorizations
necessary to the ownership, leasing and operation of its
properties or to the conduct of its business, which breach,
violation or failure would materially adversely affect the
business, operations, properties, profits or financial
condition of the Company.
(xiv) Except as described in the Prospectus,
the Company has sufficient interests in all patents,
trademarks, service marks, trade names, domain names,
copyrights, trade secrets, information, proprietary rights and
processes ("Intellectual Property") necessary for the conduct
of the business now conducted by it as described in the
Prospectus, and, to the Company's knowledge necessary in
connection with the products and services under development,
without, to the Company's knowledge, any infringement of or
the interests of others, and has taken all reasonable steps
necessary to secure interests in such Intellectual Property
from its contractors; except as set forth in the Prospectus,
the Company is not aware of outstanding options, licenses or
agreements of any kind relating to the Intellectual Property
of the Company which are required to be set forth in the
Prospectus, and, except as set forth in the Prospectus, the
Company is not a party to or bound by any options, licenses or
agreements with respect to the Intellectual Property of any
other person or entity which are required to be set forth in
the Prospectus; none of the technology employed by the Company
has been obtained or is being used by the Company in violation
of any contractual fiduciary obligation binding on the Company
or to the knowledge of the Company any of its directors,
officers or employees or otherwise in violation of the rights
of any persons; except as disclosed in the Prospectus, the
Company has not received any written or, to the Company's
knowledge, oral communications alleging that the Company has
violated, infringed or conflicted with, or by conducting its
business as set forth in the Prospectus, would violate,
infringe or conflict with any of the Intellectual Property of
any other person or entity other than any such violations,
infringements or conflicts which, individually or in the
aggregate, have not had and are not reasonably likely to
result in a material adverse effect on the Company's conduct
of its business as described in the Prospectus or on its
result of operations or financial condition; and the Company
has taken and will maintain reasonable measures to prevent the
unauthorized dissemination or publication of its confidential
information and, to the extent contractually required to do
so, the confidential information of third parties in their
possession.
(xv) The Company maintains insurance of the
types and in the amounts generally deemed adequate for its
business, including, but not limited to,
8
<PAGE> 9
general liability insurance, business interruption insurance
and insurance covering personal property owned or leased by
the Company against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all
of which insurance is in full force and effect.
(xvi) The Company has not taken and will not
take, directly or indirectly, any action designed to or which
might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Company's
Common Stock, and the Company is not aware of any such action
taken or to be taken by any director, officer, employee,
consultant, or shareholder of the Company.
(xvii) The Company is not and, after giving
effect to the offering and sale of the Shares, will not be an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(xviii) The Common Stock of the Company is
registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended, and is approved for trading
on the Nasdaq Stock Market National Market (the "NNM") under
the symbol "TAKE." The Company has taken no action that was
designed to terminate, or that is likely to have the affect of
terminating, trading of its Common Stock on the NNM, nor has
the Company received any notification that the Commission or
the Nasdaq Stock Market is contemplating terminating such
trading.
(xix) Neither the Company nor any of its
affiliates does business with the government of Cuba or with
any person or affiliate located in Cuba, within the meaning of
Section 517.075 of the Florida Statutes.
(xx) Except as disclosed in the Registration
Statement and the Prospectus, no officer, director or
beneficial of five percent or more of the Company's capital
stock is, directly or indirectly, associated with a NASD
member broker-dealer and the Company has no management or
financial consulting agreement with any third party.
(xxi) No person is entitled, directly or
indirectly, to compensation from the Company for services as a
finder in connection with the transactions contemplated by
this Agreement.
(xxii) The Company has reviewed its
operations and that of any third parties with which the
Company has a material relationship to evaluate the extent to
which the business or operations of the Company or any of its
subsidiaries will be affected by Year 2000 issues. As a result
of such review, the Company represents and warrants that the
disclosure in the Registration Statement relating to Year 2000
issues is accurate and complies in all material respects with
the rules and regulations of the Act. "Year 2000 issues" as
used herein means Year 2000 issues described in or
contemplated by the Commission's Interpretation: Disclosure of
9
<PAGE> 10
Year 2000 Issues and Consequences by Public Companies,
Investment Advisers, Investment Companies, and Municipal
Securities Issuers (Release No. 33-7558).
(b) Any certificate signed by any officer of the
Company and delivered to you or to counsel for the Underwriters shall
be deemed a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
5. ADDITIONAL COVENANTS. The Company covenants and agrees with
the several Underwriters that:
(a) If the Registration Statement is not effective
under the Act, the Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible, and
it will notify you, promptly after it shall receive notice thereof, of
the time when the Registration Statement has become effective. The
Company (i) will prepare and timely file with the Commission under Rule
424(b) of the Rules and Regulations, if required, a Prospectus
containing information previously omitted at the time of effectiveness
of the Registration Statement in reliance on Rule 430A of the Rules and
Regulations or otherwise; (ii) will not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Underwriters shall not previously have been advised and furnished with
a copy or to which the Underwriters shall have reasonably objected in
writing or which is not in compliance in all material respects with the
Rules and Regulations; and (iii) will promptly notify you after it
shall have received notice thereof of the time when any amendment to
the Registration Statement becomes effective or when any supplement to
the Prospectus has been filed.
(b) The Company will advise the Underwriters
promptly, after it has received notice or obtained knowledge thereof,
of any comments of the Commission with respect to the Registration
Statement, of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, or 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 or threat of any
proceedings for that purpose, and 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.
(c) The Company will cooperate with the Underwriters
and their counsel in endeavoring to qualify the Shares for sale under
(or obtain exemptions from the application of) the securities laws of
such jurisdictions as they may have designated and will make such
applications, file such documents, and furnish such information as may
be reasonably necessary so as to permit the continuance of sales and
dealings therein for so long as may be necessary to complete the
distribution of the Shares, 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. The Company will advise you promptly of the suspension of
the qualification or registration of (or any such exemption relating
to) the Shares for offering, sale or trading in any jurisdiction or any
10
<PAGE> 11
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company, with your cooperation, will use
its best efforts to obtain the withdrawal thereof.
(d) The Company will deliver to, or upon the order
of, the Underwriters, without charge from time to time, as many copies
of any Preliminary Prospectus (including all documents incorporated by
reference therein) as they may reasonably request. The Company will
deliver to, or upon the order of, the Underwriters without charge as
many copies of the Prospectus (including all documents incorporated by
reference therein), or as it thereafter may be amended or supplemented,
as they may from time to time reasonably request. The Company consents
to the use of such Prospectus by the Underwriters and by all dealers to
whom the Shares may be sold, in connection with the offering or sale of
the Shares and for such period of time thereafter as the Prospectus is
required by law to be delivered in connection therewith. The Company
will deliver to you at or before the First Time of Delivery two signed
copies of the Registration Statement and all amendments thereto,
including all exhibits filed therewith or incorporated by reference
therein, and all documents incorporated by reference in the Prospectus,
and will deliver to the Underwriters such number of copies of the
Registration Statement, without exhibits, and of all amendments
thereto, as they may reasonably request.
(e) 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 reasonable judgment of the
Company or in your reasonable judgment or in the written opinion of
counsel for the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in
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 applicable law.
(f) The Company will make generally available to its
shareholders, as soon as it is practicable to do so, but in any event
not later than 18 months after the effective date of the Registration
Statement, an earnings statement 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 the Underwriters in writing
when such statement has been so made available.
(g) The Company will, for a period of five years from
the Effective Date, deliver to the Underwriters at their principal
executive offices a reasonable number of copies of annual reports,
quarterly reports, current reports and copies of all other documents,
reports and information furnished by the Company to its shareholders or
filed with any securities exchange or national securities market
pursuant to the requirements of
11
<PAGE> 12
such exchange or market or with the Commission pursuant to the Act or
the 1934 Act. Any report, document or other information required to be
furnished under this subsection (g) shall be furnished as soon as
practicable after such report, document or information becomes
available.
(h) The Company will apply the proceeds from the sale
of the Shares as set forth in the description under the caption "Use of
Proceeds" in the Prospectus.
(i) The Company will supply you with copies of all
correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Shares under the
Act.
(j) Prior to each Time of Delivery, the Company will
furnish to you, as soon as they have been prepared, copies of any
unaudited interim consolidated financial statements of the Company for
any periods subsequent to the periods covered by the financial
statements appearing in the Registration Statement and the Prospectus.
(k) Prior to the 30th day after the last Time of
Delivery, the Company will not issue any press releases or other
communications directly or indirectly and will hold no press
conferences with respect to the Company, the financial condition,
results of operations, business, properties, assets or liabilities of
the Company, or the offering of the Shares, without your prior written
consent except as otherwise required by law.
(l) The Company will use its best efforts to obtain
approval for, and maintain the listing of the Shares on, the NNM.
(m) For a period of 180 days from the Effective Date,
the Company will not, and will cause its directors, officers and
pre-Effective Date securityholders (including, without limitation,
holders of options, warrants or other rights to acquire securities of
the Company) to not (in each case without the Representative's prior
written consent), (i) offer, pledge, sell, hypothecate, contract to
sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend
or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or (ii) enter into any hedge, swap or other arrangement
that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is be settled by
delivery of Common Stock or such other securities, in cash or
otherwise, without your prior written consent, except for the Shares
sold hereunder and except for sales by the Company of shares of Common
Stock to the Company's employees and consultants to the Company, in
each case pursuant to the exercise of options under the Company's stock
option plan as described in the Prospectus. The foregoing sentence
shall not apply to the sale of any Shares to the Underwriters pursuant
to this Agreement.
(n) The Company will file with the Commission such
information on Form 10-Q or Form 10-K as may be required by Rule 463
under the Act.
12
<PAGE> 13
(o) The Company will maintain and keep accurate books
and records reflecting its assets and will maintain internal accounting
controls which provide reasonable assurance that (i) transactions are
executed in accordance with management's authorization, (ii)
transactions are recorded as necessary to permit the preparation of the
Company's consolidated financial statements and to maintain
accountability for the assets of the Company, (iii) access to the
assets of the Company is permitted only in accordance with management's
authorization, and (iv) the recorded accounts of the assets of the
Company are compared with existing assets at reasonable intervals.
(p) Prior to the Effective Date, the Company shall
have issued to the transfer agent for the Common Stock (the "Transfer
Agent") a "stop transfer" instruction with respect to all the shares of
Common Stock issued and outstanding immediately prior to the Effective
Date (the "Pre-offering Shares"), instructing the Transfer Agent to not
honor any requests to transfer any Pre-offering Shares prior to the
expiration of the 180-day period described in Section 5(m) of this
Agreement without the Representative's prior written consent, and such
stop transfer instruction shall be in full force and effect at each
Time of Delivery.
(q) The Company shall have furnished to the
Representative, at least five days before the Effective Date, a true,
correct and complete copy of the stock transfer records of the Company
from the date of the Company's inception, and the Company will make
available its stock transfer records to the Representative upon the
Representative's request during the 12-month period following the
Effective Date.
(r) The Company will not, without the prior written
consent of the Representative, directly or indirectly grant any
options, warrants or rights to purchase or acquire Common Stock for a
period of [120] days commencing on the Effective Date or permit to be
outstanding during such period any such options, warrants or rights,
other than (i) an aggregate of up to _________ options and warrants;
(ii) warrants or other rights which are outstanding on the Effective
Date and described in the Prospectus; and (iii) the Representative's
Warrants. The Company will not, without the prior written consent of
the Representative, grant any options, warrants or rights to purchase
or acquire Common Stock for a price below the market price for the
Common Stock on the date of grant, for a period of one year commencing
on the Effective Date. The Company will not, without the prior written
consent of the Underwriter, file a registration statement on Form S-8
during the 180 day period following the Effective Date.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase and pay for the Shares being sold
hereunder by the Company to the Underwriters shall be subject to the accuracy in
all material respects, as of the date hereof and as of each Time of Delivery of
the representations and warranties of the Company contained herein, to the
performance in all material respects by the Company of its covenants and
obligations hereunder, and to the additional conditions set forth in this
Section 6.
13
<PAGE> 14
(a) If the Company and the Underwriters have
determined not to proceed pursuant to Rule 430A, the Registration
Statement shall have become effective not later than 10:00 a.m.,
Phoenix, Arizona, on the day following the date of this Agreement or
such later date as may be consented to in writing by you. If the
Company and the Underwriters have determined to proceed pursuant to
Rule 430A, all filings required by Rule 424 and Rule 430A of the Rules
and Regulations shall have been made. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to
time, shall have been issued and no proceeding for that purpose shall
have been initiated or, to the knowledge of the Company or any
Underwriter, threatened or contemplated by the Commission, and any
request of the Commission for additional information (to be included in
the Registration Statement or the Prospectus or otherwise) shall have
been complied with to the reasonable satisfaction of the Underwriters.
(b) No person or entity shall have disclosed in
writing to the Company or the Underwriters on or prior to the relevant
Time of Delivery, that the Registration Statement or Prospectus or any
amendment or supplement thereto contains an untrue statement of fact
which, in the opinion of counsel to the Underwriters, is material, or
omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) You shall have received an opinion of Pedersen &
Houpt, P.C., counsel for the Company, addressed to you and dated such
Time of Delivery to the effect that:
(i) The Company has been duly incorporated
and is a validly existing corporation in good standing under
the laws of the State of Delaware with corporate power and
authority to own, lease and operate its properties and conduct
its business as described in the Registration Statement. The
Company is duly qualified as a foreign corporation in good
standing in each state or other jurisdiction in which its
ownership or leasing of property or conduct of business
legally requires such qualification, except where, in the
aggregate, the failure to be so qualified would not have a
material adverse effect on the ability of the Company to
conduct its business as described in the Registration
Statement.
(ii) The Company's authorized capital stock
is as set forth under the caption "Capitalization" in the
Prospectus. The Common Stock of the Company conforms in all
material respects to the description thereof in the Prospectus
under the caption "Description of Capital Stock," and the
statements in the Prospectus under such caption fairly
summarize in all material respects the provisions referred to
in the Company's articles of incorporation, bylaws and the law
of the State of Delaware. The form of certificate used to
evidence the Common Stock filed as an exhibit to the
Registration Statement has been approved by the Company's
Board of Directors, and assuming such certificate is signed by
the proper and authorized officers of the Company as required
by the law of the State of Delaware will comply
14
<PAGE> 15
as to form with the requirements of such law. The outstanding
shares of Common Stock have been duly authorized and are
validly issued, fully paid and non-assessable, were issued in
material compliance with all applicable Federal and state
securities laws and the laws of the State of Delaware, and
were not issued in violation of or subject to any preemptive
rights or other rights to purchase or subscribe for securities
of the Company. The Shares being sold by the Company have been
duly authorized and, when delivered and fully paid for in
accordance with this Agreement, will be validly issued, fully
paid and non-assessable, and the shareholders of the Company
have no preemptive rights with respect to the Shares. Except
as disclosed in the Prospectus, there are no outstanding
options, warrants, or other rights calling for the issuance
of, and no present commitments, plans or arrangements of the
Company at this time to issue any shares of capital stock of
the Company or any security convertible into or exchangeable
for capital stock of the Company. Upon delivery of the Shares
being sold by the Company and full payment therefor pursuant
to this Agreement and registration of the ownership of such
Shares by the transfer agent for such Shares, good and valid
title to such Shares free and clear of all liens,
encumbrances, security interests, restrictions on transfer,
equities or claims whatsoever other than those created or
granted by this Agreement or by the Underwriters, will pass to
the Underwriters.
(iii) Such counsel has been advised by the
staff of the Commission that the Registration Statement has
become effective under the Act and, to the best knowledge of
such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or
contemplated under the Act; any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b)
of the Rules and Regulations has been made in the manner and
within the time period required by such Rule 424(b).
(iv) The Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of
their respective effective or issue dates, comply as to form
in all material respects with the requirements of Form S-1
under the Act and the applicable Rules and Regulations (except
that such counsel need express no opinion or belief as to
numerical, financial and statistical data, financial
statements and notes and related schedules thereto).
(v) The descriptions in the Registration
Statement and Prospectus of contracts and other documents
filed as exhibits to the Registration Statement are accurate
in all material respects.
(vi) No authorization, approval, consent,
order, registration or qualification of or with any court or
public, regulatory or governmental body, authority or agency
is required with respect to the Company in connection with the
transactions contemplated by this Agreement, except such as
may be required under the Act, the Rules and Regulations or
the 1934 Act or by the NASD or under state
15
<PAGE> 16
securities laws in connection with the purchase and
distribution of the Shares by the Underwriters.
(vii) The Company has the corporate power
and authority to enter into this Agreement and to sell and
deliver the Shares to be sold by it to the several
Underwriters. The filing of the Registration Statement with
the Commission has been duly authorized by the Board of
Directors of the Company. This Agreement has been duly
authorized, executed and delivered by the Company. The making
and performance of this Agreement by the Company and the
consummation of the transactions herein contemplated will not
result in a violation of the Company's articles of
incorporation or bylaws or to the knowledge of such counsel
result in a breach or violation of any of the terms and
provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any properties or assets of the Company under, any applicable
Federal or state statute, or under any indenture, mortgage,
deed of trust, note, loan agreement, lease, franchise,
license, permit or any other agreement or instrument known to
such counsel to which the Company is a party or by which it is
bound or to which any of the properties or assets of the
Company is subject, or any order, rule or regulation known to
such counsel of any court or public, regulatory or
governmental agency, authority or body having jurisdiction
over the Company or its properties, except, in the case of any
such violation, breach, default, creation or imposition, to
such extent as does not materially adversely affect the
business of the Company.
(viii) To the knowledge of such counsel, (i)
there are no legal, governmental or regulatory proceedings
pending or threatened to which the Company is a party or of
which the business or properties of the Company is the subject
which (individually or in the aggregate) would have a material
adverse effect on the business or property of the Company or
on the ability of the Company to consummate the transactions
contemplated herein, and which are not disclosed in the
Registration Statement and Prospectus; (ii) there are no
contracts or documents of a character required to be described
in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement which are not
described therein or filed as required; (iii) the Company is
not a party or subject to the provisions of any injunction,
judgment, decree or order of any court or any public,
regulatory or governmental agency, authority or body which
would have a material adverse effect on the business or
property of the Company or on the ability of the Company to
consummate the transactions contemplated herein; and (iv)
there are no applicable Federal or state statutes, orders,
rules or regulations required to be described in the
Registration Statement or Prospectus under the Act, the 1934
Act or applicable state securities laws which are not
described therein as required.
(ix) The Company holds all licenses,
certificates, permits, franchises, consents, authorizations
and approvals from all state and federal regulatory
authorities, that are required for the Company to conduct its
business as described in the Prospectus, except in the case of
any such license, certificate,
16
<PAGE> 17
permit, franchise, consent, authorization or approval the loss
of which or failure to maintain would not have a material
adverse effect on the business of the Company.
(x) The Company is not in violation of its
articles of incorporation and bylaws. The Company is not in
breach of, or in default with respect to, any provisions of
any agreement, mortgage, deed of trust, lease, note,
agreement, franchise, license, indenture, permit or other
instrument known to such counsel to which the Company is a
party or by which the Company or any of the properties thereof
may be bound or affected, which breach or default would have a
material adverse effect on the business or property of the
Company or on the Company's ability to consummate the
transactions contemplated herein, and the Company is in
material compliance with all judgments, decrees and orders of
any court to which the Company is subject, except where
noncompliance would not have a material adverse effect on the
business of the Company.
(xi) The Company is not an "investment
company" within the meaning of the Investment Company Act of
1940, as amended.
(xii) No holders of securities of the
Company have preemptive rights or other rights to purchase or
subscribe for shares of Common Stock or other securities of
the Company, nor any rights to require the Company to register
any securities under the Act in connection with the
transactions contemplated hereby.
Such counsel shall confirm that during the preparation of the
Registration Statement and Prospectus, such counsel participated in conferences
with officers and other representatives of the Company, representatives of the
independent certified public accountants for the Company and representatives of
the Underwriters and their counsel, at which time the contents of the
Registration Statement and Prospectus and related matters were discussed and
although such counsel is not opining with respect to and does not assume any
responsibility for the accuracy, truthfulness, completeness or fairness of the
statements contained in the Registration Statement or Prospectus, such counsel
confirms that no facts have come to their attention which have caused them to
believe that either (i) the Prospectus or any supplement thereto as of its date
(other than numerical, financial or statistical data, the financial statements
and notes or any related schedules thereto, as to which such counsel need
express no opinion or belief) contains any untrue statement of a material fact
or omits to state a 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 or (ii) the Registration Statement or any amendment
thereto at the time it became effective (other than numerical, financial or
statistical data, the financial statements and notes or any related schedules
thereto, as to which such counsel need express no opinion or belief) contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
In rendering the foregoing opinion, such counsel may expressly
state that it is qualified to render an opinion only as to matters involving the
Federal laws of the United States, the general corporation law of the State of
Delaware and may rely as to all matters of fact upon, among
17
<PAGE> 18
other things, certificates and written statements of officers of the Company and
government officials and the representations and warranties of the Company
contained herein; provided that such counsel shall state that nothing has come
to the attention of such counsel that would reasonably cause such counsel to
believe that such counsel and the Underwriters are not justified in relying upon
such certificates, statements, representations and warranties.
(d) You shall have received on such Time of Delivery,
from Bryan Cave LLP, counsel to the Underwriters, such opinion or
opinions, dated such Time of Delivery with respect to corporate
existence and good standing of the Company, the validity of the Shares,
the Registration Statement, the Prospectus and other related matters as
you may reasonably require; the Company shall have furnished to such
counsel such documents as they reasonably request for the purpose of
enabling them to opine with respect to such matters.
(e) On the date of the Prospectus and on each Time of
Delivery, you shall have received from Ernst & Young, LLP a letter or
letters, dated the date of the Prospectus and Time of Delivery,
respectively, in form and substance reasonably satisfactory to you,
providing confirmation that they are independent public accountants
with respect to the Company within the meaning of the Act and the
published Rules and Regulations, and the answer to Item 509 of
Regulation S-K set forth in the Registration Statement is correct
insofar as it relates to them, and providing a statement similar in
substance to the one set forth in Schedule II hereto.
(f) Except as contemplated in the Prospectus, (i) the
Company shall not have sustained since the date of the latest audited
financial statements included in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree; and (ii)
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, the Company shall not
have incurred any liability or obligation, direct or contingent, or
entered into transactions, and there shall not have been any change in
the capital stock or long-term debt of the Company or any change in the
financial condition, net worth, business, management, or results of
operations of the Company, the effect of which, in any such case
described in clause (i) or (ii), is in your reasonable judgment so
material or materially adverse as to make it impracticable to proceed
with the public offering or the delivery of the Shares being delivered
on such Time of Delivery on the terms and in the manner contemplated in
the Prospectus.
(g) There shall not have occurred any of the
following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or the NNM or establishing on such exchanges or the NNM
by the Commission or by such exchanges or the NNM of minimum or maximum
prices which are not in force and effect on the date hereof; (ii) a
general moratorium on commercial banking activities declared by either
federal or state authorities; or (iii) the outbreak or escalation of
hostilities involving the United States or the declaration by the
18
<PAGE> 19
United States of a national emergency or war, any calamity or crisis,
material change in national, international or world affairs, natural
disaster, material change in the international or domestic markets, or
material change in the existing financial, political or economic
conditions in the United States or elsewhere, or the enactment,
publication, decree, or other promulgation of any federal or state
statute, regulation, rule, or order of any court or other governmental
authority, or the taking of any action by any federal, state or local
government or agency in respect of fiscal or monetary affairs, if the
effect of any such event specified in this clause (iii) is in your
reasonable judgment so material or materially adverse as to make it
impracticable to proceed with the public offering or the delivery of
the Shares on the terms and in the manner contemplated in the
Prospectus.
(h) As a condition precedent to the several
obligations of the Underwriters to purchase and pay for the Shares
being sold hereunder, you shall have received a certificate or
certificates, dated the Time of Delivery and signed on behalf of the
Company by the President and Chief Executive Officer and the Chief
Financial Officer of the Company stating that: (A) such party has
carefully examined the Registration Statement and the Prospectus as
amended or supplemented and all documents incorporated by reference
therein and nothing has come to such party's attention that would lead
him to believe that either the Registration Statement or the
Prospectus, or any amendment or supplement thereto or any documents
incorporated by reference therein as of their respective effective,
issue or filing dates, contained, and the Prospectus as amended or
supplemented and all documents incorporated by reference therein and
when read together with the documents incorporated by reference
therein, at such Time of Delivery, contains any untrue statement of a
material fact, or omits 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;
provided, however, that such party makes no representation, warranty or
agreement as to information contained in or omitted from the
Registration Statement, the Preliminary Prospectus or the Prospectus,
or any such amendment or supplement thereto, in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of the Underwriters specifically for use in the preparation of
(i) the statements therein regarding over-allotment, stabilization or
passive market making by the Underwriters, or (ii) the section thereof
under the caption "Underwriting"; (B) all representations and
warranties made herein by the Company are true and correct in all
material respects at such Time of Delivery, with the same effect as if
made on and as of such Time of Delivery, and all agreements herein
required to be performed by the Company on or prior to such Time of
Delivery have been duly performed in all material respects; and (C)
such other matters as you may reasonably request.
(i) As a condition precedent to the several
obligations of the Underwriters to purchase and pay for the Shares
being sold hereunder, the Company shall not have failed, refused, or
been unable, on or by such Time of Delivery to have performed in all
material respects any agreement on its part required to be performed by
it or any of the conditions herein contained and required to be
performed or satisfied by it on or by such Time of Delivery.
19
<PAGE> 20
(j) The Shares shall have been approved for trading
or quotation upon official notice of issuance on the NNM under the
symbol "TAKE," and on the Time of Delivery the Shares shall be trading
or quoted under such symbol.
(k) As a condition precedent to the several
obligations of the Underwriters to purchase and pay for the shares
being sold hereunder, you shall have received, at or prior to the first
Time of Delivery:
(i) from each officer and each director of
the Company, and each record holder of shares of Common Stock
outstanding immediately prior to the first Time of Delivery,
an executed "lock-up" agreement in the form of Exhibit A
hereto; and
(ii) from the Transfer Agent an
acknowledgment of the Company's instruction's described in
Section 5(p) of this Agreement.
All such opinions, certificates, letters and documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory to you and to Bryan Cave LLP, counsel for the several Underwriters.
The Company will furnish you with such conformed copies of such opinions,
certificates, letters and documents as you may reasonably request.
If any of the conditions specified above in this Section 6
shall not have been satisfied at or prior to the Time of Delivery or waived by
you in writing, this Agreement may be terminated by you on written notice to the
Company.
7. INDEMNIFICATION.
(a) The Company will indemnify and hold harmless each
Underwriter and its officers and directors and each person, if any, who
controls any Underwriter within the meaning of the Act or the 34 Act,
against any losses, claims, damages or liabilities, joint or several,
to which such Underwriter, officer, director or controlling person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement,
in any Preliminary Prospectus, in the Prospectus, or in any amendment
or supplement thereto, or in any Blue Sky application or other document
executed by the Company or based on any information furnished in
writing by the Company and filed in any jurisdiction in order to
qualify any or all of the Shares under (or obtain exemption from) the
securities laws thereof (Blue Sky Application), 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, in light of the circumstances under which they were made, not
misleading; and will reimburse each Underwriter and each such officer,
director and controlling person for any legal or other expenses
reasonably incurred by such Underwriter, officer, director or
controlling person in connection with investigating or defending any
such loss, claim,
20
<PAGE> 21
damage, liability or action; provided, however, that the Company shall
not be liable in any such case to the extent, but only 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 that is: (i) contained in the Registration
Statement, such Preliminary Prospectus, the Prospectus, or any such
amendment or supplement thereto, or in such Blue Sky Application or
such other document and (ii) both relates to and was made in reliance
upon and in conformity with written information furnished to the
Company by you or by any Underwriter through you, specifically for use
in the preparation of: (a) the last paragraph of the cover page of the
form of prospectus included in the Registration Statement, such
Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto or (b) the statements therein regarding
over-allotment, stabilization or passive market making by the
Underwriters or (c) the section thereof under the caption Underwriting;
and provided, further, that if any Preliminary Prospectus or the
Prospectus contained any alleged untrue statement or allegedly omitted
to state therein 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 such statement or
omission shall have been corrected in a revised Preliminary Prospectus
or in the Prospectus or in an amended or supplemented Prospectus, the
Company shall not be liable to any Underwriter, officer, director or
controlling person under this subsection (a) with respect to such
alleged untrue statement or alleged omission to the extent that any
such loss, claim, damage or liability of such Underwriter, officer,
director or controlling person results from the fact that such
Underwriter sold Shares to a person or entity to whom there was not
sent or given, at or prior to the written confirmation of such sale,
such revised Preliminary Prospectus or Prospectus or amended or
supplemented Prospectus.
(b) Each Underwriter will indemnify and hold harmless
the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company
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 in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, any amendment or supplement thereto, or any
Blue Sky Application 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, in light of
the circumstances under which they were made, not misleading, in each
case to the extent, but only 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 that is:
(i) contained in the Registration Statement, such Preliminary
Prospectus, the Prospectus, or any such amendment or supplement
thereto, or in such Blue Sky Application or such other document and
(ii) both relates to and was made in reliance upon and in conformity
with written information furnished to the Company by you or by any
Underwriter through you, specifically for use in the preparation of:
(a) the last paragraph of the cover page of the form of prospectus
included in the Registration Statement, such Preliminary Prospectus or
the Prospectus, or any such amendment or supplement thereto or (b) the
statements therein regarding over-allotment, stabilization or passive
market making by the Underwriters or (c)
21
<PAGE> 22
the section thereof under the caption Underwriting; and each
Underwriter will reimburse the Company and each such director, officer
and controlling person for 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.
(c) Any party which proposes to assert the right to
be indemnified under this Section 7 shall, within ten days after
receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim is to be made against an
indemnifying party under this Section 7 notify each such indemnifying
party of the commencement of such action, suit or proceeding, enclosing
a copy of all papers served, but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not
relieve such indemnifying party from any liability which it may have to
any indemnified party otherwise than under this Section 7. In case any
such action, suit or 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 in, and, to the extent that it shall wish, jointly with any
other indemnifying party, similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for
any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in
connection with the defense thereof. The indemnified party shall have
the right to employ its own counsel in any such action, but the fees
and expenses of such counsel shall be solely at the expense of such
indemnified party unless (i) the employment of counsel by such
indemnified party at the expense of the indemnifying party has been
authorized in writing by the indemnifying party, (ii) the indemnified
party shall have been advised by such counsel in a written opinion that
there may be a conflict of interest between the indemnifying party and
the indemnified party in the conduct of the defense, or certain aspects
of the defense, of such action (in which case the indemnifying party
shall not have the right to direct the defense of such action with
respect to those matters or aspects of the defense on which a conflict
exists or may exist on behalf of the indemnified party) or (iii) the
indemnifying party shall not in fact have employed counsel to assume
the defense of such action, in any of which events the reasonable fees
and expenses of such party to the extent applicable shall be borne by
the indemnifying party. An indemnifying party shall not be liable for
any settlement of any action or claim effected without its prior
written consent. Each indemnified party, as a condition of such
indemnity, shall furnish such information concerning itself or the
claim in question as an indemnifying party may reasonably request in
connection with the defense of such claim and shall cooperate in good
faith with the indemnifying party in the defense of any such action or
claim.
(d) If the indemnification provided for in this
Section 7 is for any reason, other than pursuant to the terms hereof,
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and upon the expiration of time to
appeal or the denial of the last right to appeal) to be unavailable to
an indemnified party
22
<PAGE> 23
under paragraphs (a), (b) or (c) above in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred
to therein, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company
and the Underwriters 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, as applicable, of the Company and
the Underwriters in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as other relevant equitable considerations.
The relative benefits received by, as applicable, the Company and the
Underwriters shall be deemed to be in the same proportion as the total
net proceeds from the offering (before deducting expenses) received by
the Company bear 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
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 Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this paragraph 4 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 Subsection (d). The amount paid or payable by
an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this
Subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Subsection (d), no Underwriter shall be required
to contribute any amount in excess of the aggregate underwriting
discounts and commissions applicable to the Shares purchased by such
Underwriter. 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 Subsection (d)
to contribute are several in proportion to their respective
underwriting obligations and not joint.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, and agreements of the Company contained in Sections
4, 5, 7, and 11, herein or in certificates delivered pursuant hereto, and the
agreements of the Underwriters contained in Sections 7 and 11 hereof, and the
liability of a defaulting Underwriter, if any, pursuant to Section 9 hereof,
shall remain operative and in full force and effect regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any Underwriter or any controlling person thereof, the Company or any
of its officers, directors or any controlling person thereof, and shall survive
delivery of the Shares to the Underwriters hereunder.
23
<PAGE> 24
9. SUBSTITUTION OF UNDERWRITERS.
(a) If any Underwriter shall default in its
obligation to purchase the Shares which it has agreed to purchase
hereunder, you may in your discretion arrange for you or another party
or other parties reasonably satisfactory to the Company to purchase
such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the
purchase of such Shares, then the Company shall be entitled to a
further period of thirty-six hours within which to procure another
party or parties reasonably satisfactory to you to purchase such Shares
on such terms. In the event that, within the respective prescribed
periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notify you that they have so
arranged for the purchase of such Shares, you or the Company shall have
the right to postpone the Time of Delivery for a period of not more
than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees to file
promptly any amendments to the Registration Statement or the Prospectus
which in the written opinion of your counsel may thereby be made
necessary. The term Underwriter as used in this Agreement shall include
any persons substituted under this Section I with like effect as if
such person had originally been a party to this Agreement with respect
to such Shares and any such substituted person shall be entitled to all
of the benefits conferred hereby and shall be subject to all of the
obligations of an Underwriter hereunder as if such person had
originally been a party to this Agreement.
(b) If, after giving effect to any arrangements for
the purchase of the Shares of a defaulting Underwriter or Underwriters
made by you or the Company as provided in subsection (a) above, the
aggregate number of Shares which remains unpurchased does not exceed
one tenth of the total Shares to be sold on the Time of Delivery, then
the Company shall have the right to require each non-defaulting
Underwriter to purchase the Shares which such Underwriter agreed to
purchase hereunder and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of
Shares which such Underwriter agreed to purchase hereunder) of the
Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for
the purchase of the Shares of a defaulting Underwriter or Underwriters
made by you or the Company as provided in subsection (a) above, the
number of Shares which remains unpurchased exceeds one tenth of the
total Shares to be sold on the Time of Delivery, or if the Company
shall not exercise the right described in subsection (b) above to
require the non-defaulting Underwriters to purchase the unpurchased
Shares of the defaulting Underwriter or Underwriters, then this
Agreement shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company, except for the expenses
to be borne by the Company and the Underwriters as provided in Section
11 hereof and the indemnity and contribution agreements in Section 7
hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
24
<PAGE> 25
10. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at _____
a.m., Phoenix, Arizona time, on the first business day following the
effective date of the Registration Statement, or at such earlier time
after the effective date of the Registration Statement as you in your
discretion shall first release the Shares for offering to the public;
provided, however, that the provisions of Section 7 and Section 11
shall at all times be effective. For the purposes of this Section
10(a), the Shares shall be deemed to have been released to the public
upon release by you of the publication of a newspaper advertisement
relating to the Shares or upon release of telegrams, facsimile
transmissions or letters offering the Shares for sale to securities
dealers, whichever shall first occur.
(b) This Agreement may be terminated by you at any
time before it becomes effective in accordance with Section 10(a) by
notice to the Company; provided, however, that the provisions of this
Section 10(a) and of Section 7 and Section 11 hereof shall at all times
be effective. In the event of any termination of this Agreement
pursuant to Section 10(a) or this Section 10(b) hereof, the Company
shall not then be under any liability to any Underwriter except as
provided in Section 7 or Section 11 hereof.
(c) This Agreement may be terminated by you at any
time at or prior to the First Time of Delivery by notice to the Company
if any condition specified in Section 6 hereof required to be satisfied
by the Company shall not have been satisfied by the Company in all
material respects on or prior to the First Time of Delivery. Any such
termination shall be without liability of any party to any other party
except as provided in Sections 7 and Section 11 hereof.
(d) This Agreement also may be terminated by you, by
notice to the Company, as to any obligation of the Underwriters to
purchase the Option Shares, if any condition specified in Section 6
hereof shall not have been satisfied by the Company in all material
respects at or prior to the Second Time of Delivery or as provided in
Section 9 of this Agreement.
If you terminate this Agreement as provided in Sections 10(b), 10(c) or
10(d), you shall notify the Company in writing or by telephone or telegram,
confirmed by letter.
11. COSTS AND EXPENSES; NON-ACCOUNTABLE EXPENSE
ALLOWANCE.
(a) The Company will bear and pay the costs, fees and
expenses incident to the registration of the Shares and public offering
thereof, including, without limitation, (a) the fees and expenses of
the Company's accountants and the fees and expenses of counsel for the
Company, (b) the preparation, printing, filing, delivery and shipping
of the Registration Statement, each Preliminary Prospectus, the
Prospectus and any amendments or supplements thereto and the printing,
delivery and shipping of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, Underwriters'
Questionnaires and Powers of Attorney and any Blue Sky Memoranda, to
the Underwriters, (c) the furnishing of copies of such documents, (d)
the registration or qualification (or
25
<PAGE> 26
obtaining exemption therefrom) of the Shares for offering and sale
under the securities laws of the various states, including the
reasonable fees and disbursements of Underwriters' counsel relating
thereto, (e) the fees payable to the NASD and the Commission in
connection with their review of the proposed offering of the Shares,
(f) all printing and engraving costs related to preparation of the
certificates for the Shares, including transfer agent and registrar
fees, (g) all initial transfer taxes, if any, (h) all fees and expenses
relating to the authorization of the Shares for trading on the NNM, (i)
all travel expenses, including air fare and accommodation expenses, of
representatives of the Company and the Underwriters in connection with
the offering of the Shares and (j) all of the other costs and expenses
incident to the performance by the Company of the registration and
offering of the Shares; provided, however, that the Underwriters will
bear and pay all of the fees and expenses of the Underwriters' counsel
(other than fees and disbursements relating to the registration or
qualification of the Shares for offering and sale under the securities
laws of the various states), and any advertising costs and expenses
incurred by the Underwriters incident to the public offering of the
Shares.
(b) We shall also pay you a non-accountable expense
allowance in an amount equal to 1.75% of the aggregate gross "price to
the public" of the Shares as set forth on the outside front cover page
of the Prospectus with respect to the Firm Shares and the Option Shares
purchased by the several Underwriters pursuant to this Agreement. Such
non-accountable expenses allowance will be due and payable with respect
to the Firm Shares at the First Time of Delivery and with respect to
any Option Shares at the Time of Delivery therefor. We shall deduct or
set-off from such non-accountable expense allowance payable to you any
amounts which we advanced to you pursuant to that letter of intent
between us relating to the offering contemplated hereby wherein we
agreed to advance you up to an aggregate of $30,000 in $15,000
increments.
If this Agreement is terminated by you in accordance with the
provisions of Section 10(c), the Company shall reimburse the Underwriters for
all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel to the Underwriters.
12. NOTICES. All notices or communications hereunder, except
as herein otherwise specifically provided, shall be in writing and if sent to
the Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o:
Paradise Valley Securities, Inc.
1811 North Tatum Boulevard, Suite 4040
Phoenix, Arizona 85028
Attention: Corporate Finance
Facsimile: (602) 953-7989
or if sent to the Company shall be mailed, delivered, sent by
facsimile transmission, or telegraphed and confirmed to the Company at:
26
<PAGE> 27
Takes.com, Inc.
3655 Nobel Drive, Suite 340
San Diego, California 92122
Attention: President
Facsimile: (609)
Notice to any Underwriter pursuant to Section 7 shall be
mailed, delivered, sent by facsimile transmission, or telegraphed and confirmed
to such Underwriter's address as it appears in the Underwriters' Questionnaire
furnished in connection with the offering of the Shares or as otherwise
furnished to the Company. Any party hereto may change such address or facsimile
number for notices by sending to the other parties to this Agreement written
notice of a new address or facsimile number for such purpose.
13. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the Company, the Underwriters and their respective successors
and assigns. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, corporation, partnership or other entity,
other than the parties hereto and their respective successors and assigns and
the controlling persons, officers and directors referred to in Section 7, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained; this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns and
said controlling persons and said officers and directors, and for the benefit of
no other person, corporation, partnership or other entity. No purchaser of any
of the Shares from any Underwriter shall be construed a successor or assign
hereunder by reason merely of such purchase.
In all dealings with the Company under this Agreement you
shall act on behalf of each of the several Underwriters, and the Company shall
be entitled to act and rely upon any statement, instruction, demand, request,
notice or agreement on behalf of the Underwriters, made or given by you on
behalf of the Underwriters, as if the same shall have been made or given in
writing by all of the Underwriters.
14. COUNTERPARTS. This Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
15. PRONOUNS. Whenever a pronoun of any gender or number is
used herein, it shall, where appropriate, be deemed to include any other gender
and number.
16. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other section, paragraph or
provision hereof.
17. GENERAL. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written and oral
agreements and all contemporaneous oral agreements, undertakings and
negotiations with respect to the subject matter hereof. The section headings in
this Agreement are for the convenience of the parties only and will not affect
the
27
<PAGE> 28
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, and by you or, in the case of a waiver,
by the party waiving compliance.
18. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Arizona without giving
effect to the provisions thereof regarding the choice of law.
If the foregoing is in accordance with your understanding, please so
indicate in the space provided below for such purpose, whereupon this letter
shall constitute a binding agreement among the Company, and the Underwriters.
TAKES.COM, INC.
By:
Name:
Title:
Accepted in ,
as of the date first
above written, on behalf of ourselves and
each of the several Underwriters
named in Schedule I hereto.
PARADISE VALLEY SECURITIES, INC.,
As Representative for the Several Underwriters
By:
Name:
Title:
28
<PAGE> 29
SCHEDULE I
Name Number of Shares
Paradise Valley Securities, Inc. ----------
----------
Total ==========
29
<PAGE> 30
SCHEDULE II
Pursuant to Section 6(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
1. They are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable Rules
and Regulations thereunder.
2. In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
prospective financial statements and/or pro forma financial information)
examined by them and included in the Prospectus or the Registration Statement
comply as to form with the applicable accounting requirements of the Act and the
Rules and Regulations with respect to registration statements on Form S-1; and,
if applicable, they have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the interim
financial statements, selected financial data, pro forma financial information,
prospective financial statements and/or condensed financial statements derived
from audited financial statements of the Company for the periods specified in
such letter, as indicated in their reports thereon, copies of which have been
furnished to the Representative of the Underwriters (the "Representative").
3. The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the Company
for the fiscal years included in the Prospectus agrees with the corresponding
amounts (after restatements where applicable) in the audited consolidated
financial statements for such years which were included in the Prospectus.
4. They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that cause them to believe
that this information does not conform in all material respects with the
disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of
Regulation S-K
5. On the basis of a reading of the unaudited financial
statements, pro forma financial statements, if any, and other information
contained in the Prospectus, a reading of the latest available interim financial
statements of the Company, inspection of the minute books of the Company since
the date of the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company responsible for financial and accounting
matters and such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe that:
(a) any of the above unaudited financial statements
or other information contained in the Prospectus do not comply as to
form with the accounting requirements of the Rules and Regulations or
that such unaudited financial statements are not fairly
30
<PAGE> 31
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with the audited financial
statements;
(b) as of a specified date not more than two days
prior to the date of such letter, there have been any changes in the
capital stock or any increase in the indebtedness of the Company, or
any increases or decreases in net current assets or net assets or any
changes in any other items specified by the Representative, in each
case as compared with amounts shown in the latest balance sheet
included in the Prospectus, except in each case for changes, increases
or decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; or
(c) for the period from the date of the latest
financial statements included in the Prospectus to the specified date
referred to in clause (B) above there were any decreases in revenues or
the total or per share amounts of net income, or any other changes in
any items specified by the Representative, in each case as compared
with the comparable period of the preceding year and with any other
period of corresponding length specified by the Representative, except
in each case for changes or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter.
In addition to the audit referred to in their report(s) included in the
Prospectus and the limited procedures, inspection of minute books, inquiries and
other procedures referred to in paragraph 5 above, they have carried out certain
specified procedures, not constituting an audit in accordance with generally
accepted auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representative, which are derived from
the general accounting records of the Company for the periods covered by their
reports and any interim or other periods since the latest period covered by
their reports, which appear in the Prospectus, or in Part II of, or in exhibits
and schedules to, the Registration Statement specified by the Representative,
and have compared certain of such amounts, percentages and financial information
with the accounting records of the Company and have found them to be in
agreement.
31
<PAGE> 32
EXHIBIT A
Form of Lock-up Agreement
_____________________, 1999
Paradise Valley Securities, Inc.
As Representative of the Several Underwriters
11811 N. Tatum Blvd. Suite 4040
Phoenix, Arizona 85028
Re: Takes.com, Inc. Public Offering
Ladies and Gentlemen:
I am an officer, director and/or holder of 5% or more of the shares of
common stock of Takes.com, Inc. (the "Company"). I hereby agree and represent to
you that, without the prior written consent of Paradise Valley Securities, Inc.,
I will not directly or indirectly make or cause any offering, sale, short sale,
transfer, pledge, hypothecation or other disposition of any shares of the
Company's common stock or other securities convertible, exercisable or
exchangeable for the Company's common stock or derivative of common stock which
I own either of record or beneficially, and of which I have the power to control
the disposition, or request the registration of any of the foregoing, from this
date to a date ___ days after the effective date of the Company's Registration
Statement on Form S-1, File No. 333-78261, filed with the United States
Securities and Exchange Commission under the Securities Act of 1933, as amended.
I may, however, make gifts of shares of the Company's common stock during such
period after the effective date of the Registration Statement if the donee
agrees in writing to be bound by the terms of this agreement for the remainder
of the ___ day period. I recognize that you and the Company are relying on my
representations and agreement contained herein in entering into the underwriting
arrangements with respect to the offering contemplated by such Registration
Statement.
Very truly yours,
____________________________________________
(Signature)
Print Name: ________________________________
A-1
<PAGE> 1
EXHIBIT 1.2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE THIS WARRANT CAN BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE UNDERLYING SECURITIES MAY
NOT BE SOLD, TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT, UNLESS SUCH REGISTRATION IS NOT THEN REQUIRED.
FORM OF
UNDERWRITER'S PURCHASE WARRANT
TAKES.COM, INC.
COMMON STOCK PURCHASE WARRANT
Warrant No. __________
THIS CERTIFIES THAT, for value received, Paradise Valley Securities,
Inc. (the "Underwriter"), or its successors and permitted assigns (the "Holder")
is entitled to subscribe for and purchase from Takes.com, Inc., a Delaware
corporation with an address at 3655 Nobel Drive, Suite 550, San Diego,
California 92122 (the "Company"), at any time from and after Midnight (Phoenix,
Arizona time) on _____, 2000 [INSERT: the month, day and year that correspond to
the first anniversary of the effective date of the IPO registration statement]
and prior to 5:00 p.m. (Phoenix, Arizona time) on _____, 2004 [INSERT: the fifth
anniversary of the effective date of the IPO registration statement] (the
"Exercise Period"), _____ shares of the Company's common stock (the "Common
Stock"). The purchase price for each share of Common Stock hereunder shall be
$__________ [165% of the public offering price] (as adjusted in accordance with
this Warrant, the "Purchase Price"), subject, however, to the provisions and
upon the terms and conditions set forth in this Warrant.
This Warrant is one of the "Underwriter's Warrants" issued pursuant to
the Underwriting Agreement dated _____, 1999 (the "Underwriting Agreement")
between the Company and the Underwriter as the representative of the several
underwriters relating to the initial public offering of Common Stock by the
Company.
1. Exercise; Issuance of Certificates; Payment for Shares. The rights
represented by this Warrant may be exercised by the Holder, in whole or in part,
at any time or from time to time during the Exercise Period, upon presentation
and surrender of this Warrant to the Company, at its principal office as set
forth on the first page of this Warrant, with a duly executed subscription (in
the form attached hereto) and accompanied by payment of the Purchase Price for
each share of Common Stock purchased. Such payment shall be made, in cash or by
certified, bank, or cashier's check, payable to the order of the Company.
Notwithstanding the foregoing provisions requiring payment in cash or by check,
the Holder may from time to time at the Holder's option pay the Purchase Price
or any portion thereof by surrendering to the Company, in lieu of such payment,
the right of the Holder to receive a number of shares of Common Stock having an
aggregate Market
<PAGE> 2
Value equal to such Purchase Price (or portion thereof) on the date of exercise
(a "Cashless Exercise"). For purposes of the foregoing, the "Market Value" of a
share of Common Stock as of a relevant date means the closing price on the
trading day preceding such date with respect to the Common Stock on a national
securities exchange or the Nasdaq National Market or Nasdaq SmallCap Market, as
the case may be. The closing price shall be: (i) the last sale price of shares
of the Common Stock on such trading day or, if no such sale takes place on such
date, the average of the closing bid and asked prices thereof on such date, in
each case as officially reported by the principal exchange on which the Common
Stock is then listed or admitted to trading or by the Nasdaq Stock Market; or
(ii) if no shares of Common Stock are then listed or admitted to trading on any
national securities exchange or the Nasdaq National Market or the Nasdaq
SmallCap Market, the average of the reported closing bid and asked prices
thereof on such date in the over-the-counter market as shown on the National
Association of Securities Dealers automated quotation system. The Cashless
Exercise rights of the Holder shall be of no force or effect unless the Common
Stock is then listed, admitted to trading, or reported.
The shares of Common Stock purchased hereunder shall be deemed to have
been issued to the Holder as of the close of business on the date on which this
Warrant shall have been surrendered to the Company, along with the subscription
and full payment, whether by cash, check or Cashless Exercise, for the shares
purchased. Certificates for the shares so purchased and, unless this Warrant
shall have expired, a new Warrant representing the number of shares of Common
Stock, if any, with respect to which this Warrant shall not then have been
exercised, shall be delivered to the Holder within a reasonable time, and in any
event within 30 days, after the Holder has complied with the provisions of this
Section 1.
2. Restrictions on Transfer of Warrant. For the one year period after
the Issue Date the Holder may not sell, assign pledge, hypothecate or otherwise
transfer any rights under this Warrant to anyone other than (a) any officer or
partner of Holder; (b) any successor to the business of Holder; (c) any other
underwriter named in the Underwriting Agreement; or (d) any transferee who
receives this Warrant by operation of law as a result of the death or
dissolution of any Holder permitted by this Section 2.
3. Reservation of Shares. The Company covenants and agrees that all
securities that it may issue upon the exercise of the rights represented by this
Warrant will, upon issuance, be fully paid and nonassessable and free from all
taxes, liens and charges. The Company further agrees that at all such times
there shall be authorized and reserved for issuance upon exercise of this
Warrant such number of shares of Common Stock as shall be required for issuance
on full exercise of this Warrant.
4. Exchange, Assignment, or Loss of Warrant.
(a) This Warrant is exchangeable, without expense other than as
provided in this Section 4, at the option of the Holder, upon presentation and
surrender hereof to the Company, for other Warrants of different denominations
entitling the holder(s) thereof to purchase in the aggregate the same number of
shares of Common Stock purchasable hereunder.
2
<PAGE> 3
(b) This Warrant may not be sold, transferred, assigned, or
hypothecated except as permitted under Section 2 herein and except in compliance
with Federal and state securities laws. Any permitted transfer shall be made by
surrender of this Warrant to the Company, together with a duly executed
assignment (in the form of the assignment attached to this Warrant) and funds
sufficient to pay any transfer tax, whereupon the Company shall, without charge,
execute and deliver a new Warrant or Warrants in the name(s) of the assignee(s)
named in such instrument of assignment, and this Warrant shall be canceled. Any
transferee of this Warrant, by its acceptance thereof, agrees to be bound by the
terms of this Warrant, with the same force and effect as if a signatory thereto.
(c) Subject to (b) above, this Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation and surrender
of this Warrant at the office of the Company together with a written notice,
signed by the Holder, specifying the names and denominations in which new
Warrants are to be issued.
(d) The Company will execute and deliver a new Warrant of like
tenor and date upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and (i) in the case of
loss, theft, or destruction, upon receipt by the Company of indemnity
satisfactory to the Company, or (ii) in the case of mutilation, upon
presentation, surrender, and cancellation of this Warrant.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity.
The rights of the Holder are limited to those expressed in the Warrant and are
not enforceable against the Company except to the extent set forth herein.
6. Adjustment and Other Events.
(a) If the Company shall, after the Issue Date, declare any
dividend or other distribution upon its outstanding Common Stock payable in
Common Stock or shall subdivide its outstanding shares of Common Stock into a
greater number of shares, then the number of shares of Common Stock that may
thereafter be purchased upon the exercise of the rights represented by this
Warrant must be increased in proportion to the increase through such dividend,
distribution, or subdivision, and the Purchase Price must be decreased in such
proportion. If the Company shall at any time combine the outstanding shares of
its Common Stock into a smaller number of shares, the number of shares of Common
Stock that may thereafter be purchased upon the exercise of the rights
represented hereby will be decreased in proportion to the decrease through such
combination, and the Purchase Price will be increased in such proportion.
(b) If, after the Issue Date, there shall occur (i) any
reclassification, capital reorganization, or other change of outstanding Common
Stock of the Company (other than a change described or referred to in Subsection
6(a)), or (ii) any consolidation or merger of the Company with or into another
corporation or other entity (other than a consolidation or merger in which the
Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of the shares of Common
Stock issuable upon exercise of
3
<PAGE> 4
this Warrant), or (iii) sale or conveyance to a third party of all or
substantially all of the Company's assets as an entirety, then and in such event
the terms of this Section 6 will be deemed to be appropriately adjusted, and the
Company will cause effective provision to be made, so that the Holder shall have
the right thereafter, by exercising this Warrant, to purchase the kind and
amount of shares of stock and other securities and property, if any receivable
upon such reclassification, capital reorganization, or other change,
consolidation, merger, sale or conveyance that the Holder would have received
had this Warrant been exercised in full immediately prior to such event.
(c) If, after the Issue Date, the Company shall at any time or
from time to time (i) distribute (otherwise than as a dividend in cash or in
Common Stock or in securities convertible into or exchangeable for Common Stock)
to the holders of Common Stock (or grant any rights to such holders to acquire)
assets, including stock or other securities of the Company (or the right to
acquire the same) or any subsidiary, without any consideration paid or to be
paid by such holders or for a consideration paid less than the fair market value
of such assets as reasonably and objectively determined by the Board of
Directors of the Company, or (ii) declare a distribution, right or dividend upon
the Common Stock in cash or assets other than shares of Common Stock, then the
Company shall reserve, and the Holder of this Warrant shall thereafter upon
exercise of this Warrant be entitled to receive, for each share of Common Stock
purchasable hereunder on the record date established by the Company for the
determination of holders of Common Stock entitled to receive such distribution,
right or dividend (or if no such record date shall have been established, on the
date of such distribution, grant of such right or payment of such dividend), (i)
the amount of such assets that would have been distributable to, or as to which
such right would have been granted to, the Holder hereof or (ii) the amount of
such dividend (to the extent above-stated) that the Holder would have received,
had the Holder been a holder of the number of shares of Common Stock purchasable
under this Warrant on such record (or other) date. Such entitlement by the
Holder shall be without increase in (except in respect for the consideration, if
any, paid for such assets by the holders of Common Stock) the then current
Purchase Price.
(d) If: (i) there shall be an event requiring an adjustment as
provided in subsections 6(a) or 6(b); (ii) the Company shall make a distribution
that may come within subsection 6(c); (iii) the Company shall offer for
subscription pro rata to the holders of its Common Stock any additional shares
of stock of any class, or other rights; or (iv) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company; then, in any
one or more of such cases, the Company shall give to the Holder (1) at least
twenty days' prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights, or for determining rights to vote in respect of any merger,
consolidation, reorganization or reclassification, and (2) in the case of any
such merger, consolidation, reorganization or reclassification at least twenty
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause and to the extent applicable
shall specify (A) in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto,
and (B) when the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such merger,
consolidation, reorganization, liquidation or winding up, as the case may be.
Upon the happening of an event requiring adjustment of the Purchase Price or the
kind or amount of securities or property purchasable hereunder, the Company
shall forthwith give
4
<PAGE> 5
notice to the Holder, which notice shall be accompanied by a certificate of the
Company, stating the adjusted Purchase Price and the adjusted number of shares
of Common Stock purchasable or the kind and amount of any such securities or
property purchasable upon exercise of this Warrant, as the case may be, and
setting forth in reasonable detail the method of calculation and the facts upon
which the calculation is based.
(e) No fractional shares of Common Stock or script representing
fractional shares of Common Stock shall be issued upon the exercise of this
Warrant, and the Company shall have no obligation for any cash payment with
respect thereto. If a fractional share shall result from adjustments in the
number of shares of Common Stock purchasable hereunder, the number of shares of
Common Stock purchasable hereunder shall, on an aggregate basis taking into
account all prior adjustments, be rounded up to the next whole number.
(f) Irrespective of any adjustment or change in the Purchase Price
or the number of shares of Common Stock or other securities actually purchasable
under this Warrant, this Warrant may continue to express the Purchase Price and
the number of shares of Common Stock purchasable hereunder as such price and
number of shares were expressed on this Warrant when initially issued.
7. Registration Rights Under the Securities Act of 1933.
(a) Optional Registrations. If at any time or times after the
commencement of the Exercise Period and prior to the seventh anniversary of the
Issue Date, the Company shall determine to register any shares of its Common
Stock (or securities convertible into or exchangeable or exercisable for shares
of the Common Stock or any class of common stock into which the Common Stock has
theretofore been converted or for which the Common Stock has been exchanged)
under the Securities Act of 1933, as amended (the "Act") (whether in connection
with a public offering of securities by the Company (a "primary offering"), a
public offering of securities by security holders (a "secondary offering"), or
both), but not in connection with a registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Securities and Exchange Commission (the "Commission") under the Act
is applicable or a registration on any form which does not include substantially
the same information as would be required to be included in a registration
statement covering the Registrable Securities (including Form S-4 or any form
substituted therefor), the Company will promptly give written notice thereof to
the holders of Registrable Securities (as defined in Subsection 7(c) below) then
outstanding (the "Holders"). In connection with any such registration, the
Company will use its best efforts to effect the registration under the Act of
all Registrable Securities which such Holders may request in a writing delivered
to the Company within 15 days after the notice given by the Company pursuant to
Section 10 hereof; provided, however, that in the case of the registration of
shares of Common Stock by the Company in connection with an underwritten public
offering, if the managing underwriter determines that a limitation on the number
of shares to be underwritten is required, the managing underwriter may (subject
to the allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise be
underwritten pursuant to the notice described herein. The Company shall advise
all Holders of Registrable Securities promptly after such determination by the
managing underwriter,
5
<PAGE> 6
and the number of shares of securities that are entitled to be included in the
registration and underwriting (other than those to be sold for the account of
the Company) shall be allocated among Holders of Registrable Securities and
other security holders (excluding directors and officers of the Company), if
any, who have registration rights with respect to the securities they desire to
have registered in proportion, as nearly as practicable, to their respective
holdings of securities of the Company. All expenses of the registration and
offering (including transfer taxes on shares being sold by the Holders and the
fees and disbursements of one law firm acting as counsel to the Holders) shall
be borne by the Company, except that the Holders shall bear all underwriting
discounts and selling commissions attributable to their Registrable Securities
being registered. Without in any way limiting the types of registrations to
which this paragraph 7(a) shall apply, in the event that the Company shall
effect a shelf registration under Rule 415 promulgated under the Securities Act,
or any other similar rule or regulation ("Rule 415"), the Company shall take all
necessary action, including, without limitation, the filing of post-effective
amendments, to permit the Holders to include their shares in such registration
in accordance with the terms of this Subsection 7(a).
(b) Demand Registration. If on any one occasion during the
Exercise Period (which, for purposes of this Section 7(b), shall not extend
beyond the fifth anniversary of the effective date of the registration statement
referred to in the Underwriting Agreement), one or more of the Holders holding
at least sixty percent (60%) of the Registrable Securities then held by all of
the Holders shall notify the Company in writing that he or they intend to offer
or cause to be offered for public sale all or any portion of his or their
Registrable Securities having an aggregate proposed offering price of not less
than $500,000.00 (the "Minimum"), the Company will notify all of the Holders of
Registrable Securities who would be entitled to notice of a proposed
registration under Subsection 7(a) above of its receipt of such notification
from such Holder or Holders. Upon the written request of any such Holder
delivered to the Company within 15 days after delivery by the Company of such
notification pursuant to Section 10 hereof, the Company will use its best
efforts to cause such of the Registrable Securities as may be requested by any
Holders (including the Holder or Holders giving the initial notice of intent to
register hereunder) to be registered under the Securities Act in accordance with
the terms of this Subsection 7(b), which registration may be under any form of
registration statement eligible for use by the Company for such purpose. All
expenses of the registration and offering (including transfer taxes on shares
being sold by the Holders and the fees and disbursements of one law firm acting
as counsel to the Holders) shall be borne by the Company, except that the
Holders shall bear the underwriting discounts and selling commissions
attributable to their Registrable Securities being registered. If the Company
shall furnish to the Holders requesting a registration statement under this
Subsection 7(b) a certificate signed by the President of the Company stating
that, in the good faith judgment of the Board of Directors, it would not be in
the best interests of the Company and its stockholders generally for such
registration statement to be filed, the Company shall have the right to defer
such filing for a period of not more than 90 days after the receipt of the
request for registration; provided, however, that the Company may not utilize
this right to defer more than once. The Company shall not be required to cause a
registration statement requested pursuant to this Subsection 7(b) to become
effective prior to 90 days following the effective date of a registration
statement initiated by the Company, if the request for registration has been
received by the Company subsequent to the giving of written notice by the
Company, made in good faith, to the Holders of Registrable
6
<PAGE> 7
Securities to the effect that the Company is commencing to prepare a
Company-initiated registration statement (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act is
applicable); provided, however, that the Company shall use its best efforts to
achieve such effectiveness promptly following such 90-day period if the request
pursuant to this Subsection 7(b) has been made prior to the expiration of such
90-day period. If so requested by any Holder in connection with a registration
under this paragraph, the Company will take such steps as are required to
register such Holder's Registrable Securities for sale on a delayed or
continuous basis. The Company will take such steps as are required to keep any
registration statement under this Subsection 7(b) effective until the earlier
of: (i) 270 days after the effective date of any such registration statement; or
(ii) the sale of all of the Registrable Securities registered thereunder. The
obligation of the Company hereunder shall be deemed satisfied only when a
registration statement covering all shares of Registrable Securities specified
in notices received as aforesaid shall have become effective and, if the method
of disposition is a firm commitment underwritten public offering, all such
shares have been sold pursuant thereto. In connection with such a firm
commitment underwriting, the Company shall have the right to include in the
registration statement therefor shares of Common Stock to be offered and sold
for the account of the Company and other security holders of the Company;
provided, however, that no Registrable Shares shall be excluded from such
registration and underwriting by reason of the inclusion of any securities for
the Company's account or for the account of other securityholders. Any deferral
of the filing or effectiveness of a registration statement pursuant to this
Subsection 7(b) shall extend, by a period equal to the number of days of all
such deferrals, the period during which the Holders of Registrable Securities
shall be entitled to demand registration under this Subsection 7(b).
If the method of disposition is an underwritten public offering,
the Company may designate the managing underwriter of such offering, subject to
approval of the holders of a majority of the Registrable Securities to be sold
in such offering, which approval shall not be unreasonably withheld or delayed.
(c) Registrable Securities. For the purposes of this Section 7,
the term "Registrable Securities" shall mean any Common Stock purchasable upon
exercise of this Warrant or any other Warrant originally issued pursuant to the
Underwriting Agreement (collectively "Underwriters' Warrants") (or any
Warrant(s) issued in replacement hereof or thereof), and any other capital stock
issued or issuable with respect to the Common Stock issued or issuable upon the
exercise of this Warrant or any other Underwriters' Warrants.
In connection with any registration statement which pertains to
Registrable Securities, the selling Holders shall (i) enter into any reasonable
underwriting agreement required by the proposed underwriter for the selling
Holders, if any, and (ii) immediately notify the Company, at any time when a
prospectus relating to the Holder's Registrable Securities is required to be
delivered under the Act, of the happening of any event relating to information
respecting such Holder as a result of which the prospectus which forms a part of
such registration statement contains an untrue statement of a material fact or
omits any material fact necessary to make the statements therein not misleading.
7
<PAGE> 8
(d) Further Obligations of the Company. Whenever under the
preceding subsections of this Section 7 the Company is required hereunder to
register any Registrable Securities, it agrees that it shall also do the
following:
(i) Use its best efforts to diligently prepare and file with
the Commission a registration statement and such amendments and supplements to
said registration statement and the prospectus used in connection therewith as
may be necessary to keep said registration statement effective and to comply
with the provisions of the Act with respect to the sale of securities covered by
said registration statement for the period necessary to complete the proposed
public offering;
(ii) Furnish to each selling Holder of Registrable Securities
such copies of each preliminary and final prospectus and such other documents as
such Holder may reasonably request to facilitate the public offering of his
Registrable Securities;
(iii) Enter into any reasonable underwriting agreement
required by the proposed underwriter, if any, for the selling Holders;
(iv) Use its best efforts to register or qualify the
securities covered by said registration statement under the securities or
blue-sky laws of such jurisdictions as any selling Holder may reasonably request
if such registration or qualification is necessary in the judgment of the
Company's counsel, provided that the Company shall not be required to register
or qualify the securities in any jurisdictions which require it to subject
itself to general service of process therein:
(v) Immediately notify each of the selling Holders, at any
time when a prospectus relating to his Registrable Securities is required to be
delivered under the Act, of the happening of any event as a result of which such
prospectus contains an untrue statement of a material fact or omits any material
fact necessary to make the statements therein not misleading, and, at the
request of any such selling Holder, prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(vi) Cause all such Registrable Securities to be listed on or
included in each securities exchange or quotation system on which similar
securities issued by the Company are then listed.
(vii) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders, in each case as
soon as practicable, an earnings statement of the Company which will satisfy the
provisions of Section 11(a) of the Securities Act; and
(viii) Obtain and furnish to each of the selling Holders,
immediately prior to the effectiveness of the registration statement (and, in
the case of an underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto), a cold comfort letter from the
8
<PAGE> 9
Company' s independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters as the holders
of a majority of the Registrable Securities being sold reasonably request.
(e) Indemnification. Incident to any registration statement
referred to in this Section 7, and subject to applicable law, the Company will
indemnify and hold harmless, each Holder of Registrable Securities (including
its partners, directors, officers, employees and agents) so registered, and each
person who controls any of them within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act"), from and against any
and all losses, claims, damages, expenses and liabilities, joint or several
(including any investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses claims damages or
liabilities arise out of or are based on (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement
(including any related preliminary or definitive prospectus, or any amendment or
supplement to such registration statement or prospectus), (ii) any omission or
alleged omission to state in such document a material fact required to be stated
in it or necessary to make the statements in it not misleading, or (iii) any
violation by the Company of the Securities Act, any state securities or blue sky
laws or any rule or regulation thereunder in connection with such registration.
The indemnity agreement of the Company contained in this Subsection 7(e) shall
not apply to amounts paid in settlement of any loss, claim, damage, expense or
liability if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld). Nor shall the Company be
liable to any person for any loss, claim, damage, expense or liability arising
from any written information such person furnishes to the Company expressly for
use in connection with a registration statement or from the person's failure to
deliver, at the time required by the Act, a final or amended prospectus that
corrects any actual or alleged untrue statement or omission in any preliminary
prospectus. With respect to any untrue statement or omission or alleged untrue
statement or omission in the information furnished in writing to the Company by
such Holder expressly for use in such registration statement, such Holder will
indemnify and hold harmless each underwriter, the Company (including its
directors, officers, employees and agents), each other Holder of Registrable
Securities (including its respective partners directors, officers, employees and
agents) so registered, and each person who controls any of them within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages, expenses and liabilities,
joint or several, to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise to the same extent provided in the
immediately preceding sentence. In no event, however, shall the liability of a
Holder for indemnification under this Subsection 7(e) exceed the proceeds
received by such Holder from its sale of Registrable Securities under such
registration statement.
(f) Notice and Defense. Promptly after any indemnified party under
Subsection 7(e) receives notice of the commencement of any action (including any
governmental action), such indemnified party shall, if it intends to make a
claim against any indemnifying party under Subsection 7(e), deliver to the
indemnifying party a written notice describing the action. The
9
<PAGE> 10
indemnifying party shall have the right to assume the defense thereof with
counsel mutually satisfactory to the parties. An indemnified party shall have
the right to retain its own counsel, at the indemnifying party's expense, if an
actual or potential conflict of interest prevents representations of such
indemnified party by the counsel retained by the indemnifying party. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under Subsection 7(e) to the extent of such prejudice.
8. Transfer to Comply with the Securities Act of 1933.
(a) This Warrant and the shares of Common Stock or any other
security issued or issuable upon exercise of this Warrant may not be offered or
sold except in compliance with the Act and then only against receipt of an
agreement of such person to whom such offer or sale is made to comply with the
provisions of this Section 8 with respect to any resale or other disposition of
such securities; except that no such agreement shall be required from any person
purchasing shares of Common Stock pursuant to a registration statement effective
under the Act.
(b) The Company may cause a legend in substantially the form set
forth on the first page of this Warrant to be placed on each Warrant and
certificate representing shares of Common Stock, any Common Stock Warrant or any
other security issued or issuable upon exercise of this Warrant, unless counsel
for the Company is of the opinion as to any such certificate that such legend is
unnecessary.
9. Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Nevada.
10. Notice. All notices and other communications provided for herein
shall be in writing and telecopied, mailed or to the intended recipient to the
following addresses: (i) if to the Holder, to Paradise Valley Securities, Inc.,
11811 North Tatum Boulevard, Suite 4040, Phoenix, Arizona 85028; and (ii) if to
the Company, at its address appearing on page 1 of this Warrant. The Holder and
the Company may change its address for delivery of notice to such other address
as may be designated therefor by written notice to the other hereunder. All such
communications shall be deemed to have been duly given when transmitted by
telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
11. Survival. The various rights and obligations of the Holder and of
the Company as set forth in Sections 7 and 8 herein shall survive the exercise
and surrender of this Warrant.
12. Successors and Assigns. All the covenants and provisions of this
Warrant shall bind and inure to the benefit of the Holder and the Company and
their respective successors and assigns.
13. Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for convenience only and do not constitute
a part of this Warrant.
10
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by its officer duly authorized.
DATED: , 1999.
-----------------------------
TAKES.COM, INC.
By:
-------------------------------
Joel W. Cohen, President
ATTEST:
- --------------------------------
, Secretary
- ----------------------
11
<PAGE> 12
ASSIGNMENT
(to be executed only upon assignment of the Warrant)
FOR VALUE RECEIVED, the undersigned assigns and transfers to the
Assignee named below all of the rights of the undersigned under the attached
Warrant, with respect to the number of shares of Common Stock of America's Home
Page, Inc., a Delaware corporation (the "Company") set forth below:
Name Number
of Assignee Address of Shares
----------- ------- ---------
The undersigned does hereby irrevocably constitute and appoint
---------
- ---------------------- as Attorney-in-fact to transfer such right on the books
of the Company, with full power of substitution.
Dated: ___________________, _____.
---------------------------
By:
-----------------------
Its:
-----------------------
12
<PAGE> 13
SUBSCRIPTION
(To be executed only upon exercise of Warrant)
Takes.com, Inc.
3655 Nobel Drive, Suite 550
San Diego, California 92122
The undersigned hereby elects to purchase, pursuant to the provisions
of the within Warrant held by the undersigned, _________ shares of Common Stock.
(Check Appropriate Box)
" Payment of the Purchase Price per share accompanies this Subscription.
" Pursuant to Section 1 of the within Warrant, the undersigned hereby
surrenders the right to receive ____ shares of Common Stock to which
this exercise relates, in payment of the Purchase Price for all shares
of Common Stock to which this exercise relates.
DATED:
---------------- ------------------------------
By:
---------------------------
Its:
--------------------------
13
<PAGE> 1
EXHIBIT 3.2(a)
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
---------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "AMERICA'S HOME PAGE, INC.", CHANGING ITS NAME FROM "AMERICA'S HOME PAGE,
INC." TO "TAKES.COM, INC.", FILED IN THIS OFFICE ON THE SEVENTEENTH DAY OF
JUNE, A.D. 1999, AT 1 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[STATE SEAL]
3017290 8100 AUTHENTICATION: 9812363
991244859 DATE: 06-18-99
<PAGE> 2
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AMERICA'S HOME PAGE, INC.
(A DELAWARE CORPORATION)
*****
AMERICA'S HOME PAGE, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST:
That the Shareholder and the Board of Directors of the Corporation,
PURSUANT TO SECTIONS 141, 242 AND 228 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE, adopted a resolution declaring the adoption
of the following amendment to the Certificate of Incorporation of the
Corporation:
ITEM FIRST OF THE CERTIFICATE OF INCORPORATION SHALL READ AS FOLLOWS
IN ITS ENTIRETY:
FIRST: THE NAME OF THE CORPORATION (HEREINAFTER CALLED THE
"CORPORATION") IS: takes.com, inc.
DATED: June 17, 1999
AMERICA'S HOME PAGE, INC.
/s/ Susan Hermann
-----------------------------------
By: Susan Hermann
Its: Assistant Secretary
<PAGE> 1
Exhibit 3.2(b)
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
_____________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "TAKES.COM, INC.", FILED IN THIS OFFICE ON THE TWENTY-THIRD DAY OF JUNE,
A.D. 1999, AT 12 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[Secretary's Office Seal] /s/ Edward J. Freel
---------------------------------------
Edward J. Freel, Secretary of State
3017290 8100 AUTHENTICATION: 9825170
991254034 DATE: 06-24-99
<PAGE> 2
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
takes.com, inc.
(A DELAWARE CORPORATION)
* * * * * *
takes.com, inc., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, does hereby certify:
FIRST:
That the Shareholders and the Board of Directors of the Corporation,
PURSUANT TO SECTIONS 141.242 AND 228 OF THE GENERAL CORPORATION LAW OF
THE STATE OF DELAWARE, adopted a resolution declaring the adoption of
the following amendment to the Certificate of Incorporation of the
Corporation:
ITEM FIRST OF THE CERTIFICATE OF INCORPORATION SHALL READ AS FOLLOWS
IN ITS ENTIRETY:
FIRST: THE NAME OF THE CORPORATION (HEREINAFTER CALLED THE
"CORPORATION") IS: Takes.com, Inc.
DATED: June 23, 1999
takes.com, inc.
/s/ Susan Hermann
--------------------
By: Susan Hermann
Its: Assistant Secretary
<PAGE> 1
EXHIBIT 5.1
FORM OF
LEGAL OPINION OF PEDERSEN & HOUPT, P.C.
(Pedersen & Houpt, P.C. Letterhead)
[Date]
Takes.com, Inc.
3655 Nobel Drive
Suite 550
San Diego, California 92122
Re: Takes.com, Inc.
SEC File No. 333-78261
Gentlemen:
We have acted as counsel to Takes.com, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of a Registration Statement
on Form S-1, Registration No. 333-78261 and all amendments thereto (the
"Registration Statement"), which has been filed by the Company with the
Securities and Exchange Commission (the "Commission") for the purpose of
registering under the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations thereunder (i) the sale of up to 3,248,750 shares
(the "Shares") of the Company's Common Stock, $0.001 par value per share (the
"Common Stock"), (ii) 300,000,000 Warrants (the "Warrants") to purchase Common
Stock (the "Warrant Offering") and (iii) 10,000,000 shares of Common Stock
issuable upon the exercise of the Warrants (the "Warrant Shares"). The Shares
will be offered and sold (the "Offering") pursuant to an underwriting agreement
(the "Underwriting Agreement") to be entered into between the Company and
Paradise Valley Securities, Inc., as the [representative of] the underwriters.
The Warrants will be offered and issued from time to time to persons who
register with and use the Company's Internet Web site. We are rendering this
opinion as of the time the Registration Statement becomes effective in
accordance with Section 8(a) of the Securities Act.
<PAGE> 2
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement; (ii) the form of the Warrants; (iii) the proposed form of
Underwriting Agreement; (iv) the form of the Company's Amended and Restated
Certificate of Incorporation; (v) the Company's Bylaws and (vi) resolutions of
the Company's Board of Directors. We have also examined originals or copies,
certified or otherwise identified to our satisfaction, of such other records of
the Company and such agreements, certificates or records of public officials,
certificates of officers or representatives of the Company and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures (including endorsements), the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as copies and the
authenticity of the originals of such copies.
We are members of the Bar of the State of Illinois, and we express no
opinion with respect to laws other than the laws of the State of Illinois, the
General Corporation Law of the State of Delaware and federal laws of the United
States of America.
<PAGE> 3
With respect to the issuance of any Shares, Warrants and Warrant
Shares, we have assumed that the issuance of such Shares, Warrants and Warrant
Shares will have been duly authorized and the certificates, if any, evidencing
the same will have been duly executed and delivered, against receipt of
consideration approved by the Company which will be no less than the par value
thereof.
Based upon and subject to the limitations, qualifications, exceptions
and assumptions set forth herein, we are of the opinion that:
1. when (i) the Registration Statement becomes effective under the
Securities Act, (ii) the Amended and Restated Certificate of
Incorporation of the Company has been filed with the Secretary of State
of the State of Delaware, (iii) the final terms of the Underwriting
Agreement and the Offering have been approved by the Board of Directors
of the Company, (iv) the Underwriting Agreement has been duly executed
and delivered by each of the parties thereto and (v) the Shares have
been issued and delivered in accordance with the terms of the
Underwriting Agreement (including the receipt by the Company of the
consideration for the Shares described therein), the Shares will be
validly issued, fully paid and non-assessable;
2. when (i) the Registration Statement becomes effective under the
Securities Act and (ii) the Amended and Restated Certificate of
Incorporation of the Company has been filed with the Secretary of State
of the State of Delaware, the Warrants will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms; and
3. when (i) the Registration Statement becomes effective under the
Securities Act and (ii) the Amended and Restated Certificate of
Incorporation of the Company has been filed with the Secretary of State
of the State of Delaware, the Warrant Shares will be validly issued,
fully paid and non-assessable.
<PAGE> 4
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm in the Registration Statement and in the related prospectus as the same
appears under the caption "Legal Matters." We also consent to the incorporation
by reference of this consent into a subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act in connection with the Warrant
Offering. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
Very truly yours,
<PAGE> 1
Exhibit 5.2
FORM OF TAX OPINION OF
PEDERSEN & HOUPT, P.C.
[Date]
Takes.com, Inc.
3655 Noble Drive, Suite 550
San Diego, CA 92122
Ladies and Gentlemen:
You have requested our opinion regarding certain material United States
federal income tax considerations discussed under the heading "Federal Income
Tax Consequences" in the Registration Statement on Form S-1 (the "Registration
Statement") filed by Takes.com, Inc. (the "Issuer") on the date hereof with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"). The Registration Statement relates
to the offer, made by the Issuer, to issue warrants to users of its Web site.
These warrants will be convertible into common stock of the Issuer. The common
stock underlying the warrants is also being registered pursuant to the
Registration Statement. This opinion is delivered in accordance with the
requirements of Item 601(b)(8) of Regulation S-K under the Securities Act.
We have reviewed the Registration Statement and such other materials as
we have deemed necessary or appropriate to form a basis for our opinion
described herein, and have considered the applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated
thereunder, pertinent judicial authorities, interpretive rulings of the Internal
Revenue Service and such other authorities as we have considered relevant, all
as in effect on the date hereof. It should be noted that statutes, regulations,
judicial decisions and administrative interpretations are
<PAGE> 2
[Date]
Page 2
subject to change at any time and, in some circumstances, with retroactive
effect. A change in the authorities upon which our opinion is based could affect
our conclusions. All references contained herein refer to terms defined in the
Registration Statement.
Based upon the foregoing, it is our opinion that:
A. The issuance of warrants for registering with the Issuer's Web site
will be characterized as an exchange of property for intellectual
property for federal income tax purposes. The Issuer will not recognize
any gain or loss on the issuance of these warrants.
B. The issuance of warrants for logging on to the Issuer's Web site and
the issuance of warrants for remaining on the Web site for an extended
period of time should be characterized as an exchange of property for
services for federal income tax purposes.
C. The issuance of warrants in contests, promotions and other events will
be characterized as a prize or award for federal income tax purposes.
The Issuer will not recognize any gain or loss on the issuance of these
warrants.
D. Since the fair market value of the warrants will not be readily
ascertainable at the time they are issued, users of the Web site will
not be required to recognize any income until they exercise the
warrants and a value can be assigned to the warrants. Likewise, the
Issuer will not be allowed an ordinary and necessary business deduction
for the value of the warrants issued until they are exercised and a
value can be assigned to the warrants.
E. Upon exercise of each warrant, users of the Web site will recognize
ordinary income equal to that fraction of the value of one share of
common stock of the Issuer for which the warrant could be exercised on
the date of such exercise. Income recognized from the exercise of
warrants received for registering with the Web site and warrants
received in contests, promotions and other events will not be subject
to self-employment taxes. Income recognized from the exercise of
warrants issued for logging on to and remaining on the Web site for an
extended period of time should be subject to self-employment taxes.
F. Upon exercise of each warrant that was issued to a user for logging on
to or remaining on the Web site for an extended period of time, the
Issuer should be allowed a deduction for ordinary and necessary
business expenses equal to that fraction of the value of one share of
common stock of the Issuer for which the warrant could be exercised on
the date of such exercise.
G. Users of the Web site will have a basis in the common stock they
receive upon exercise of the warrants equal to the amount
<PAGE> 3
[Date]
Page 3
of ordinary income they recognize upon the exercise of the warrants.
H. The holding period of any common stock acquired upon the exercise of
warrants for the purpose of determining whether any gain or loss on the
sale of such common stock is long term or short term gain will begin on
the date of such exercise.
I. Neither the Issuer nor the holder of a warrant will recognize any gain
or loss on the expiration of any warrant.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act or the rules and regulations of the Commission promulgated
thereunder.
Sincerely,
<PAGE> 1
EXHIBIT 10.4
TAKES.COM, INC.
AMENDED AND RESTATED 1999 EMPLOYEE STOCK OPTION PLAN
Takes.com, Inc. (formerly known as "America's Home Page, Inc.") has
previously adopted the America's Home Page, Inc. 1999 Employee Stock Option Plan
(the "Prior Plan") which was approved by its Board of Directors on May 13, 1999
and by its Stockholders on May 20, 1999.
The Company desires to amend and restate the Prior Plan to change the
name of the Prior Plan and to increase the number of shares of Common Stock (as
hereafter defined) reserved for grants of Options.
The Company hereby adopts this Takes.com, Inc. Amended and Restated
1999 Employee Stock Option Plan.
1. Statement of Purpose. The purpose of the Takes.com, Inc. Amended and
Restated 1999 Employee Stock Option Plan (the "Plan") is to serve as a
performance incentive and to encourage the ownership of Takes.com, Inc. (the
"Company") common stock by officers and other key employees of the Company so
that the person to whom the option is granted may acquire a proprietary interest
in the success of the Company, and to encourage such person to remain in the
employ of the Company.
2. Definitions. Capitalized terms used in the Plan not otherwise
defined herein shall have the following meanings (whether used in the singular
or plural):
(a) "AFFILIATE" means any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated association
or other entity (other than the Company) that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, the Company including, without limitation, any member of an
affiliated group of which the Company is a common parent corporation as provided
in Section 1504 of the Code.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as
amended.
(c) "COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
(d) "COMMON STOCK" means the shares of the Common Stock,
$0.001 par value, of the Company whether presently or hereafter issued, and any
other stock or security resulting from adjustment thereof as described
hereinafter or the common stock of any successor to the Company which is
designated for the purpose of the Plan.
(e) "DIRECTOR" means a member of the Board.
<PAGE> 2
(f) "DISINTERESTED PERSON" means a Director who meets the
requirements of Rule 16b-3(b)(3)(i) of the Exchange Act (and any successor
regulation thereto), as such rule is amended from time to time and as
interpreted by the SEC.
(g) "EFFECTIVE DATE" shall have the meaning set forth in
Section 14.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(i) "EXERCISE PRICE" means the price at which a holder of an
Option may purchase the Shares issuable upon exercise of the Option.
(j) "FAIR MARKET VALUE" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(1) if such Common Stock is publicly traded and is
then listed on a national securities exchange, its closing
price on the last trading day prior to the date of
determination as reported in The Wall Street Journal;
(2) if such Common Stock is publicly traded but is
not quoted on a national securities exchange, the average of
the closing bid and asked prices on the last trading day prior
to the date of determination; or
(3) if none of the foregoing is applicable, by the
Committee in good faith.
(k) "OPTION" means an award of an option to purchase shares of
Common Stock pursuant to Section 5 of the Plan.
(l) "PERMITTED TRANSFEREE" means the Participant's spouse,
lineal ancestors or lineal descendants or to trusts or family partnerships for
the benefit of the foregoing.
(m) "SEC" means the Securities and Exchange Commission.
(n) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(o) "STOCK OPTION AGREEMENT" means, with respect to Options
granted under the Plan, the signed written agreement between the Company and the
Participant setting forth the terms and conditions of the Options.
3. Administration.
(a) The Plan shall be administered by the Committee, whose
interpretation of the terms and provisions of the Plan shall be final and
conclusive. During all times that the Company is subject to Section 16 of the
Exchange Act, the Committee shall consist of not less
- 2-
<PAGE> 3
than two (2) members of the Board, each of whom is a Disinterested Person, to
comply with the requirements of Section 16(b) and Rule 16b-3 of the Exchange
Act. Any member of the Committee may resign upon notice to the Board and the
Board will have the authority to remove, replace or fill any vacancy of any
member of the Committee upon notice to the Committee and the affected member.
(b) A majority of the Committee (including those members of
the Committee participating via teleconference) will constitute a quorum at any
meeting thereof and the acts of a majority of the members present or acts
approved in writing by a majority of the entire Committee without a meeting will
be the acts of the Committee for purposes of this Plan. The Committee may
authorize any one or more of its members or an officer of the Company to execute
and deliver documents on behalf of the Committee and may appoint and compensate
agents, counsel, auditors or other specialists to aid it in the discharge of its
duties.
(c) Each action and determination made or taken pursuant to
the Plan by the Committee, including any interpretation or construction of the
Plan, shall be final and conclusive for all purposes and upon all persons.
(d) No member of the Committee shall be liable for any action
or determination made or taken by him or the Committee in good faith with
respect to the Plan. Each member of the Committee shall be fully justified in
relying or acting in good faith upon any report made by the independent public
accountants of the Company, and upon any other information furnished in
connection with this Plan. In no event shall any person who is or shall have
been a member of the Committee be liable for any determination made or other
action taken or any omission to act in reliance upon any such report or
information, or for any action taken, including the furnishing of information,
or failure to act, if in good faith. Each person who is or at any time serves as
a member of the Committee shall be indemnified and held harmless by the Company
against and from (i) any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by such person in connection with or resulting from
any claim, action, suit, or proceeding to which such person may be a party or in
which such person may be involved by reason of any action or failure to act
under this Plan and (ii) any and all amounts paid by such person in satisfaction
of judgment in any such action, suit, or proceeding relating to the Plan. Each
person covered by this indemnification shall give the Company an opportunity, at
its own expense, to handle and defend the same before such person undertakes to
handle and defend the same on such person's own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the certificate of incorporation or
by-laws of the Company, as a matter of law, or otherwise, or any power that the
Company may have to indemnify such person or hold such person harmless.
4. Eligibility. The Committee, in its sole discretion, shall identify
those employees and/or officers to whom Options may be granted under the Plan
(each such person is referred to herein as a "Participant").
5. Granting of Options.
- 3-
<PAGE> 4
(a) The Committee may, in its sole discretion, grant Options
to purchase shares of Common Stock under the terms and conditions set forth in
this Plan, subject to any contractual limitation on the Company. Upon each
determination by the Committee that Options should be granted to a Participant
under the Plan, such Participant shall execute a Stock Option Agreement in such
form as the Committee shall determine from time to time.
(b) Each Option shall entitle the holder thereof to purchase
specified number of shares of Common Stock as set forth in the Stock Option
Agreement executed by the Participant. The aggregate number of shares of Common
Stock which shall be available for such Options under this Plan shall be
2,340,000; provided, however, that such number of available shares and the
number of shares of Common Stock outstanding under the Plan shall be subject in
all cases to adjustment as provided in Sections 11 and 12 herein.
(c) In the event that Options expire or are terminated or
canceled while unexercised, the Common Stock attributable to such Options may be
allocated or subject to subsequent Options granted by the Committee (including a
grant in substitution for a canceled Option). Common Stock subject to Options
may also be made available from unissued or reacquired Common Stock.
(d) Options granted under the Plan are not intended to be
treated as incentive stock options as defined in Section 422 of the Code.
(e) Each Option granted hereunder shall be subject to any
provision necessary to ensure compliance with federal and state securities laws.
(f) A Participant shall not be deemed to be the holder of, or
to have any of the rights of a holder with respect to, any shares of Common
Stock attributable to such Option unless and until the Option is exercised
pursuant to the terms thereof, the Company shall have issued and delivered the
shares to the Participant, and the Participant's name shall have been entered as
a stockholder of record on the books of the Company. Thereafter, the Participant
shall have full voting, dividend, and other ownership rights with respect to
such shares of Common Stock.
6. Option Price. Subject to the provisions of Sections 11 and 12
hereof, the Options shall be granted at an Exercise Price equal to the Fair
Market Value of the Common Stock on the date the Option is granted or such other
amount as determined in the sole discretion of the Committee.
7. Duration of Options, Increments, and Extensions. Except as otherwise
provided herein, each Option shall be for a term of ten (10) years (the "Option
Period"). Each Option shall be vested or exercisable by the Participant as set
forth in the Stock Option Agreement governing the Option(s) granted hereunder.
Except as otherwise specified hereunder, the Committee may in its sole
discretion accelerate the time at which an Option granted hereunder may be
exercised. All or any part of the shares of Common Stock attributable to the
option(s) to which the right to purchase has vested may be purchased at the time
of such vesting or at any time or times thereafter during the Option Period
except as otherwise specified herein.
- 4-
<PAGE> 5
8. Exercise of Options.
(a) An Option may be exercised by giving written notice to the
Company, attention of the President/Chief Executive Officer, specifying the
number of shares of Common Stock attributable to the Option to be purchased,
accompanied by (i) the full purchase price for the shares of Common Stock to be
purchased and (ii) any other documents which the Committee, in its discretion
deems necessary to evidence the exercise, in whole or in part, of the Options.
(b) The method or methods of payment of the Exercise Price of
an Option and any amounts required by Section 8(g) hereof may consist of:
(i) cash;
(ii) a check;
(iii) a promissory note in a form specified by the
Committee and payable to the Company;
(iv) whole shares of Common Stock already owned by
the Participant exercising the Option;
(v) the withholding of shares of Common Stock
issuable upon the Participant's exercise of the Option
(subject to the restrictions as set forth in Section 8(g)
hereof); or
(vi) by any combination of the foregoing.
(c) Unless otherwise provided in the Participant's Stock
Option Agreement, on receipt of written notice of exercise, the Committee may
elect to cash out all or part of the portion of any Option to be exercised by
paying the Participant an amount in cash equal to the excess of the Fair Market
Value of the Common Stock that is subject to the Option over the Option Price
times the number of shares of Common Stock subject to the Option on the
effective date of such cash out.
(d) At the time a Participant exercises an Option, the
Committee may, if it shall determine it necessary or desirable in order to
comply with any applicable laws or regulations relating to the sale of
securities, require the Participant (or his or her heirs, legatees, or legal
representative, as the case may be) as a condition upon the exercise thereof, to
deliver to the Company a written representation of present intention to purchase
the shares of Common Stock subject to the Option for investment only and not
with any present intention to resell the same and that the Participant will
dispose of such shares only in compliance with such laws and regulations
relating to the sale of securities.
- 5-
<PAGE> 6
(e) An appropriate legend may be placed upon each certificate,
if any, evidencing the shares of Common Stock delivered to the Participant upon
exercise of part or all of an Option stating that the registration of the shares
of Common Stock may be necessary to offer, sell or transfer such shares in order
to comply with any applicable laws or regulations relating to the sale of
securities.
(f) The Participant (or his or her heirs, legatees, or legal
representative, as the case may be) shall agree to comply with the provisions of
the Stock Option Agreement.
(g) At the time of the exercise of any Option, the Committee
may require, as a condition of the exercise of such Option, the Participant (or
his or her heirs, legatees, or legal representative, as the case may be) to pay
the Company an amount equal to the amount of tax the Company may be required to
withhold to obtain a deduction for federal income tax purposes as a result of
the exercise of such Option. A Participant (or his or her heirs, legatees, or
legal representative, as the case may be) may elect in lieu of paying cash to
direct the Company to withhold shares of Common Stock with a fair market value
equal to the amount necessary to satisfy the required tax withholding and the
Committee shall determine the timing and other terms and conditions in which the
use of Common Stock to satisfy required tax withholding may take place.
(h) Any fractional shares of Common Stock attributable to the
exercise of Options shall be eliminated at the time of payment or payout by
rounding down for fractions of less than one half (1/2) and rounding up for
fractions of equal to or more than one half (1/2). No cash settlements shall be
made with respect to fractional shares eliminated by rounding.
9. Termination of Relationship - Exercise Thereafter.
(a) In the event that the Participant's employment is
terminated due to death, permanent disability (as that term is defined in
Section 22(e)(3) of the Code, as now in effect or as subsequently amended),
retirement, or for any other reason (other than voluntary termination of
employment by the Participant or for cause (as such term is defined in Section
9(b) below):
(i) such Participant's unvested Options shall expire
on the date the Participant's employment is terminated and all rights of the
Participant to purchase Common Stock attributable to the unvested Options
pursuant to the Stock Option Agreement or this Plan shall similarly terminate on
such date; and
(ii) such Participant's vested Options may be
exercised by the Participant, or if the Participant is not living or is
incapacitated, by his or her heirs, legatees or legal representative, as the
case may be, within twelve (12) months after the date of termination of the
Participant's employment, or, if earlier, prior to the expiration of the Option
Period.
(b) In the event that the Participant voluntarily terminates
employment or the Participant's employment is terminated for cause, the
Participant's participation in this Plan shall terminate on such date, all
Options previously granted hereunder shall be forfeited, and the
- 6-
<PAGE> 7
Participant shall not be entitled to any benefits under this Plan. The term
"cause" shall be defined in the Participant's employment agreement with the
Company, or if not so defined, shall mean the termination of employment due to
gross negligence, willful or wanton misconduct or criminal acts or the violation
of a confidentiality agreement, if any, between the Company and the Participant.
10. Transferability of Options. No Option granted under the Plan shall
be assignable or transferable by the Participant to whom it is granted, either
voluntarily or by operation of law, except (i) by will or the laws of descent
and distribution, (ii) pursuant to a qualified domestic relations order as
defined by (a) the Code or (b) Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder or (iii) during the
lifetime of the Participant, to a Permitted Transferee. During the lifetime of
the Participant, Options shall be exercisable only by the Participant or a
Permitted Transferee (or in the event of incapacity of the Participant, by the
person or persons properly appointed to act on behalf of the Participant).
Following a transfer of an Option to a Permitted Transferee, any such Option
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to the transfer. Notwithstanding the foregoing, the events
contained in Section 9 hereof shall continue to be applied with respect to the
original Participant and transferred Options shall expire on or after the date
the original Participant ceases to be an employee of the Company as provided in
Subsections 9(a)-(b).
11. Modification/Substitution of Options.
(a) The Committee may modify, extend or renew outstanding
Options and authorize the grant of new Options in substitution therefor,
provided that any such action may not, without the written consent of a
Participant, impair any of such Participant's rights under any Option previously
granted.
(b) Options may be granted under this Plan from time to time
in substitution for stock options held by employees of other corporations who
become or are about to become employees of the Company as a result of a merger
or consolidation of the employing corporation with the Company, or the
acquisition by the Company of the assets of the employing corporation, or the
acquisition by the Company of fifty percent (50%) or more of the stock of the
employing corporation causing the employing corporation to become an Affiliate
of the Company. The terms and conditions of the substitute Options granted
pursuant to this Subsection 11(b) may vary from the terms and conditions set
forth in the Plan to such extent as the Committee at the time of the grant may
deem appropriate to conform, in whole or in part, to the provisions of the
options previously held by employees of such corporations.
12. Adjustment to Common Stock Attributable to Options.
(a) In the event that outstanding shares of Common Stock as a
whole are increased, decreased, changed into, or exchanged for a different
number or kind of shares or securities of the Company, whether through merger,
consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split, combination of shares, exchange of
- 7-
<PAGE> 8
shares, change in corporate structure, or any recapitalization or
reclassification of the Company with any other corporation, limited liability
company or partnership, an appropriate and proportionate adjustment shall be
made, on an equitable basis as determined by the Committee in the number and
kinds of securities subject to the Plan, whether or not at the time attributable
to outstanding Options, to which the holders of outstanding shares of Common
Stock will be entitled pursuant to the transaction and the Exercise Price of the
Options shall be appropriately adjusted.
(b) Upon dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation in which the Company is not the
surviving corporation, or upon the sale of substantially all of the assets of
the Company to another corporation, the Plan and the Options issued thereunder
shall terminate (the "Plan Termination Date"), unless provision is made in
connection with such transaction for the assumption of Options theretofore
granted or the substitution for such Options of new options of the successor
employer corporation or a parent or subsidiary thereof, with appropriate
adjustment as to the number and kinds of shares attributable to such Options and
the exercise price of such Options. In the event of such termination, all
outstanding Options shall be exercisable in full for at least thirty (30) days
prior to the Plan Termination Date.
(c) In the event of a change in the Common Stock which is
limited to a change in the designation thereof to "capital stock" or other
similar designation, or a change in par value, without increase or decrease in
the number of issued shares, the shares resulting from any such change shall be
deemed to be Common Stock within the meaning of this Plan.
(d) Unless otherwise specifically provided in a Stock Option
Agreement granting Options pursuant to this Plan, the following events shall not
be deemed a dilutive event requiring an adjustment under Section 12 herein: (i)
the issuance by the Company of Common Stock or another class of Company stock
upon a sale for fair value to an investor in the Company; (ii) the issuance of
any Options under this Plan or another plan sponsored by the Company to purchase
Common Stock; (iii) the issuance of options to purchase another class of the
Company's stock under any other plan sponsored by the Company; (iv) the issuance
of Common Stock upon the exercise of Options under the Plan or another plan
sponsored by the Company; (v) the issuance of another class of the Company's
stock upon the exercise of options under another plan sponsored by the Company;
(vi) the granting of restricted Common Stock to employees, officers or
Directors; or (vii) the granting of any other equity-based compensation to an
employee or Director.
(e) Notwithstanding the foregoing, the existence of this Plan
shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of bonds,
debentures, preferred or other stocks with preference ahead of or convertible
into, or otherwise affecting the Common Stock or the rights thereof, the
dissolution or liquidation of the Company, any sale or transfer of all or any
part of the Company's assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
- 8-
<PAGE> 9
13. Amendment and Termination of Plan. The Company may amend or
discontinue the Plan at any time; provided, however, that (i) no such action may
be taken without such stockholder approval as may be required by the Company's
by-laws or certificate of incorporation, the rules and regulations of any
securities exchange or association on which the Common Stock may be listed or
any other applicable law which decreases the Exercise Price, increases the
maximum term of Options, materially increases the benefits accruing to
Participants hereunder, materially increases the number of shares of Common
Stock that may be issued pursuant to this Plan (except as provided in Section
12) or materially modifies the requirements as to eligibility for participation
hereunder and (ii) no such amendment or discontinuance shall materially
adversely affect any Options previously granted without the consent of the
Participant or violate any contractual limitation on the Company. No Options may
be granted after termination or discontinuance of the Plan.
14. Effective Date. The Plan was adopted and authorized by the Board on
June 23, 1999, approved by the written consent of the Company's stockholders on
_____________, 1999 and shall be deemed to have become effective as of June 23,
1999.
15. Relationship to Other Benefits.
(a) No payment under this Plan shall be taken into account in
determining any benefits under any pension, retirement, profit sharing, or group
insurance plan of the Company.
(b) Neither the adoption of the Plan by the Board nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Company or the Board
to adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the Plan,
and such arrangements may be applicable either generally or only in specific
cases.
16. No Right to Employment. Nothing contained in the Plan or in any
Options granted pursuant thereto shall confer upon any Participant any right to
be continued in the employment of the Company, or interfere in any way with the
right of the Company to terminate any Participant's employment at any time.
17. Government and Other Regulations. This Plan, the granting and
exercise of any Options hereunder and the obligation of the Company to sell and
deliver Common Stock upon the exercise of Options shall be subject to all
applicable laws, rules and regulations, and to such approvals by any
governmental agencies as may be deemed necessary or appropriate by the
Committee, including, without limitation, the effectiveness of any registration
statement required under the Securities Act and the rules and regulations of any
securities exchange or association on which the Common Stock may be listed or
quoted. If Common Stock awarded hereunder may in certain circumstances be exempt
from registration under the Securities Act, the Company may restrict its
transfer in such manner as it deems advisable to ensure such exempt status. The
Plan is intended to comply with Rule 16b-3 of the Exchange Act and any provision
which is inconsistent with Rule 16b-3 shall be inoperative and shall not affect
the validity of the Plan.
- 9-
<PAGE> 10
Should any provision of this Plan require modification or be unnecessary to
comply with the requirements of Section 16 or Rule 16b-3 of the Exchange Act,
the Board may waive such provision and/or amend this Plan to add to or modify
the provisions hereof accordingly.
18. Plan Expenses. The expenses of implementing and administering this
Plan shall be borne by the Company.
19. Governing Law. This Plan shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware and the
federal laws of the United States of America.
20. Severability. If any provision of this Plan is for any reason held
to be invalid or unenforceable, such invalidity or unenforceability will not
affect any other provision of this Plan, and this Plan will be construed as if
such invalid or unenforceable provision were omitted.
21. Titles and Headings. The titles and headings of the Sections in
this Plan are for convenience of reference only, and in the event of any
conflict, the text of this Plan, rather than such titles or headings, shall
control.
- 10-
<PAGE> 1
EXHIBIT 10.5
TAKES.COM, INC.
AMENDED AND RESTATED NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Takes.com, Inc. (formerly known as "America's Home Page, Inc.") has
previously adopted the America's Home Page, Inc. Non-Employee Director Stock
Option Plan (the "Prior Plan") which was approved by its Board of Directors on
May 13, 1999 and by its Stockholders on May 20, 1999.
The Company desires to amend and restate the Prior Plan to change the
name of the Prior Plan and to increase the number of shares of Common Stock (as
hereafter defined) reserved for grants of Options.
The Company hereby adopts this Takes.com, Inc. Amended and Restated
Stock Option Plan For Non-Employee Directors.
1. Statement of Purpose. The purpose of the Takes.com, Inc. Amended and
Restated Stock Option Plan For Non-Employee Directors (the "Plan") is to attract
and retain persons of exceptional ability to serve as members of the Board of
Directors of Takes.com, Inc. (the "Company"), and to align the interests of the
Company's Non-Employee Directors with that of the stockholders in enhancing the
value of the Company's capital stock.
2. Definitions. Capitalized terms used in the Plan not otherwise
defined herein shall have the following meanings (whether used in the singular
or plural):
(a) "AFFILIATE" means any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated association
or other entity (other than the Company) that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, the Company including, without limitation, any member of an
affiliated group of which the Company is a common parent corporation as provided
in Section 1504 of the Code.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as
amended.
(c) "COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
(d) "COMMON STOCK" means the shares of the Common Stock,
$0.001 par value, of the Company whether presently or hereafter issued, and any
other stock or security resulting from adjustment thereof as described
hereinafter or the common stock of any successor to the Company which is
designated for the purpose of the Plan.
(e) "DIRECTOR" means a member of the Board.
<PAGE> 2
(f) "DISINTERESTED PERSON" means a Director who meets the
requirements of Rule 16b-3(b)(3)(i) of the Exchange Act (and any successor
regulation thereto), as such rule is amended from time to time and as
interpreted by the SEC.
(g) "EFFECTIVE DATE" shall have the meaning set forth in
Section 13.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(i) "EXERCISE PRICE" means the price at which a holder of an
Option may purchase the Shares issuable upon exercise of the Option.
(j) "FAIR MARKET VALUE" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(1) if such Common Stock is publicly traded and is
then listed on a national securities exchange, its closing
price on the last trading day prior to the date of
determination as reported in The Wall Street Journal;
(2) if such Common Stock is publicly traded but is
not quoted on a national securities exchange, the average of
the closing bid and asked prices on the last trading day prior
to the date of determination; or
(3) if none of the foregoing is applicable, by the
Committee in good faith.
(k) "INITIAL PUBLIC OFFERING" means the Company's underwritten
offering of Common Stock to the public pursuant to the Company's first effective
registration statement for such Common Stock filed under the Securities Act and
the rules and regulations promulgated thereunder.
(l) "NON-EMPLOYEE DIRECTOR" means a Director of the Company
who is not currently an officer or otherwise employed by the Company or any of
its Affiliates or does not receive compensation, directly or indirectly, from
the Company or any of its Affiliates for services rendered as a consultant or in
any capacity other than as a Director.
(m) "OPTION" means an award of an option to purchase shares of
Common Stock pursuant to Section 5 of the Plan.
(n) "PERMITTED TRANSFEREE" means the Participant's spouse,
lineal ancestors or lineal descendants or to trusts or family partnerships for
the benefit of the foregoing.
(o) "SEC" means the Securities and Exchange Commission.
(p) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
- 2-
<PAGE> 3
(q) "STOCK OPTION AGREEMENT" means, with respect to Options
granted under the Plan, the signed written agreement between the Company and the
Participant setting forth the terms and conditions of the Options.
3. Administration.
(a) The Plan shall be administered by the Committee, whose
interpretation of the terms and provisions of the Plan shall be final and
conclusive. Notwithstanding the foregoing, no discretion concerning decisions
regarding the granting of options or the disposition of shares or Common Stock
received upon a Participant's exercise of an Option hereunder shall be afforded
to a Committee member who is not a Disinterested Person in accordance with Rule
16b-3 or the Exchange Act or any successor rule thereto. Any member of the
Committee may resign upon notice to the Board and the Board will have the
authority to remove, replace or fill any vacancy of any member of the Committee
upon notice to the Committee and the affected member.
(b) A majority of the Committee (including those members of
the Committee participating via teleconference) will constitute a quorum at any
meeting thereof and the acts of a majority of the members present or acts
approved in writing by a majority of the entire Committee without a meeting will
be the acts of the Committee for purposes of this Plan. The Committee may
authorize any one or more of its members or an officer of the Company to execute
and deliver documents on behalf of the Committee and may appoint and compensate
agents, counsel, auditors or other specialists to aid it in the discharge of its
duties.
(c) Each action and determination made or taken pursuant to
the Plan by the Committee, including any interpretation or construction of the
Plan, shall be final and conclusive for all purposes and upon all persons.
(d) No member of the Committee shall be liable for any action
or determination made or taken by him or the Committee in good faith with
respect to the Plan. Each member of the Committee shall be fully justified in
relying or acting in good faith upon any report made by the independent public
accountants of the Company, and upon any other information furnished in
connection with this Plan. In no event shall any person who is or shall have
been a member of the Committee be liable for any determination made or other
action taken or any omission to act in reliance upon any such report or
information, or for any action taken, including the furnishing of information,
or failure to act, if in good faith. Each person who is or at any time serves as
a member of the Committee shall be indemnified and held harmless by the Company
against and from (i) any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by such person in connection with or resulting from
any claim, action, suit, or proceeding to which such person may be a party or in
which such person may be involved by reason of any action or failure to act
under this Plan and (ii) any and all amounts paid by such person in satisfaction
of judgment in any such action, suit, or proceeding relating to the Plan. Each
person covered by this indemnification shall give the Company an opportunity, at
its own expense, to handle and defend the same before such person undertakes to
handle and defend the
- 3-
<PAGE> 4
same on such person's own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled under the certificate of incorporation or by-laws of the
Company, as a matter of law, or otherwise, or any power that the Company may
have to indemnify such person or hold such person harmless.
4. Eligibility. Non-Employee Directors shall receive Options as set
forth in Section 5 hereof (each such person is referred to herein as a
"Participant").
5. Granting of Options.
(a) On the Effective Date and on such date(s) after the
Effective Date and within six (6) months of the closing of the Company's Initial
Public Offering that additional Non-Employee Directors are elected to the Board,
each Non-Employee Director shall receive Options to purchase 30,000 shares of
Common Stock (such dates collectively referred to herein as the "Initial Grant
Date"). On an annual basis thereafter, each Non-Employee Director shall receive
Options to purchase 10,000 shares of Common Stock on the day after the annual
meeting of the stockholders of the Company as designated in the notice of annual
meeting of stockholders (the "Annual Grant Date"). Notwithstanding the
foregoing, in the event the Non-Employee Director fails to attend at least 50%
of the Board meetings between the Annual Grant Date and the date of the next
annual meeting, the Eligible Director shall forfeit all Options granted to him
or her on the previous Annual Grant Date. Participation by telephone conference
or by other telecommunications equipment will be deemed attendance at a Board
meeting for the purpose of receiving Options under this Plan.
(b) As a condition to receiving Options under the Plan, the
Participant shall execute a Stock Option Agreement in such form as the Committee
shall determine from time to time.
(c) Each Option shall entitle the holder thereof to purchase
specified number of shares of Common Stock as set forth in the Stock Option
Agreement executed by the Participant. The aggregate number of shares of Common
Stock which shall be available for such Options under this Plan shall be
360,000; provided, however, that such number of available shares and the number
of shares of Common Stock outstanding under the Plan shall be subject in all
cases to adjustment as provided in Section 11 herein.
(d) In the event that Options expire or are terminated or
canceled while unexercised, the Common Stock attributable to such Options may be
allocated or subject to subsequent Options granted by the Committee (including a
grant in substitution for a canceled Option). Common Stock subject to Options
may also be made available from unissued or reacquired Common Stock.
(e) Options granted under the Plan are not intended to be
treated as incentive stock options as defined in Section 422 of the Code.
- 4-
<PAGE> 5
(f) Each Option granted hereunder shall be subject to any
provision necessary to ensure compliance with federal and state securities laws.
(g) A Participant shall not be deemed to be the holder of, or
to have any of the rights of a holder with respect to, any shares of Common
Stock attributable to such Option unless and until the Option is exercised
pursuant to the terms thereof, the Company shall have issued and delivered the
shares to the Participant, and the Participant's name shall have been entered as
a stockholder of record on the books of the Company. Thereafter, the Participant
shall have full voting, dividend, and other ownership rights with respect to
such shares of Common Stock.
6. Option Price. Subject to the provisions of Section 11 hereof, the
Options shall be granted at an Exercise Price equal to the Fair Market Value of
the Common Stock on the date the Option is granted.
7. Duration of Options, Increments, and Extensions. Except as otherwise
provided herein, each Option shall be for a term of ten (10) years (the "Option
Period"). Each Option granted on an Initial Grant Date shall be vested or
exercisable by the Participant on the date which is six (6) months after the
date of the closing of the Company's Initial Public Offering. Each Option
granted on (i) an Initial Grant Date after the Company's Initial Public Offering
or (ii) an Annual Grant Date shall become exercisable or vested with respect to
33.33% of the total number of shares of Common Stock subject to the Option at
the end of each of the first three (3) years after the Annual Grant Date. All or
any part of the shares of Common Stock attributable to the option(s) to which
the right to purchase has vested may be purchased at the time of such vesting or
at any time or times thereafter during the Option Period except as otherwise
specified herein.
8. Exercise of Options.
(a) An Option may be exercised by giving written notice to the
Company, attention of the President/Chief Executive Officer, specifying the
number of shares of Common Stock attributable to the Option to be purchased,
accompanied by (i) the full purchase price for the shares of Common Stock to be
purchased and (ii) any other documents which the Committee, in its discretion
deems necessary to evidence the exercise, in whole or in part, of the Options.
(b) The method or methods of payment of the Exercise Price of
an Option and any amounts required by Section 8(g) hereof may consist of:
(i) cash;
(ii) a check;
(iii) a promissory note in a form specified by the
Committee and payable to the Company;
(iv) whole shares of Common Stock already owned by
the Participant exercising the Option;
- 5-
<PAGE> 6
(v) the withholding of shares of Common Stock
issuable upon the Participant's exercise of the Option
(subject to the restrictions as set forth in Section 8(g)
hereof); or
(vi) by any combination of the foregoing.
(c) Unless otherwise provided in the Participant's Stock
Option Agreement, on receipt of written notice of exercise, the Committee may
elect to cash out all or part of the portion of any Option to be exercised by
paying the Participant an amount in cash equal to the excess of the Fair Market
Value of the Common Stock that is subject to the Option over the Option Price
times the number of shares of Common Stock subject to the Option on the
effective date of such cash out.
(d) At the time a Participant exercises an Option, the
Committee may, if it shall determine it necessary or desirable in order to
comply with any applicable laws or regulations relating to the sale of
securities, require the Participant (or his or her heirs, legatees, or legal
representative, as the case may be) as a condition upon the exercise thereof, to
deliver to the Company a written representation of present intention to purchase
the shares of Common Stock subject to the Option for investment only and not
with any present intention to resell the same and that the Participant will
dispose of such shares only in compliance with such laws and regulations
relating to the sale of securities.
(e) An appropriate legend may be placed upon each certificate,
if any, evidencing the shares of Common Stock delivered to the Participant upon
exercise of part or all of an Option stating that the registration of the shares
of Common Stock may be necessary to offer, sell or transfer such shares in order
to comply with any applicable laws or regulations relating to the sale of
securities.
(f) The Participant (or his or her heirs, legatees, or legal
representative, as the case may be) shall agree to comply with the provisions of
the Stock Option Agreement.
(g) At the time of the exercise of any Option, the Committee
may require, as a condition of the exercise of such Option, the Participant (or
his or her heirs, legatees, or legal representative, as the case may be) to pay
the Company an amount equal to the amount of tax the Company may be required to
withhold to obtain a deduction for federal income tax purposes as a result of
the exercise of such Option. A Participant (or his or her heirs, legatees, or
legal representative, as the case may be) may elect in lieu of paying cash to
direct the Company to withhold shares of Common Stock with a fair market value
equal to the amount necessary to satisfy the required tax withholding and the
Committee shall determine the timing and other terms and conditions in which the
use of Common Stock to satisfy required tax withholding may take place.
(h) Any fractional shares of Common Stock attributable to the
exercise of Options shall be eliminated at the time of payment or payout by
rounding down for fractions of
- 6-
<PAGE> 7
less than one half (1/2) and rounding up for fractions of equal to or more than
one half (1/2). No cash settlements shall be made with respect to fractional
shares eliminated by rounding.
9. Termination of Relationship - Exercise Thereafter.
(a) In the event that the Participant dies, suffers a
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), retires from the Board upon
attaining age 65, or becomes an employee of the Company such that the
Participant ceases to be a Non-Employee Director, such Participant's Options
(whether or not currently vested) shall become immediately exercisable by the
Participant, or if the Participant is not living or is incapacitated, by his or
her heirs, legatees or legal representative, as the case may be, within twelve
(12) months after the date of termination of the Participant's engagement as a
Non-Employee Director, or, if earlier, prior to the expiration of the Option
Period.
(b) In the event that the Participant ceases to be a
Non-Employee Director of the Company for any reason other than those specified
in Subsection 9(a) prior to the time a Participant's Options becomes fully
exercisable:
(i) such Participant's unvested Options shall expire on the
date the Participant's engagement as a Non-Employee Director is terminated and
all rights of the Participant to purchase Common Stock attributable to the
unvested Options pursuant to the Stock Option Agreement or this Plan shall
similarly terminate on such date; and
(ii) such Participant's vested Options may be exercised by the
Participant, or if the Participant is not living or is incapacitated, by his or
her heirs, legatees or legal representative, as the case may be, within twelve
(12) months after the date the Participant's engagement as a Non-Employee
Director is terminated, or, if earlier, prior to the expiration of the Option
Period.
(c) In the event that the Participant's engagement as a
Non-Employee Director is terminated by the Company for cause, the Participant's
participation in this Plan shall terminate on such date, all Options previously
granted hereunder shall be forfeited, and the Participant shall not be entitled
to any benefits under this Plan. The term "cause" shall mean the termination of
a Participant's engagement as a Non-Employee Director due to gross negligence,
willful or wanton misconduct or criminal acts or the violation of a
confidentiality agreement, if any, between the Company and the Participant.
10. Transferability of Options. No Option granted under the Plan shall
be assignable or transferable by the Participant to whom it is granted, either
voluntarily or by operation of law, except (i) by will or the laws of descent
and distribution, (ii) pursuant to a qualified domestic relations order as
defined by (a) the Code or (b) Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder or (iii) during the
lifetime of the Participant, to a Permitted Transferee. During the lifetime of
the Participant, Options shall be exercisable only by the Participant or a
Permitted Transferee (or in the event of incapacity of the Participant, by the
person or persons properly appointed to act on behalf of the Participant).
- 7-
<PAGE> 8
Following a transfer of an Option to a Permitted Transferee, any such Option
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to the transfer. Notwithstanding the foregoing, the events
contained in Section 9 hereof shall continue to be applied with respect to the
original Participant and transferred Options shall expire on or after the date
the original Participant ceases to be a Non-Employee of the Company as provided
in Subsections 9(a)-(c).
11. Adjustment to Common Stock Attributable to Options.
(a) In the event that outstanding shares of Common Stock as a
whole are increased, decreased, changed into, or exchanged for a different
number or kind of shares or securities of the Company, whether through merger,
consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure, or any recapitalization or reclassification of the Company
with any other corporation, limited liability company or partnership, an
appropriate and proportionate adjustment shall be made, on an equitable basis as
determined by the Committee in the number and kinds of securities subject to the
Plan, whether or not at the time attributable to outstanding Options, to which
the holders of outstanding shares of Common Stock will be entitled pursuant to
the transaction and the Exercise Price of the Options shall be appropriately
adjusted.
(b) Upon dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation in which the Company is not the
surviving corporation, or upon the sale of substantially all of the assets of
the Company to another corporation, the Plan and the Options issued thereunder
shall terminate (the "Plan Termination Date"), unless provision is made in
connection with such transaction for the assumption of Options theretofore
granted or the substitution for such Options of new options of the successor
corporation or a parent or subsidiary thereof, with appropriate adjustment as to
the number and kinds of shares attributable to such Options and the exercise
price of such Options. In the event of such termination, all outstanding Options
shall be exercisable in full for at least thirty (30) days prior to the Plan
Termination Date.
(c) In the event of a change in the Common Stock which is
limited to a change in the designation thereof to "capital stock" or other
similar designation, or a change in par value, without increase or decrease in
the number of issued shares, the shares resulting from any such change shall be
deemed to be Common Stock within the meaning of this Plan.
(d) Unless otherwise specifically provided in a Stock Option
Agreement granting Options pursuant to this Plan, the following events shall not
be deemed a dilutive event requiring an adjustment under Section 11 herein: (i)
the issuance by the Company of Common Stock or another class of Company stock
upon a sale for fair value to an investor in the Company; (ii) the issuance of
any Options under this Plan or another plan sponsored by the Company to purchase
Common Stock; (iii) the issuance of options to purchase another class of the
Company's stock under any other plan sponsored by the Company; (iv) the issuance
of Common Stock upon the exercise of Options under the Plan or another plan
sponsored by the
- 8-
<PAGE> 9
Company; (v) the issuance of another class of the Company's stock upon the
exercise of options under another plan sponsored by the Company; (vi) the
granting of restricted Common Stock to employees, officers or Directors; or
(vii) the granting of any other equity-based compensation to an employee or
Director.
(e) Notwithstanding the foregoing, the existence of this Plan
shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of bonds,
debentures, preferred or other stocks with preference ahead of or convertible
into, or otherwise affecting the Common Stock or the rights thereof, the
dissolution or liquidation of the Company, any sale or transfer of all or any
part of the Company's assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
12. Amendment and Termination of Plan. The Company may amend or
discontinue the Plan at any time; provided, however, that (i) no such action may
be taken without such stockholder approval as may be required by the Company's
by-laws or certificate of incorporation, the rules and regulations of any
securities exchange or association on which the Common Stock may be listed or
any other applicable law which decreases the Exercise Price, increases the
maximum term of Options, materially increases the benefits accruing to
Participants hereunder, materially increases the number of shares of Common
Stock that may be issued pursuant to this Plan (except as provided in Section
11) or materially modifies the requirements as to eligibility for participation
hereunderand (ii) no such amendment or discontinuance shall materially adversely
affect any Options previously granted without the consent of the Participant or
violate any contractual limitation on the Company. No Options may be granted
after termination or discontinuance of the Plan.
13. Effective Date. The Plan was adopted and authorized by the Board on
June 23, 1999, approved by the written consent of the Company's stockholders on
_____________, 1999 and shall be deemed to have become effective as of June 23,
1999 (the "Effective Date").
14. Relationship to Other Benefits.
(a) No payment under this Plan shall be taken into account in
determining any benefits under any pension, retirement, profit sharing, or group
insurance plan of the Company in which Non-Employee Directors are entitled to
participate.
(b) Neither the adoption of the Plan by the Board nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Company or the Board
to adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the Plan,
and such arrangements may be applicable either generally or only in specific
cases.
- 9-
<PAGE> 10
15. No Right to Re-election. Nothing in the Plan shall be deemed to
create any obligation on the part of the Board to nominate any Non-Employee
Director for re-election by the Company's stockholders, nor confer upon any
Non-Employee Director the right to remain a member of the Board for any period
of time, or at any particular rate of compensation.
16. Government and Other Regulations. This Plan, the granting and
exercise of any Options hereunder and the obligation of the Company to sell and
deliver Common Stock upon the exercise of Options shall be subject to all
applicable laws, rules and regulations, and to such approvals by any
governmental agencies as may be deemed necessary or appropriate by the
Committee, including, without limitation, the effectiveness of any registration
statement required under the Securities Act and the rules and regulations of any
securities exchange or association on which the Common Stock may be listed or
quoted. If Common Stock awarded hereunder may in certain circumstances be exempt
from registration under the Securities Act, the Company may restrict its
transfer in such manner as it deems advisable to ensure such exempt status. The
Plan is intended to comply with Rule 16b-3 of the Exchange Act and any provision
which is inconsistent with Rule 16b-3 shall be inoperative and shall not affect
the validity of the Plan. Should any provision of this Plan require modification
or be unnecessary to comply with the requirements of Section 16 or Rule 16b-3 of
the Exchange Act, the Board may waive such provision and/or amend this Plan to
add to or modify the provisions hereof accordingly.
17. Plan Expenses. The expenses of implementing and administering this
Plan shall be borne by the Company.
18. Governing Law. This Plan shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware and the
federal laws of the United States of America.
19. Severability. If any provision of this Plan is for any reason held
to be invalid or unenforceable, such invalidity or unenforceability will not
affect any other provision of this Plan, and this Plan will be construed as if
such invalid or unenforceable provision were omitted.
- 10-
<PAGE> 11
20. Titles and Headings. The titles and headings of the Sections in
this Plan are for convenience of reference only, and in the event of any
conflict, the text of this Plan, rather than such titles or headings, shall
control.
- 11-
<PAGE> 1
Exhibit 10.6
TAKES.COM, INC.
AMENDED AND RESTATED INDEPENDENT CONTRACTOR STOCK OPTION PLAN
Takes.com, Inc. (formerly known as "America's Home Page, Inc.") has
previously adopted the America's Home Page, Inc. Independent Contractor Stock
Option Plan (the "Prior Plan") which was approved by its Board of Directors on
May 13, 1999 and by its Stockholders on May 20, 1999.
The Company desires to amend and restate the Prior Plan to change the
name of the Prior Plan and to increase the number of shares of Common Stock (as
hereafter defined) reserved for grants of Options.
The Company hereby adopts this Takes.com, Inc. Amended and Restated
Independent Contractor Stock Option Plan.
1. Statement of Purpose. The purpose of the Takes.com, Inc. Amended and
Restated Independent Contractor Stock Option Plan (the "Plan") is to serve as a
performance incentive and to encourage the ownership of Takes.com, Inc. (the
"Company") common stock by consultants, service providers and other Independent
Contractors who perform services for the Company and its Affiliates to give such
Independent Contractors an incentive to provide quality service and thereby
increase the value number of the Company and its Affiliates and to promote the
identification of the interests of such Independent Contractors with those of
the stockholders of the Company.
2. Definitions. Capitalized terms used in the Plan not otherwise
defined herein shall have the following meanings (whether used in the singular
or plural):
(a) "AFFILIATE" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CAUSE" means (i) any act or omission which permits the Company
to terminate its relationship immediately with an Independent Contractor which
is the Participant or of which the Participant is an employee or has an
ownership interest; (ii) any act of gross negligence or willful misconduct on
the part of the Independent Contractor which is the Participant or any of the
employees or owners of the Independent Contractor which, in the opinion of the
Committee, has or may have an adverse affect on the Company's customer accounts
or the business of the Company or an Affiliate; or (iii) any failure to cure a
breach of the obligations of the Independent Contractor which is the Participant
or of which the Participant is an employee or has an ownership interest under
its Independent Contractor Agreement within
<PAGE> 2
ten (10) days after the Company or an Affiliate has given written notice of such
breach to the Independent Contractor.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
(e) "COMMON STOCK" means the shares of the Common Stock, $0.001 par
value, of the Company whether presently or hereafter issued, and any other stock
or security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of the Plan.
(f) "DIRECTOR" means a member of the Board.
(g) "DISINTERESTED PERSON" means a Director who meets the
requirements of Rule 16b-3(b)(3)(i) of the Exchange Act (and any successor
regulation thereto), as such rule is amended from time to time and as
interpreted by the SEC.
(h) "EFFECTIVE DATE" shall have the meaning set forth in Section 14.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
(k) "FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(1) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its closing price on the
last trading day prior to the date of determination as reported in
The Wall Street Journal;
(2) if such Common Stock is publicly traded but is not
quoted on a national securities exchange, the average of the closing
bid and asked prices on the last trading day prior to the date of
determination; or
(3) if none of the foregoing is applicable, by the
Committee in good faith.
(l) "INDEPENDENT CONTRACTOR" means a Person providing consulting,
advisory, or other services to the Company or any of its Affiliates pursuant to
an Independent Contractor Agreement either directly or as an employee of such
Person obligated to perform services to the Company or any of its Affiliates
under the Independent Contractor
- 2-
<PAGE> 3
Agreement, and which Person is not an employee or Director of the Company or any
of its Affiliates.
(m) "INDEPENDENT CONTRACTOR AGREEMENT" means a written agreement
between the Company or one or more of its Affiliates and a Person engaging such
Person to be an Independent Contractor.
(n) "NON-EMPLOYEE DIRECTOR PLAN" means the Takes.com, Inc. Amended
and Restated Stock Option Plan for Non-Employee Directors.
(o) "OPTION" means an award of an option to purchase shares of
Common Stock pursuant to Section 5 of the Plan.
(p) "PERMITTED TRANSFEREE" means the Participant's spouse, lineal
ancestors or lineal descendants or to trusts or family partnerships for the
benefit of the foregoing.
(q) "PERSON" means an individual, corporation, limited liability
company, partnership, joint venture, trust or other entity.
(r) "SEC" means the Securities and Exchange Commission.
(s) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(t) "STOCK OPTION AGREEMENT" means, with respect to Options granted
under the Plan, the signed written agreement between the Company and the
Participant setting forth the terms and conditions of the Options.
3. Administration.
(a) The Plan shall be administered by the Committee, whose
interpretation of the terms and provisions of the Plan shall be final and
conclusive. During all times that the Company is subject to Section 16 of the
Exchange Act, the Committee shall consist of not less than two (2) members of
the Board, each of whom is a Disinterested Person, to comply with the
requirements of Section 16(b) and Rule 16b-3 of the Exchange Act. Any member of
the Committee may resign upon notice to the Board and the Board will have the
authority to remove, replace or fill any vacancy of any member of the Committee
upon notice to the Committee and the affected member.
(b) A majority of the Committee (including those members of the
Committee participating via teleconference) will constitute a quorum at any
meeting thereof and the acts of a majority of the members present or acts
approved in writing by a majority of the entire Committee without a meeting will
be the acts of the Committee for purposes of this Plan. The Committee may
authorize any one or more of its members or an officer of the Company to execute
and deliver documents on behalf of the Committee and may appoint and compensate
agents, counsel, auditors or other specialists to aid it in the discharge of its
duties.
- 3-
<PAGE> 4
(c) Each action and determination made or taken pursuant to the Plan
by the Committee, including any interpretation or construction of the Plan,
shall be final and conclusive for all purposes and upon all persons.
(d) No member of the Committee shall be liable for any action or
determination made or taken by him or the Committee in good faith with respect
to the Plan. Each member of the Committee shall be fully justified in relying or
acting in good faith upon any report made by the independent public accountants
of the Company, and upon any other information furnished in connection with this
Plan. In no event shall any person who is or shall have been a member of the
Committee be liable for any determination made or other action taken or any
omission to act in reliance upon any such report or information, or for any
action taken, including the furnishing of information, or failure to act, if in
good faith. Each person who is or at any time serves as a member of the
Committee shall be indemnified and held harmless by the Company against and from
(i) any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim, action,
suit, or proceeding to which such person may be a party or in which such person
may be involved by reason of any action or failure to act under this Plan and
(ii) any and all amounts paid by such person in satisfaction of judgment in any
such action, suit, or proceeding relating to the Plan. Each person covered by
this indemnification shall give the Company an opportunity, at its own expense,
to handle and defend the same before such person undertakes to handle and defend
the same on such person's own behalf. The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification to which such
persons may be entitled under the certificate of incorporation or by-laws of the
Company, as a matter of law, or otherwise, or any power that the Company may
have to indemnify such person or hold such person harmless.
4. Eligibility. The Committee, in its sole discretion, shall identify
those Independent Contractors to whom Options may be granted under the Plan
(each such person is referred to herein as a "Participant"). Notwithstanding the
foregoing, no Options shall be granted under this Plan to those Independent
Contractors who are also eligible to participate in the Non-Employee Director
Plan.
5. Granting of Options.
(a) The Committee may, in its sole discretion, grant Options to
purchase shares of Common Stock under the terms and conditions set forth in this
Plan, subject to any contractual limitation on the Company. Upon each
determination by the Committee that Options should be granted to a Participant
under the Plan, such Participant shall execute a Stock Option Agreement in such
form as the Committee shall determine from time to time.
(b) Each Option shall entitle the holder thereof to purchase
specified number of shares of Common Stock as set forth in the Stock Option
Agreement executed by the Participant. The aggregate number of shares of Common
Stock which shall be available for such Options under this Plan shall be
400,000; provided, however, that such number of available shares and the number
of shares of Common Stock outstanding under the Plan shall be subject in all
cases to adjustment as provided in Sections 10 and 11 herein.
- 4-
<PAGE> 5
(c) In the event that Options expire or are terminated or canceled
while unexercised, the Common Stock attributable to such Options may be
allocated or subject to subsequent Options granted by the Committee (including a
grant in substitution for a canceled Option). Common Stock subject to Options
may also be made available from unissued or reacquired Common Stock.
(d) Options granted under the Plan are not intended to be treated as
incentive stock options as defined in Section 422 of the Code.
(e) Each Option granted hereunder shall be subject to any provision
necessary to ensure compliance with federal and state securities laws.
(f) A Participant shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares of Common Stock
attributable to such Option unless and until the Option is exercised pursuant to
the terms thereof, the Company shall have issued and delivered the shares to the
Participant, and the Participant's name shall have been entered as a stockholder
of record on the books of the Company. Thereafter, the Participant shall have
full voting, dividend, and other ownership rights with respect to such shares of
Common Stock.
6. Option Price. Subject to the provisions of Sections 10 and 11
hereof, the Options shall be granted at an Exercise Price equal to the Fair
Market Value of the Common Stock on the date the Option is granted or such other
amount as determined in the sole discretion of the Committee.
7. Duration of Options, Increments, and Extensions. Except as otherwise
provided herein, each Option shall be for a term of ten (10) years (the "Option
Period"). Each Option shall be vested or exercisable by the Participant as set
forth in the Stock Option Agreement governing the Option(s) granted hereunder.
Except as otherwise specified hereunder, the Committee may in its sole
discretion accelerate the time at which an Option granted hereunder may be
exercised. All or any part of the shares of Common Stock attributable to the
Option(s) to which the Participant's right to purchase has vested may be
purchased at the time of such vesting or at any time or times thereafter during
the Option Period except as otherwise specified in the Stock Option Agreement
governing such Option(s).
8. Exercise of Options.
(a) An Option may be exercised by giving written notice to the
Company, attention of the President/Chief Executive Officer, specifying the
number of shares of Common Stock attributable to the Option to be purchased,
accompanied by (i) the full purchase price for the shares of Common Stock to be
purchased and (ii) any other documents which the Committee, in its discretion
deems necessary to evidence the exercise, in whole or in part, of the Options.
(b) The method or methods of payment of the Exercise Price of an
Option and any amounts required by Section 8(g) hereof may consist of:
- 5-
<PAGE> 6
(i) cash;
(ii) a check;
(iii) a promissory note in a form specified by the
Committee and payable to the Company;
(iv) whole shares of Common Stock already owned by the
Participant exercising the Option;
(v) the withholding of shares of Common Stock issuable
upon the Participant's exercise of the Option (subject to the
restrictions as set forth in Section 8(g) hereof); or
(vi) by any combination of the foregoing.
(c) Unless otherwise provided in the Participant's Stock Option
Agreement, on receipt of written notice of exercise, the Committee may elect to
cash out all or part of the portion of any Option to be exercised by paying the
Participant an amount in cash equal to the excess of the Fair Market Value of
the Common Stock that is subject to the Option over the Option Price times the
number of shares of Common Stock subject to the Option on the effective date of
such cash out.
(d) At the time a Participant exercises an Option, the Committee
may, if it shall determine it necessary or desirable in order to comply with any
applicable laws or regulations relating to the sale of securities, require the
Participant (or his or her heirs, legatees, or legal representative, as the case
may be) as a condition upon the exercise thereof, to deliver to the Company a
written representation of present intention to purchase the shares of Common
Stock subject to the Option for investment only and not with any present
intention to resell the same and that the Participant will dispose of such
shares only in compliance with such laws and regulations relating to the sale of
securities.
(e) An appropriate legend may be placed upon each certificate, if
any, evidencing the shares of Common Stock delivered to the Participant upon
exercise of part or all of an Option stating that the registration of the shares
of Common Stock may be necessary to offer, sell or transfer such shares in order
to comply with any applicable laws or regulations relating to the sale of
securities.
(f) The Participant (or his or her heirs, legatees, or legal
representative, as the case may be) shall agree to comply with the provisions of
the Stock Option Agreement.
(g) At the time of the exercise of any Option, the Committee may
require, as a condition of the exercise of such Option, the Participant (or his
or her heirs, legatees, or legal representative, as the case may be) to pay the
Company an amount equal to the amount of tax the Company may be required to
withhold to obtain a deduction for federal income tax purposes as a
- 6-
<PAGE> 7
result of the exercise of such Option. A Participant (or his or her heirs,
legatees, or legal representative, as the case may be) may elect in lieu of
paying cash to direct the Company to withhold shares of Common Stock with a fair
market value equal to the amount necessary to satisfy the required tax
withholding and the Committee shall determine the timing and other terms and
conditions in which the use of Common Stock to satisfy required tax withholding
may take place.
(h) Any fractional shares of Common Stock attributable to the
exercise of Options shall be eliminated at the time of payment or payout by
rounding down for fractions of less than one half (1/2) and rounding up for
fractions of equal to or more than one half (1/2). No cash settlements shall be
made with respect to fractional shares eliminated by rounding.
9. Transferability of Options. No Option granted under the Plan shall
be assignable or transferable by the Participant to whom it is granted, either
voluntarily or by operation of law, except (i) by will or the laws of descent
and distribution, (ii) pursuant to a qualified domestic relations order as
defined by (a) the Code or (b) Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder or (iii) during the
lifetime of the Participant, to a Permitted Transferee. During the lifetime of
the Participant, Options shall be exercisable only by the Participant or a
Permitted Transferee (or in the event of incapacity of the Participant, by the
person or persons properly appointed to act on behalf of the Participant).
Following a transfer of an Option to a Permitted Transferee, any such Option
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to the transfer. Notwithstanding the foregoing, the events
contained in Section 9 hereof shall continue to be applied with respect to the
original Participant and transferred Options shall expire on or after the date
the original Independent Contractor which is the Participant or of which the
Participant is an employee or has an ownership interest ceases to be engaged as
an Independent Contractor on behalf of the Company or its Affiliates as provided
in Subsections 9(a)-(b).
10. Modification/Substitution of Options. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted.
11. Adjustment to Common Stock Attributable to Options.
(a) In the event that outstanding shares of Common Stock as a whole
are increased, decreased, changed into, or exchanged for a different number or
kind of shares or securities of the Company, whether through merger,
consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure, or any recapitalization or reclassification of the Company
with any other corporation, limited liability company or partnership, an
appropriate and proportionate adjustment shall be made, on an equitable basis as
determined by the Committee in the number and kinds of securities subject to the
Plan, whether or not at the time attributable to outstanding Options, to which
the holders of outstanding shares of Common Stock will be
- 7-
<PAGE> 8
entitled pursuant to the transaction and the Exercise Price of the Options shall
be appropriately adjusted.
(b) Upon dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation in which the Company is not the
surviving corporation, or upon the sale of substantially all of the assets of
the Company to another corporation, the Plan and the Options issued thereunder
shall terminate (the "Plan Termination Date"), unless provision is made in
connection with such transaction for the assumption of Options theretofore
granted or the substitution for such Options of new options of the successor
corporation or a parent or subsidiary thereof, with appropriate adjustment as to
the number and kinds of shares attributable to such Options and the exercise
price of such Options. In the event of such termination, all outstanding Options
shall be exercisable in full for at least thirty (30) days prior to the Plan
Termination Date.
(c) In the event of a change in the Common Stock which is limited to
a change in the designation thereof to "capital stock" or other similar
designation, or a change in par value, without increase or decrease in the
number of issued shares, the shares resulting from any such change shall be
deemed to be Common Stock within the meaning of this Plan.
(d) Unless otherwise specifically provided in a Stock Option
Agreement granting Options pursuant to this Plan, the following events shall not
be deemed a dilutive event requiring an adjustment under Section 11 herein: (i)
the issuance by the Company of Common Stock or another class of Company stock
upon a sale for fair value to an investor in the Company; (ii) the issuance of
any Options under this Plan or another plan sponsored by the Company to purchase
Common Stock; (iii) the issuance of options to purchase another class of the
Company's stock under any other plan sponsored by the Company; (iv) the issuance
of Common Stock upon the exercise of Options under the Plan or another plan
sponsored by the Company; (v) the issuance of another class of the Company's
stock upon the exercise of options under another plan sponsored by the Company;
(vi) the granting of restricted Common Stock to employees, officers, Directors
or other Independent Contractors; or (vii) the granting of any other
equity-based compensation to an employee, Director or another Independent
Contractor.
(e) Notwithstanding the foregoing, the existence of this Plan shall
not affect in any way the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations, reorganizations, or
other changes in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of bonds, debentures, preferred or other
stocks with preference ahead of or convertible into, or otherwise affecting the
Common Stock or the rights thereof, the dissolution or liquidation of the
Company, any sale or transfer of all or any part of the Company's assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
12. Amendment and Termination of Plan. The Company may amend or
discontinue the Plan at any time; provided, however, that (i) no such action may
be taken without such stockholder approval as may be required by the Company's
by-laws or certificate of incorporation, the rules and regulations of any
securities exchange or association on which the
- 8-
<PAGE> 9
Common Stock may be listed or any other applicable law which decreases the
Exercise Price, increases the maximum term of Options, materially increases the
benefits accruing to Participants hereunder, materially increases the number of
shares of Common Stock that may be issued pursuant to this Plan (except as
provided in Section 11) or materially modifies the requirements as to
eligibility for participation hereunder and (ii) no such amendment or
discontinuance shall materially adversely affect any Options previously granted
without the consent of the Participant or violate any contractual limitation on
the Company. No Options may be granted after termination or discontinuance of
the Plan.
13. Effective Date. The Plan was adopted and authorized by the Board on
June 23, 1999, approved by the written consent of the Company's stockholders on
_____________, 1999 and shall be deemed to have become effective as of June 23,
1999.
14. Relationship to Other Benefits.
(a) No payment under this Plan shall be taken into account in
determining any benefits under any pension, retirement, profit sharing, or group
insurance plan of the Company.
(b) Neither the adoption of the Plan by the Board nor the submission
of the Plan to the stockholders of the Company for approval shall be construed
as creating any limitations on the power of the Company or the Board to adopt
such other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be applicable either generally or only in specific cases.
15. No Right to Continuance of Independent Contractor Agreement.
Nothing in this Plan will be deemed to alter the relationship between the
Company or an Affiliate and an Independent Contractor which is the Participant
or of which the Participant is an employee or has an ownership interest, or the
contractual relationship between a Participant and the Company or an Affiliate
if there is a Independent Contractor Agreement governing such relationship.
Nothing in this Plan will be construed to constitute a contract to appoint or
continue to maintain a Participant as an Independent Contractor of the Company
or an Affiliate. The Company or an Affiliate and each of the Participants
continue to have the right to terminate an Independent Contractor which is the
Participant or of which the Participant is an employee or has an ownership
interest at any time for any reason, except as provided in a Independent
Contractor Agreement.
16. Government and Other Regulations. This Plan, the granting and
exercise of any Options hereunder and the obligation of the Company to sell and
deliver Common Stock upon the exercise of Options shall be subject to all
applicable laws, rules and regulations, and to such approvals by any
governmental agencies as may be deemed necessary or appropriate by the
Committee, including, without limitation, the effectiveness of any registration
statement required under the Securities Act and the rules and regulations of any
securities exchange or association on which the Common Stock may be listed or
quoted. If Common Stock awarded hereunder
- 9-
<PAGE> 10
may in certain circumstances be exempt from registration under the Securities
Act, the Company may restrict its transfer in such manner as it deems advisable
to ensure such exempt status.
17. Plan Expenses. The expenses of implementing and administering this
Plan shall be borne by the Company.
18. Governing Law. This Plan shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware and the
federal laws of the United States of America.
19. Severability. If any provision of this Plan is for any reason held
to be invalid or unenforceable, such invalidity or unenforceability will not
affect any other provision of this Plan, and this Plan will be construed as if
such invalid or unenforceable provision were omitted.
20. Titles and Headings. The titles and headings of the Sections in
this Plan are for convenience of reference only, and in the event of any
conflict, the text of this Plan, rather than such titles or headings, shall
control.
- 10-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF PEDERSEN & HOUPT, P.C.
Pedersen & Houpt, P.C. hereby consents to all references made to it in
Amendment No. 2 to the Registration Statement on Form S-1 of America's Home
Page, Inc., as filed with the Securities and Exchange Commission on July 8,
1999.
/s/ Pedersen & Houpt, P.C.
Pedersen & Houpt, P.C.
Chicago, Illinois
July 8, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated May 5, 1999, except for Note 6,
as to which the date is July 7, 1999, in Amendment No. 2 to the Registration
Statement (Form S-1) and related Prospectus of Takes.com,Inc. for the
registration of 3,248,750 shares of its common stock and 300,000,000 warrants
to purchase 10,000,000 additional shares of its common stock.
/s/ Ernst & Young LLP
Phoenix, Arizona
July 7, 1999
